Tag Archives: family

Meeting A Different Donald: Real Estate and Ways to Invest

Most people, if not almost everyone, has heard of Donald Trump. As the 45th president of the United States, he has been a real estate developer and the previous host of the Apprentice show.

But have you heard of Donald Bren? He grew up as the son of two relatively successful parents. His father was a movie producer and real estate developer like him. His mother was a civic leader. After majoring in Economics and Business a the University of Washington, Bren attempted at Skiing in the Olympics but had to quit due to an injury. In addition, Bren became an Officer in the U.S. marine Corps.

After that he took a $10,000 loan out in 1958, he began developing and flipping homes until he had built up a business which he sold. He started another one, sold it, and then took the proceeds to buy a third stake in the Irvine Company. He eventually bought the outstanding ownership and now has a net worth of over $16 Billion.

Donald Bren took one path to real estate. But there are others. I want to briefly cover the three main ways you can approach real estate investing.

1. Direct Investment

A direct investment in real estate, like what Donald Bren did, involves purchasing property either directly or through a business entity. Either you focus on property appreciation, resale, or cashflow. With these metrics in mind, you seek to partner with others to produce above-average returns over the long-term. This is what Bren did.

2. Indirect Investment

The second, more modern way to invest in real estate is less direct. With an indirect investment you buy a company that invests in real estate. Usually this is either a REIT (real estate investment trust) or some sort of real estate syndication.

3. Hybrid

The last option is some sort of mix. It involves partnering with others so that you own the real estate but you don’t necessarily control management of it directly. An example might be a partnership between a handful of people in which you own, say, 20% of the upfront investment. You put a shared investment with say, 2 other people. One person is in charge of management, and the other two people sit passively by but provide the capital.

A hybrid between direct and indirect is usually less risky but also less financially rewarding if your investment becomes a success.

Conclusion:

Part of investing in real estate is understanding yourself. How much involvement do you want? Often the answer is not much, but for those adventurous few, you never know, you might become the next Donald Bren.

Acquiring a Domicile: How to Rent an Apartment

Most people have or will rent at some point in their life. What often comes up is concern about rising prices or lack of adequate amenities. These issues will always be a concern. However the following steps will help prepare you for a move into someone else’s rental.

1. Determine your Renting Criteria

As soon as you decide that you want to rent, you need to determine what you’re after. What kind of budget are you looking at? What square footage? What types of Amenities do you want? What are your needs verse what are your wants? In which location specifically does this rental need to be?

Answering these questions will give clarity, allowing you to start the next step…

2. Narrow Search to 10 Rentals

As soon as you’ve determined your renting criteria you will be ready to begin screening. Similar to how a landlord screens potential tenants, you will be screen potential landlords. Find ten places that most closely meet your criteria.

Some places you can find rentals include:

Pad Mapper, HotPads, Lovely, Trulia and Walkscore

3. Visit Your List and Come Prepared

With your list in mind you can begin visiting each one. To come prepared, bring a checkbook, wallet, or some means of payment in case they want to charge you for an application fee. Also bring proof of income such as a pay stub or other documentation. Lastly, you’re going to want a photo ID.

At this point you should be well on your way to both knowing which locations fit your needs, and entering yourself into the landlords application process. Assuming you meet the rental criteria, you will probably get one of your applications responded to within a week or to.

You’re on your way! I hope this helps you on your rental journey.

Inflation Force: Is the U.S. Economy Turning to the “Dark Side”?

Often the anticipation of rising levels of inflation is met with a negative connotation. “How can the general rise of prices ever be good?” people ask.  We tend to view inflation as a negative force, or even as a predictor for economic disaster. This is especially easy to understand because the last decade has had relatively low inflation. It’s been years since inflation has gone over 3% for sustained periods and concerns are starting to rise; what does this mean for our lives?

Inflation

What is inflation? Inflation, as Google defines it, is “a general increase in prices and fall in the purchasing value of money.” As the Federal Reserve takes actions like quantitative easing (essentially making more money) and raising rates, this produces an overall increase in the rate of inflation.

As a result the cost of rent, food, gas and common household goods generally rises. Isn’t this all bad? Yes from one perspective it is. It’s easy to see how an increase in broccoli or fuel prices hurts the single mom who is struggling or the family trying to save up for that family vacation.

Almost everywhere in the economy, costs rise as a result of inflation. But there is another side to this. When prices of goods rise, what does this mean for businesses? Well, business are usually the entities who sell the goods and therefore they usually “profit” from rising prices. However this increase in dollar profit doesn’t necessarily translate to a net increase after adjusting for inflation.

What this means though, is that businesses profits generally, at the very least, increase with inflation. What this does do is cause stock prices to naturally rise as earning and assets raise in price to match the inflation. So stocks, naturally are a built in inflation hedge because over long periods of time they usually increase, at a bare minimum, with the rate of inflation.

