Future Millionaire – Future Millionaire's Blog

June 3, 2020June 3, 2020

Future Millionaire Progress Report #1 – May 2020

I am starting my own little series of net worth reports all the way to seven digits. I hope to start being more active on the site again not just to hold myself accountable, but to help you obtain the knowledge necessary to take action. Going forward, I do have a list of ideas for posts and other series I’ll start.

I don’t have some insanely high salary by any means, so hopefully you don’t think that is what it takes to reach the millionaire milestone. It sure helps to have one, but I’ve heard of people who’ve reached it and have never made more than $50,000 annually in their life. While you don’t need to have a high annual income, that doesn’t mean you should settle for the lowest amount necessary to get there. Take a time like now during this crisis to learn a new skill.

This is my first progress report, so there’s not a prior report to compare. Looking back at my Personal Capital account, which is a great site for consolidating all your accounts in one place, my net worth at the end of April was approximately $54,000. This represents about a $7,000 increase, which mainly came from price appreciation of my stock portfolio.

May 2020 Activity

I get paid biweekly and May was one of two months of the year where I get paid three times. There really wasn’t a whole lot of activity in May for obvious reasons. It’s been that way for a couple months. While being stuck at home, there’s not really a whole lot of places to spend money. All my purchases were made on my credit card, which were largely made up of food and gas. The rest was just fun money. Only other expenses for the month was rent and my car payment, which combine for about $900.

Looking ahead

For the next few months, I plan on taking a break from stocks (unless I see an insanely attractive price) and building up some cash. Part of the reason is that I don’t really see any attractive prices in the stock market at the moment. We’re at historic unemployment numbers and yet the market has continued to rise. The other reason is that I have some big expenses coming up for the next few months. One of them is replacing all my tires, which is one of those hidden expenses that you always need to consider when thinking about your true monthly payment for the car. So that’ll put a decent dent in my wallet.

Another upcoming expense is a CPA exam review package. I’ve recently passed 150 credit hours, which I believe is the last thing I need to be eligible to take the exams. This review package will help me prepare for all four exams I’ll need to pass to obtain my CPA license. This can be in the range of 2,000-$3,500. This might seem like a lot, but CPAs can make between 10-15% more than non-CPAs. If you ask me, that’s a good bang for your buck.

Finally, I’m going to pay off a decent size chunk of my student loans. As mentioned, there’s not really any stocks I’m interested in at the current price levels, so I’m going to pay off the loans that are accruing interest. You could look at this as a guaranteed return since I won’t have to pay interest that I would have otherwise had to pay. Plus, decreasing student loans from five digits to four digits is going to help anyone sleep better at night.

Stock Portfolio

Since the huge dip in late March, my portfolio has been red hot. I’ve been pretty aggressive during that time span, and it’s about time I take a little break and worry about some upcoming expenses. This doesn’t mean I won’t be paying any attention to it. Even at work, I have my portfolio spreadsheet open at all times (yeah, I’m a little obsessed). However, individual stocks make up about 75% of my portfolio, so I need to keep up with what’s happening. Like I mentioned in my previous post, it’s basically a second job.

I plan on going into more detail of my portfolio in another post in the not-so-distant future. I’ll go over what I’ve been buying and selling lately and what I have on my watchlist. I have Excel spreadsheets for my portfolio and net worth, so I’ll share a template for you in the future that you can have for personal use. I might start a “Stock of the Month” series where I’ll choose a stock and analyze the financials (I’ll try not to bore you too much) and go over what I like and don’t like about the company overall. I got some other ideas in the works, so stay tuned for those.

May 26, 2020

The COVID-19 Crisis is the Ideal Time to Begin Your Investing Career

It might seem counterintuitive to think that a time of panic presents the best opportunity to begin investing. I’m sure you’ve heard the famous Warren Buffett quote “be fearful when others are greedy and greedy when others are fearful.” Sure, it may be cliché, but it’s because there’s some truth to it. When people are fearful, they sell everything. Even companies whose negligible exposure to the cause of fear are not immune to market selloffs. When there’s an irrational selloff of companies, you have the opportunity to buy high quality stocks at discounts. I am NOT saying that this selloff was irrational. If anything, I think the little rally is irrational. The stock market has been up even on days with record-breaking unemployment numbers. I’m not encouraging you to go all-in. You don’t know when the market is going to bottom, so stay patient and invest periodically. Always have some cash on hand so you can pounce on dips. Dips can be rational or irrational, but you don’t know if the price will ever be at this price again any time soon. If you’re still decades away from retirement, you need to block out all that short-term noise. What’s the world going to look like 10 years from now? 20 years? 30? These are the questions to ask yourself when deciding which companies to invest in.

