When aiming to accumulate and conserve wealth, be ready to tackle some tough choices and trade-offs. Your planning should start as early as possible so that you have a reasonable early start on your roadmap to accumulate wealth, have financial flexibility, and retire comfortably. It’s challenging to build wealth if you carry a lot of debt.
You need to pay off your debt wisely to strengthen your financial health. You will likely accumulate debt in your life, but you need a plan to pay it off so you aren’t carrying a burden you can’t handle. Review your credit report and score ahead of borrowing for a college education, furthering your career, or buying your home for the best interest rates.
Pay Down Your Debt On Time
Jumpstart your children’s college education by investing in 529 savings plans for your child’s education as early as possible. This will lessen your future debt burdens while lessening theirs.
Plan to get federal loans before seeking private loans. Apply for scholarships, grants, and work-study programs. Most importantly, make sure you and your children understand how to repay your obligations on time.
Buying A Home
Before actively looking to buy a home, make sure to check your credit reports first to see what kind of financial shape you are in. Make sure it becomes a regular part of your life to habitually check your credit reports and score. You may be able to raise your credit score and obtain a lower interest rate. Also, it is not uncommon to find errors or issues which can be corrected but it takes time. You should deal with it quickly.
A Shorter Mortgage May Be Beneficial
When buying a home, consider opting for a shorter-term mortgage as your total cost will be lower and ends sooner.
Let’s use an example to illustrate what your mortgage costs will be:
Assume you found an $800,000 single-family home, putting a 20% down payment, or $160,000. In both mortgages, you are borrowing $640,000, the principal amount you will owe. At a recent rate of 6.918%, your monthly payments will be quite different for a 15 year fixed mortgage than a 30 year fixed mortgage.
For example, assuming a 15-year fixed mortgage rate you’ll be making monthly payments (excluding taxes and fees) of $4,222,75 compared to $5,723.20 payments for the 30-year fixed rate.
The total interest cost for your home is even more pronounced on the shorter mortgage, totaling $390,176.11, and including the principal amount of $640,000, your home amounts to $1,030,1756.11. On a 30 year fixed mortgage, your interest costs will be significantly higher at $880,189.67, and adding the $640,000 principal, your home costs are at $1,520,187,67.
While it would be nice to get a price pop on your home, remember you are living in it and hopefully enjoying the house. If you are fortunate to get a low mortgage rate for a shorter timeframe, this will be a good way to pay off debt.
Good Debt versus Bad Debt
While using debt for student loans and mortgages can be painful to bear, they are helpful for building your future, and often considered good debt.
On the other hand, paying off only the minimum amount of your credit card bills causes your balance to expand significantly with high interest payments (at high teens or more) . Don’t overleverage yourself with credit card debt. Make rules you can keep. Pay off your credit card balances in full every month so you won’t have any interest charges at all. Paying the roughly 2.5% required minimum on a $3,000 balance can take over 20 years to pay it off.
APR vs APY
A credit card’s interest rate or the annual percentage rate (APR) is the price you pay for borrowing money, and it is usually the highest rate (high teens percentages unless you have great credit) you will pay. Far higher than for mortgages or for student loans. The APR doesn’t include the compound interest rate.
On the other hand, the effective annual rate on the annual percentage yield (APY) does include how often interest is applied to your balance (eg. daily, monthly quarterly, or yearly). This means that when you don’t pay your card’s monthly balance in full, you are paying interest on interest. Here, compound interest is working against you, building up your debt amounts.
Remember these credit cards interest rates are higher than mortgage rates. Depending on your credit score, and whether you are an existing cardholder or a new cardholder your APR could range from 15%- 25+%. If you miss the monthly minimum, you will pay dearly after 30 days of nonpayment. You will incur a penalty rate upwards of 29.99% monthly until you make six consecutive payments on time. You will also pay flat fees, and your credit score will be impacted negatively.
Ouch!
If you can’t pay your monthly card bill in full each month, cut your spending. When you pay only the minimum balance on your cards, you will be wearing a financial noose around your neck for longer than you want.
Two methods to reduce debt: the Avalanche Method and the Snowball Method
Assuming you have the following debt balances:
- Credit card debt of $3,500 @ 15%
- Student federal loan#1, of $5,000 @ 4.5%
- Student private loan#2, of $7,000 @ 7.5%
- Car loan of $13,000 @ 5%
- Miscellaneous debts of $1,500 @ 4% average rate
Using the avalanche method, your priority would be to pay down your debt that is most costly first. That will likely be your credit card balance by targeting the credit card debt at the higher 15% rate.