This truth of rising inflation is partially an inevitable inconvenience or problem for consumers but it is a completely normal and in some ways beneficial aspect of business development. To take advantage of it one must own a business though.

There are many more ways that inflation is impacted and has impact. But what I want you to get out of this is that inflation is actually a good thing for equity investors. Investing in stocks is not only a great move before adjusting for inflation, but after inflation it becomes a beautiful hedge against the “evils” of this powerful economic force.

Combining Your Passion and Values With Income

Often when students or even middle-aged employees are considering which career path to choose they run into a dilemma. “Should I choose a greater income or sacrifice money to do the things I love?” many ask themselves. Even as a college student I have met and spoken with many older folks who find themselves still in a situation of questions.

Countless people go through their life without truly finding something that is both enjoyable and lucrative (or at least enough to pay the bills). Most people have heard of the classic situation of an artist or writer who lives in their parents basement. But what about the countless others out there who are in similar, yet less extreme situations?

Teachers a good example of this. Many of them make just enough to pay the bills, yet work long hours and stressful lives. Assuming they are doing something they enjoy (which I believe many of them are), how do teachers continue to do what they love while keeping the financial strain at a minimum?

There’s no easy answer to this question. I’m going to simplify a process I have used in my own life (before even exiting college) that has allowed me to understand myself better going into my “working years”. If your financial situation isn’t stable, you may have to work a J-O-B while you get these questions figured out.

1. What do you value?

Ask yourself, if you had only 24 hours to live, what people, places and activities would you care about? What would make your last 24 hours feel “full”? The answer to this can be revealing. As soon as you have grasped the things that matter most to you, begin looking at the things you want to pursue that match those values….

2. What do you love to do?

Everyone likes to do something. Maybe you love math. Or maybe writing or reading are your favorite. Or maybe science has always been a blast. There are numbers things you could find enjoyable. Find some of the top things and list them.

3. What are you good at?

This can be hard to know just looking at yourself. It may take honest questions with people who know you well to pinpoint what you’re good at. Maybe you are a eloquent or articulate writer. Or maybe you can organize things efficiently and effectively. Or maybe you are a natural leader. Or maybe you always have found analyzing numbers and facts easy. Whatever thing(s) you find stand out, those are some things you should double down on.

With these three questions answered you now have set the parameters. Your values dictate where you will never work. For example if you value family, your probably won’t work for a drug gang that breaks up families. Or if you value moral integrity, you probably won’t become a jail robber, even if your greatest skill is stealth and deception.

With values as your parameter, your passions are the arrow, pointing you towards a career field. Lastly your abilities and talents are the final part of the puzzle in determining what position best suites you.

For example what if you value family. You’re also highly interested in personal finance. As you become interested in the subject, you realize that you’re best at analyzing data and making good decisions. Upon looking at these three angles you will determine that becoming a personal financial planner suites you best!

I used the example of myself but you can use these questions for any situation or interest. Overall, these questions are simple, but they may take time to answer completely. And as if often the case, they may lead somewhere that doesn’t pay well. In that case you can either work somewhere on the side, take a pay cut or continue looking for that thing that is both fulfilling and pays the bills. Good luck in your journey!

3 Forces Standing Between You and Your Financial Goals

Time

Often all the things we want to accomplish aren’t feasibly achievable in a set period of time. When this is true, we have to make the often difficult decision of determining which path matches with our values. In other words, we probably can’t achieve every goal we have so we have to prioritize.

This is very true with short term goals like making it to your kid’s basketball game verses watching the football game live. But it can also be true with long term goals. For example I certainly would enjoy the process of being a masterful accountant who has both technical skills and people skills. However I have come to realize that I might never become the world’s greatest accountant if I have other goals more worthwhile (for example like becoming a great financial advisor).

Goals

You might think a strange thing to add to this list is goals. After all, aren’t goals things that empower us and keep us on track? Yes and no. In one sense goals are essential to producing the results we want in life. In another sense, goals by themselves, without effective plans to get there and way to streamline actions towards them, are meaningless.

As Warren Buffet and Bill Gates agreed in an interview: one of the greatest factors to success is focus. Putting all your energy on one task, both with your mind and body, is a powerful thing.

Having too many goals, I have found, can get in the way of this powerful focus. That’s why it’s so important to recognize the things that are worthwhile and the things that can wait.

Inflation

Lastly on this simple list of 3 is inflation. This is more of a technical obstacle than a mental one. However the force can be equally important. If you were to buy a house in a stable neighborhood today, do you think the same house would be worth more in 30 years? Yes, I would hope so. This fact that we can all bet on, the fact that prices will overall rise year after year, is called inflation.