In the coming months or even years, there is definitely a lot of uncertainty about our return to normalcy. But what will normalcy look like? The world is always evolving, but not in a way that is discernible to us on a day-to-day basis. However, this crisis will bring on accelerated adoption of certain daily activities that we all knew was already inevitable. In fact, some of these permanent changes are already being implemented in our society. Working from home was already trending upward, but now, we are seeing increased adoption. Facebook will allow employees to work from home for the rest of the year. Twitter will allow employees to work from home forever.

We cannot just wait for the dust to settle. The stock market is always forward-looking and by the time we return to normal, whatever that may look like, the lion’s share of the gains will be gone. Invest in what you think the future will look like. You think the telehealth market has a lot of room for growth? Give Teladoc (NYSE: TDOC) a look. You think working remotely will eventually become widely accepted by most employers? Consider Zoom (NASDAQ: ZM). Mind you, this strategy is not without major risk. You’ll find that many growth companies are not yet profitable because they’re allocating so much capital, a fancy word for money, towards investment projects and research and development to ultimately create a unique product or service. Then the company will want to market it, which will require a lot of capital for a product or service that is still in its growth phase. Sure, you might choose a huge market with a lot of room for growth, but choosing which companies will require a lot more time and research. There is no guarantee that any given company is going to be able to become profitable and then sustain growth and innovation to remain competitive.

Companies that are unprofitable are significantly riskier, so you want to balance it with profitable companies who are not in any danger of becoming insolvent. Liquidity issues have only exacerbated for companies who were already in financial trouble. With that being said, I believe there will be market consolidation in some industries. The companies with healthiest balance sheets will be the ones who will be able to take advantage of this, with the others left in survival mode. They will have the capital to acquire distressed companies at a good price and to hopefully synergize their operations for an enhanced pipeline of their product and service offering.

Simply choosing a few stocks that you found when you googled “growth stocks 2020” or “companies with good balance sheets” isn’t going to cut it either. That’s not research. When it comes to individual stock picking, you need to keep tabs on your companies on a regular basis. You need to closely follow how the industry is evolving and what its competitors are up to. You have to stay knowledgeable in companies and the stock market as a whole as long as you’re invested in them. Managing your own individual stock portfolio is basically a second job. As a financial reporting accountant, and eventually a CPA, I personally enjoy keeping up with the stock market.

My dog, Sparky

Maybe you don’t want to have to stay perpetually informed on a bunch of companies. Perhaps you think doing this type of research is boring (like my dog, Sparky), which is completely understandable. You should decide on investing in a company based on their financial strength, their history of improving sales and earnings, and whether they can keep it up for the foreseeable future. The boredom may derive from the computations of a company’s periodic performance and financial ratios. In other words: a lot of numbers. If it’s not really your cup of tea, I’d avoid picking individual stocks.

Exchange-Traded Funds (ETFs) are a great way to diversify since they can hold hundreds of stocks. A simple ETF that can provide decent returns is the SPDR S&P 500 ETF (SPY). This is basically identical to investing in the S&P 500 index, which includes 500 of the largest corporations in the United States, which is commonly considered to be representative of the U.S. stock market. An investing strategy like this requires minimal research. However, your return will be limited to however the market performs. Additionally, not all 500 of those companies will be performing very well. Since they are 500 of the biggest U.S. companies though, the underperformers will be offset by the outperformers and then some. You can also choose to invest in ETFs that follow companies in certain industries instead. Choosing outperforming industries is a lot easier than choosing outperforming companies.

Hopefully I’ve given you reason to at least dip your toes in the stock market. Which companies will stand to benefit from the permanent, societal changes? Obviously, I don’t want that to come off as insensitive. It’s awful that has happened at all and no one enjoys benefitting from a global pandemic. The reality is that this crisis will bring on change, and it’s a great time for young investors to invest in what is believed to be the new normal.