If you are only able to pay $1,000 per month, it would take you 3.5 months to bring down your balance to zero.
Mathematically, the avalanche way makes sense to rid yourself of high-cost debt. That debt grows faster and your total interest costs will likely be lower using the avalanche method.
The snowball method is gentler. Here, you begin to pay down your debt, looking for the smallest amounts first, and tackling larger amounts afterward. This should motivate you to get into the habit of paying down debt and feeling accomplishments sooner. Here, you would pay the smaller amounts in the miscellaneous total before challenging yourself with the bigger amounts at higher rates. You will likely be paying more in total borrowing costs.
Which method to use?
Guru Dave Ramsey has been a proponent of the snowball method. Academic studies back this method. The anxiety of having a lot of bills can paralyze debtors from doing anything at all. Tackling bills one at a time can be an accomplishment and is motivating.
One of the most recent studies out of the National University of Singapore by Dr. Ong Oryan suggested that “getting rid of debt clears up cognitive functions, lessens anxiety, and improves impulse control.” The study pointed out that debt impairs psychological functioning and decision-making.
One way to look at debt reduction is to look at it as a trade-off in investments. When you pay off debt with higher interest rates of over 15%, it is like making a 15% return! That already feels like an easy choice.
For those who are highly motivated, analytical, and ready to take on the task to lower their borrowing costs, the avalanche method is better.
It is truly a personal choice. The best choice is to get started on addressing your debt so you can move on to better financial health.
Ways to find the cash to pay down your debt:
- Annual tax refunds
- Sale of an investment earning lower returns than what you are paying
- Your annual bonus
- Spending below your earnings and resultant savings can help
Managing your money requires financial discipline. High debt levels disrupt our plans for wealth accumulation and need to be dealt with firmly.
This is what dividend investing is all about! Investing in dividend stocks allows YOU to earn dividend income, the best passive income stream! Bias, you better believe it.
Time to dive into Lanny’s October 2024 dividend income results! Were records set? Almost to financial freedom? One day and one month at a time!
Dividend Income
Dividend Income is the fruit from the labor of investing your money in the stock market. Further, Dividend Income is my primary vehicle on the road to Financial Freedom, which you can see through my Dividend Portfolio.
How do I research & screen for dividend stocks prior to making a purchase? I use our Dividend Diplomat Stock Screener and trade on Ally’s investment platform (one of our Financial Freedom Products) and on SoFi.
Related: Dividend Diplomat Stock Screener
Related: Financial Freedom Products
Related: 3 Financial Freedom Products
I also automatically invest and max out, pre-tax, my 401k through work and my Health Savings Account. This allows me to save a TON of money on taxes (aka thousands), which allows me to invest even more. In addition, all dividends I receive are automatically being reinvested back into the company that paid the dividend, aka Dividend Reinvestment Plan or DRIP for short. This takes the emotion out of timing the market and BUILDS onto my passive income stream!
Related: Tax Strategy – Part 3 to Reduce Taxes & Increase Investment.
Related: The Power of Dividend Reinvesting
Related: Why I Don’t Time or Predict The Market
Growing your dividend income takes time and consistency. Investing as often, and early, as you can allows compound interest (aka dividends) to work it’s magic. I have gone from making $2.70 in a single month in dividend income to well over … $10,000+ in a single month. My dividend income record was set in December of 2021. Was it broken this month?! The power of compounding and dividend reinvestment is a wonderful component to the portfolio. Each and every month, whether big or small, I continue to report the passive income that dividend investing provides me. Why?
*Not pictured is my wife’s dividend income above*
I want to show YOU that dividend investing makes it possible to achieve financial freedom and/or financial independence. We all start somewhere, but consistently investing, compounding (reinvesting) dividends and keeping it simple, allows you to be in a significantly better position than most. Further, if I can grow this portfolio and income stream, YOU can too.
dividend income – October 2024
Now, on to the numbers… In October, we (my wife and I) received a dividend income total of $2,327.07. Wahoo! We crossed the $2,000 mark for another off-month this year. We’ll take it!
The amount and number of stocks listed below show you what it means to buy and hold for the long term. Most of the positions I have owned for YEARS, letting dividend growth and reinvestment do it’s thing. This is what dividend investing for financial freedom is all about. The passive income stream is growing at a RAPID pace.