Inflation is powerful because it covers both the consumption side (for example like purchasing gum) and the investment side like stocks or investment real estate. Inflation is such an important force that I will be covering a brief history and action steps around it tomorrow in my blog. Tune in!

The Most Advantaged Retirement Account

When it comes to picking a place to keep your retirement savings, there are two basic types of accounts to be aware of. The first is what is called a taxable account. This simply means the growth is taxed like most other investments. The second type of account is what is called tax-advantaged. In other words, this account has tax advantages like either  tax free or tax deferred growth.

In the category of tax advantaged accounts, there are a few popular names. Names like 401K and IRA are often used. When setting up a retirement account you can either set one up through your employer, or independently through a broker.

The types of accounts usually provided through an employer are 401K’s and 403B’s. Essentially these accounts are the same, but talk to your tax advisor about the differences and what applies to your specific situation.

If you decide to take the route of setting up a retirement account on your own, you can set up what’s called an IRA  (individual retirement account). IRA rules, for this current year, allow you to put up to $5500 of income away, tax deferred. In other words, you can avoid paying taxes on $5500 of income this year.

So the major employer-sponsored plans are 401K’s and 403B’s. The major independently funded retirement accounts are IRA’s. Within these options there is what’s know as a Roth. Whether it is a Roth 401K or a Roth IRA, the Roth has a few characteristics:

  1. Instead of deferring taxes upfront (and deducting the contribution from your taxable income) you pay taxes from the start.
  2. Instead of paying taxes on the growth, you avoid paying taxes in the future if it is taken out after 59.5.

In other words, Roth accounts are different in the fact that you pay taxes up front, but avoid paying it in the future if all the requirements are met. In recent years, the Roth has become more popular for these reasons.

Generally speaking, the Roth is better than the conventional account because of the power of “tax free” withdraws”. There are a few other types of accounts, but for most people, some form of IRA or 401K is the best option. I hope this helps on your retirement journey, whether you’re starting out, or in the midst of major changes.

3 Factors to Look at When Determining Where to Live

As a financial blog, I have dealt a lot with individual personal finance issues, like what to invest in, how to budget, and what to do in different areas financially. Here I want to step back and cover 3 financial factors that you should think about when considering a city to live in. While these three aren’t the only things to think about, they certainly will cover the broad range of financial determining factors:

Job and Career Potential

Here you’re just trying to get an idea as to how easy or hard it will be to have employment, and sustain employment in your chosen career field. Two of the things to consider are the unemployment rate, which is a good indicator of how many people who want jobs have them, and job growth. With job growth you want to look at the number of new jobs being created, specifically in your career field, over the last decade.

Cost of Living

Housing costs will be broken down into to two big areas: housing and everything else. When looking at housing, there are usually two broad options available. You can either rent or you can buy. You are going to want to compare the costs of rent vs the rest of the country. Pay special attention to the rent increases. For example maybe your area currently has slightly higher rents than the national average, but over the last couple years the rents have been skyrocketing. You want to be mindful of areas in which the costs of living, including rents are rising quickly.

The second housing option to look at is homeownership. What is the average costs of a home in the area. This can vary greatly from one neighborhood to another. For example one neighborhood might costs $300,000 but just across the road might be $250,000 for a similar house. Find the area you’re thinking about and start comparing prices.

After paying for housing there are the rest of the general costs associated with living and breathing. These costs can include food, insurance, transportation, recreation, and especially taxes. Taxes are a huge part of your yearly expenses. There are income taxes (both federal, state and sometimes city), as well as sales tax and property tax. Look at these rates for you area.

Long-Term Stability

The last thing you want to look at after job potential and cost of living is the general stability in the area. The stability of the area is both the economic factors and the political factors.

For example look at one of the leading factors of growth for cities: population growth. Take a look at the recent trend in population. For example are massive amounts of people entering or leaving the area? This might be a sign that things are changing. With the change in demographics and population comes changes in political preferences.

Maybe these changes will lead to political leadership upheaval in the local government. Think about how these changes could potentially impact your life in terms of local taxes, regulations, social programs, and building projects in the future. Are you okay with these potential changes and the uncertainty that comes with them?

Conclusion:

Overall, these three factors can paint a pretty clear picture of the financial concerns about one area over another. After going through them, you should know whether this area is something you would want to consider moving to. Naturally though, there will be others things of concern, like climate, education, health and other issues. While these concerns might not directly impact your finances, most of them should be looked at closely for the effects they could have down the road.

2 Things I learned from Ray Dalio’s Book

While often seen on TV and financial journals, Ray Dalio is somewhat of an unheard of figure outside of the financial world. He started broke, developed his skills, knowledge and habits, and today is the billionaire funder of the largest Hedge fund in the world.

In his new book, Principles, Dalio focuses on the principles or set of beliefs that have been the baseline of his success in both life and business. Throughout the chapters he illustrates just how crucial principles are, not matter the principles, to how you perform in each area of your life.