Disclosure: I own shares of Teladoc

June 8, 2019May 26, 2020

My Impulsive Car Purchase

No, I did not actually buy a Porsche 918 Spyder (I wish) in the image above.

I would consider myself a relatively frugal spender. I mean, I still eat out with coworkers once a week. I make monthly car payments that I will admit, I sometimes have regrets about. I live with my parents, but I still pay rent. Add up all my expenses and it’s about 32% of my take home pay. Being 22, recently graduating, and still living with my parents, I still don’t have huge expenses. I don’t have to worry about caring for a child. I don’t have a monthly mortgage payment or any expenses related to maintaining a house. When I bought my car, it was kind of an impulsive decision because I’ve always had an interest in cars and I always dreamed about what car I would buy as soon as I got a job.

I seriously considered selling it and buying a much cheaper option, but ended up keeping it because I do like my car and enjoy driving it. However, I still don’t like paying so much monthly for it, so I decided to get creative and find other ways to reduce my expenses. I live about 30 miles from my work and factor in rush hour traffic to Downtown Houston and that’s a hefty gas bill. Therefore, I’ve just recently started taking the bus to work and the employer pays for it.

Not only do I pay a lot less for gas, but my car is not depreciating as quickly and I will not have to take it for repairs as often. Now, I estimate that my expenses will be about 29%. If you think it sounds like a tiny difference, read my article about compound interest to see how profound of a difference a few dollars a month can make. Put that extra money in investments and it’ll build up.

If I ended up selling my car and buying one half the price of my current, I could reduce my expenses to as low as 24% of my take home pay. With my current finances, I don’t think that’s completely necessary. However, if you’re in a sticky financial situation, I’d recommend going as cheap as you possibly can on a car.

I’m not even done mentioning all the added benefits of this little decision to simply start taking the bus. During my first week taking the bus, I found myself either wasting time on my phone or just looking out the window. This is what ultimately led me to the idea of starting the Future Millionaire’s Blog as a side hustle to help others with their personal finance. I spend at least two hours on the bus a day, and I figured that I should be doing something of value.

I really want to emphasize that everyone’s financial situation is different. I’m assuming most of you are also on the same journey as me, so I would highly recommend not splurging too much on a brand new car. For most Americans, car purchases are a very serious deterrent to building wealth. The average new car purchase is over $36,000! I can’t give you advice as to what car you should buy, but it is essential that you do not live beyond your means.

How do I know what is beyond my means? My personal rule of thumb is that my car payment should not be more than 10% of my take home pay. You need to be aware of what your financial situation is. Know where your money is going. If you don’t, then make an excel worksheet or find a free budget app to track your expenses. Then plan your car purchase accordingly. For those of you who only see a car as getting you from Point A to Point B, you could get easily find a cheap, used vehicle under $10k that can still be very durable.

You don’t have to be like everyone else. While everyone else is buying brand new, forty-thousand dollar cars, you could be putting that money into something that will actually appreciate in value over the long run. Would you rather appear rich to your friends, or actually BE rich? Again, I think my car purchase was rather impulsive, but it wasn’t brand new and it certainly wasn’t over thirty grand.

How much car you can afford is personal to you. That’s why it’s called “personal” finance. You need to be aware of what YOU can afford. Like I mentioned before, I personally do not want my monthly car payment making up more than 10% of my take home pay. If I really wanted to, I could’ve just gotten a crappy car paid in cash and it’ll still get me from point A to point B. I just don’t feel like that was necessary given my financial situation. I mean, if you’re one of those FIRE (Financial Independence, Retire Early) fanatics, then you’re looking for cars as inexpensive as possible. But that’s a whole ‘nother level of extreme frugality that I’ll talk about later. For now, just assess your financial situation and plan your car purchase accordingly.

May 18, 2019June 24, 2019

Stop Trying to Get Rich Quick

“Easiest way to get rich quick.”

“How to be a millionaire before 30.”

“Most realistic way to get rich quickly.”

“Effortless ways to get rich”

These were probably among my top searches during my college days. Or something along those lines. By wording this idea differently, I was under this delusion that if I looked hard enough, I would find a way where this wishful thinking could feasibly become a reality.

Continue reading “Stop Trying to Get Rich Quick”