2023 was up 24%. 10+ months down in 2024 and the S&P 500 is still up 26%, and we aren’t slowing down it seems. Unemployment has actually come down recently, after slowly coming back up. Fed cut rates again, Bitcoin is on a tear to $100,000. Donald Trump will be serving another term. Wild last few weeks!
Here is the breakdown of dividend income for the month, between taxable and retirement (far right column, under “Retirement”) accounts. In addition, “W” means my wife’s account:
Big Oil with BHP Billiton (BHP) came big with a massive dividend. Then, you know Philip Morris (PM) is crushing it, almost $200!
Next, Canadian Imperial (CM), one of the big 6 Canadian banks, sent a massive $210 dividend my way.
My wife’s account is really taking full steam ahead, with $65 from Eastman (EMN) and almost $45 from Medtronic (MDT).
I also split out my retirement accounts in the far right column and the taxable account dividends are in the left two columns. The retirement accounts are composed of H.S.A. investments, ROTH and Traditional IRAs, as well as our work 401(k) accounts. In total, the retirement accounts brought in a total dividend income amount of $1,044.80 or 44.89% of the dividend income total. Therefore, the majority of the dividend income came from my taxable account. LET’S GO!!
Related: Maximizing your Roth for 10 Years… Then Set It & Forget It!
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Dividend Income Year over Year Comparison
2023: 2024:
Our dividend income is UP $317 from prior year! That’s a nice 15.73% increase, bang! I needed that, especially after I’ve had a few quiet months of dividend income growth it feels like.
It’s obvious my 401k mutual fund with fidelity – FXAIX – had a massive dividend this year vs. last year, due to new investments into my 401k and dividend growht, that truly carried the torch.
There are a few less names now in 2024, than 2023, such as MDU Resources (MDU) and Haleon (HLN). This has been the cleanup year for me, love to see that actually.
Time to crack $2,500 next year, let’s go!
Dividend Increases
I received 5 dividend increases this month, and 2 of the my wife and I both got to experience. Which dividend increase is the best?
The best dividend increase was Visa (V) of course. Another double digit dividend increase was expected and we received it. Thank you Visa!
I also want to mention Starbucks (SBUX) came in with a surprisingly high dividend increase, at 7%. Despite the struggle this year, NEW CEO (aka the Chipotle CEO) and the change they are making, a 7% increase was awesome to receive.
Related: The Impact of The Dividend Growth Rate!
In total, dividend increases created $102.57 in additional passive dividend income. I would need to invest $2,931 at a 3.50% dividend yield in order to add that income. Thank you for the increases, as I didn’t have to come up with the capital to create that form of income!
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Dividend Income Conclusion & Summary
The name of the game is to apply what you learn through financial education. The next steps are to maximize every dollar for investment opportunities and live life on your own terms. Therefore, my plan is to demonstrate that dividend income can be a revenue engine. A revenue engine that allows you to take back control of your life. A revenue engine to help you reach financial freedom. Dividend investing, once you learn the right way, becomes easier and starts to immensely make sense!
Excited for the future, no doubt. Furthermore, all of the investing from last year and moves this year, shows that my aim to save 60% of my income, and making every dollar count, has provided the dividend growth.
If you are just starting out on your investment journey and you aren’t sure to start – please see the articles mentioned throughout this post. We are trying to bring you financial education and help you reach your financial goals.
Further, if you are interested in our dividend stocks to buy, dividend news, stock purchases, etc., please see our YouTube video (below), subscribe to our channel and check us out! Accordingly, we’ll help break down further investing topics not only on this blog, but by showing you through video!
As always, thank you for stopping by, leave your comments and questions below. Good luck and happy investing everyone!
The post Dividend Income Summary: Lanny’s October 2024 Summary appeared first on Dividend Diplomats.
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After the previous post of “how to organize a FIRE meetup“, and after the previous FIRE meetup in October in Leiderdorp, I have now teamed up with Ms. Hoefnix. And we have news for you! We have now planned FIRE meetup February 2025. See below for the details!
Update 17-11-2024 – 21:30: We sold out Saturday in less than 4 hours, so we added a Sunday meetup too. Which we also sold out in a few hours. What the actual F… I’m so sorry for all those that were interested, but didn’t register yet. You can still find a place on the waiting list for both days, but they are growing rapidly. Think we need to look for a bigger venue next time…
What?
The program for the day is as follows:
12:30 – 13:00: Doors open
13:00 – 13:45: FIRE for beginners (by me!)