From his book I have taken 2 main points:

1. The things we do know are much smaller than the things we don’t know

While everyone would say they believe this idea in theory, when it comes to the actions we take, many of us, including myself, will puff up our egos higher than is actually the case.

Dailo states that people who have more knowledge, success and experience on a topic, should carry more weight in our decision-making.

2. Set up systems, or processes that help make decisions and see around emotions

While emotions are a natural and good part of life and human interactions, when it comes to making the best decisions, especially the business decisions, logic should be the ultimate decision maker.

Two of the greatest roadblocks to making quality decisions are the ego and the blind-spot barriers, which are both covered by the entrepreneur’s planet in their post: https://wordpress.com/read/blogs/150799291/posts/16

Ultimately being committed to integrity, open-mindedness, and self-improvement, are the largest factors that have contributed to Ray Dalio’s success and the principles he teaches.

 

3 Different Ways to Look at Your Money

Often part of the natural inclination towards money is to view it as something that just pays the bills. While this perspective is certainly valuable in certain context, I want to share 3 different ways you can look at money that will change the way you see your financial life.

The 30,000 feet approach

When you look at any area of your life, health, emotions, mental health, relationships, spiritual journey, your money, etc… it’s easy to view them up close. But when we step back and view the specific situation through the perspective of our whole life, we can see how much it really matters or doesn’t matter.

Ask yourself, “Does spending $120 on a box of extra wineglasses fit into the overall priorities of my life?” If it does great, but more often than not, the priorities don’t align.

The time perspective

When you look at your finances through this lens, you imagine how your decision will look at the end of your life. For example I am thinking of buying a new vehicle that looks and feels cooler. However this expanse will postpone some of my retirement savings.

When looking at it though the time perspective you imagine how you’ll view this decision 40 years down the road. Ask yourself, “When I’m 80, how will I view this decision?” Often our decisions are based on short-term thinking, so this view can really help us realize the consequences behind our actions.

The business perspective

Imagine your financial life is a business. If your name is John Smith, your finances are managed by John Smith, CFO(Chief Financial Officer) of John Smith Corporation. As CFO you are responsible in allocating capital (money) towards the respective goals of the business.

If your job was to manage money for yourself (which it is) would you be happy with the job you’re doing? Or would you fire yourself?

Base your actions on whether they provide appropriate return on investment (ROI) for John Smith Corporation. While the goal of John Smith Corporation isn’t necessarily to maximize profit, your decisions should be aligned with your priorities in order to fit your values. Sometimes this could mean going on vacation, but other times it could mean increasing retirement contributions.

These perspectives are meant to help improve your decision-making processes with your money. They certainly have helped me in my financial journey. In what other ways can we view our finances?

 

Reading: Things That Will Change Your Life

As simple as it sounds, reading will change your life.

As I have lived on campus I have seen many different views when it comes to reading. Most students prefer to avoid it altogether if possible. A few people enjoying reading fiction, and then there are the true readers.

As part of this “club” of true readers I have seen firsthand how the books we read can change our life. And I don’t mean just any books, I mean nonfiction. Why nonfiction? There are two reasons nonfiction is more beneficial in our life over fiction:

1. Fact-based learning

When it comes to reading in general you are uncovering stories, facts and emotions. With nonfiction specifically, the base of your reading is centered around actual facts, not something made up.

2. Nonfiction books are often more relatable to real life

Whether it’s a nonfictional story, or a self-help book, reading nonfiction has a much greater footing in reality, and therefore more relevancy in our lives, than simply another story out of someone’s head. And often, depending on if it’s a self-improvement book, you’ll receive applicable steps for your life as well.

Other benefits to reading in general:

a. Learning and experiencing human emotion

This is by far the most dynamic and variable part about reading. As soon as you dive past the writing structure and all the mechanical, necessary aspects of the text, you are left with the “meat on the bone” so to speak. This gives us exposure to real or conjured human emotion, whether you’re reading fiction or nonfiction.

b. Inspiration

When you open the pages to a book, you are often met with unanticipated emotional boosts of energy, or inspiration. It is these sparks that can make all the difference in either our professional or business lives. Mark Cuban, Billionaire and owner of the Dallas Mavericks, is quoted as saying, “I’ll read hours every day because all it takes is one little thing to propel you to the next level.”

c. Literacy

The last major benefit to reading is the learning and literacy is brings to a person’s life. Learning new words, exposure to new ideas, and learning in general all enhance the reader’s perspective and knowledge about the world. The benefits apply whether you’re reading a nonfiction book or not.

Conclusion:

Frankly I don’t dislike fiction either. I certainly have enjoyed many bestsellers over the years like Harry Potter and others, that have inspired and entertained me. However I believe while reading fiction is good, reading nonfiction is better.