14:15 – 15:00: The Boring Middle, what to do with it? (by Mevrouw Hoefnix)
15:30 – 16:30: Discussion panel with 2 or 3 FIRE peeps (to be confirmed) with the cheerful topic ‘how to FIRE when the world is dire’
16:30 – 18:00: Drinks!
18:00 – 19:00: Final drinks and cleanup (we have to be out by 19:00)
19:00 – ???: Dinner. If you are hungry from all that money talk, we can check the options depending on the number of people interested to join. Dinner costs are not included in the entrance fee and participation is obviously voluntary.
Where?
We found a venue in the city center of the lovely town of Culemborg. Which is accessible via public transport, but also allows for free parking close to the venue. In short, no reason not to join.
When?
February 1st and 2nd, 2025 from 12:30 until 19:00-ish. With the option to go out for dinner with the hard-core folks that will also stick around.
What to bring?
The usual good spirits, a desire to talk money, investing and life, and a desire to talk like Dr Doom during the discussion panel.
How much?
Because we had to obtain a venue, and because you will be well catered for, we do required a €15 per person entrance fee.
Language?
This particular event will be held in completely in Dutch. I do apologize to my international readers, but there will be another one organized in the future that will also accommodate the English speakers among you.
Registration?
As there is limited space available (max 25 guests), and because there are costs associated with the venue and the catering, we do require registration this time. Please note that your personal details (name, email) will be kept highly confidential and will only be used for communication of fee payment and location details.
As noted in the introduction, both events are now officially sold out. But you are welcome to put yourself on the waiting list (as long as you realize that they are rapidly growing too).
February 1st registration:
https://forms.gle/5kmGkQjarojQAQ4x9
February 2nd registration:
https://forms.gle/dr9bTHErxTJL4aCH8
Hope to see you there!
The post FIRE Meetup February 2025 appeared first on Cheesy Finance.
Do you keep old photos of people who are no longer in your life? In this week’s edition of The Sunday Spark, I consider the impact of the digital age on how we save and share photos. And I wonder if younger generations will come to regret erasing part of their personal history.
The post The Sunday Spark – Old photos and memories appeared first on Boomer Eco Crusader.
Sustainable investing is changing the game for smart money managers. You might think it’s just about feeling good, but it’s more than that. Sustainable investing can boost your returns while helping the planet and society. It’s a win-win that more people are catching onto. Let’s break it down. When you put your cash into companies […]
My Sweet Retirement
Paragon REIT 3QFY2024 Business Updates
On 7th November 2024, Paragon REIT announced their 3QFY2024 business updates. In 3QFY2024, Paragon REIT’s gross revenue grew 3.43% to S$223.0 million as compared to S$215.6 million in 3QFY2023. The Rail Mall’s divestment was completed …
THE JUNE 16, 2021, edition of The Washington Post carried this headline: “Cristiano Ronaldo snubbed Coca-Cola. The company’s market value fell $4 billion.”
The incident in question had occurred a few days earlier, at a press conference in Budapest, where the soccer star was set to play in a high-profile championship game. Coca-Cola was a sponsor of the tournament, so when Ronaldo sat down at the microphone, he found two bottles of Coke positioned in front of him.
Ronaldo wasted no time in moving the bottles out of the camera’s range. To make his point clear, he put a bottle of water down instead. “Agua,” he said in Portuguese. “No Coca-Cola.”
The press conference took place just as markets were opening in the U.S. and, as the Post reported it, “The simple gesture [of moving the bottles] had a swift and dramatic impact: The soft drink giant’s market value fell $4 billion.”
Coke’s share price did indeed drop that day. But in his book Trailblazers, Heroes & Crooks, Stephen Foerster offers a more careful examination of the incident. Looking at trading data, Foerster found that Coke’s share price had already declined before the press conference, and it actually rose afterward. In other words, Ronaldo didn’t cause the share price to drop.
What did? Stock prices can rise or fall for any number of reasons. But in this case, there was something specific. June 14, 2021, was what’s known as an “ex-dividend” date for Coca-Cola. This is an important but often overlooked dynamic that affects stocks and mutual funds.
When a company is getting ready to pay a dividend, it announces in advance the date that it will be paid. That’s called the “payable date.” For logistical reasons, it sets an earlier date as a cutoff for eligibility to receive that dividend. That earlier date is the ex-dividend date, or ex-date. The idea is that shareholders who own the stock on or before the ex-date will receive the upcoming dividend, while those who purchase the stock after the ex-date won’t.
As a result, all things being equal, stocks will typically fall on the ex-date by roughly the amount of the dividend. That’s because that cash is no longer in the company’s coffers and is thus no longer a part of its value. In the case of Coke’s stock on that ex-date in 2021, the drop wasn’t precisely equal to the dividend, but it was close.
This dynamic is more pronounced and more relevant when it comes to mutual funds and exchange-traded funds (ETFs). By law, mutual funds and ETFs are required to distribute the bulk of their income to shareholders on a pro-rata basis. A fund owning stocks, for example, is required to distribute all of the dividends generated by the fund’s stocks. Similarly, a fund owning bonds is required to distribute all the interest paid by its bonds. In this way, from a tax perspective, owning a fund isn’t too different from owning the individual investments in the fund.
Fund investors, however, face another category of taxes—one that holders of individual stocks and bonds don’t have to contend with. Fund shareholders also share in the capital gains generated within the fund. If the fund’s manager decides that he wants to sell one stock to buy another, and he sells the first stock at a gain, each shareholder in the fund will have to share in the resulting tax bill. And if that trade results in a short-term gain—taxable at a much higher rate—each shareholder will bear some of that cost.
As I described a few years back, these capital-gains distributions can have a surprisingly large—and adverse—impact. Because shareholders don’t know a fund’s trading plans, this tax bill is also generally unpredictable.
All that said, I always recommend investing in the stock market via mutual funds or ETFs, rather than buying individual stocks. But how can you guard against potentially negative tax results when investing in a fund? I have five recommendations:
1. While fund distributions are unpredictable and can vary from year to year, you can at least find out the date on which they’ll be paid. That way, you can avoid making a large investment just before a distribution is paid. This scenario is a problem for taxable-account investors because it means that a portion of their latest investment is immediately returned, along with a tax bill. Taxable investors will be on the hook for that tax bill even if they opt to reinvest the distribution in additional fund shares.
Consider a new investor in American Funds’ Growth Fund of America. Last December, that fund made a distribution equal to 6.9% of the fund’s value. You wouldn’t have wanted to invest in advance of this payment because it would’ve resulted in an immediate but avoidable tax. Distribution schedules are available on fund company websites. Here are links to the 2024 schedules for Vanguard Group and Fidelity Investments.
2. Funds like the Growth Fund of America tend to make sizable distributions because they’re actively managed, which means these funds can engage in significant trading that then results in realized capital gains. Some funds are even worse. In a recent roundup, Morningstar identified dozens of funds slated to distribute 10%, 20% or more of their value this year. Index funds, on the other hand, engage in far less trading, resulting in far fewer gains. Look through the distribution history of Vanguard’s popular Total Stock Market fund, for example, and you won’t find a single capital-gains distribution in the past 10 years.
3. Within the world of index-based investments, exchange-traded index funds tend to be the most tax-efficient, owing to their structure. I described this in some detail a few years back. Long story short, the difference between traditional mutual funds and ETFs is that ETFs are baskets of stocks that are traded among investors but are almost never sold. Result: They generate very little, if anything, in the way of capital-gains distributions. The idea of a 6.9% distribution, like the one described above, would be unheard of for most ETFs.
4. If, for whatever reason, you choose to invest in an actively managed fund, check its historical distribution rate. Look back several years to see what distributions have looked like during both up and down years in the market. If a fund has a history of being tax-inefficient, and you still want to invest in it, try to make the purchase in a retirement account, where the distributions won’t be taxable in the year they’re paid.
5. Regardless of the type of fund you choose, don’t automatically reinvest distributions back into the fund, even in a retirement account. This is often a default setting, but it can cause unforeseen results. The wash sale rule, for example, can cause a negative tax result under certain scenarios.
A final note: Some funds carry very high distribution rates and advertise it as a feature. Here’s how T. Rowe Price describes its Retirement Income 2020 Fund: “Turn your investments into automatic income…. The fund’s managed payout strategy is designed to provide a stream of predictable monthly distributions throughout retirement, targeting 5% annually.”
Funds like this, however, are playing a bit of a shell game, in my view. That’s because they employ another kind of distribution known as a return of capital. As its name suggests, these distributions are simply returning a portion of a shareholder’s investment. They don’t represent income or capital gains. It’s as if you handed a fund company $100, and it turned around and handed $5 back to you. I see this as a gimmick. These return-of-capital distributions are shown on T. Rowe’s website. It isn’t the only fund company that does this sort of thing.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
The post Danger: Taxes Ahead appeared first on HumbleDollar.