Step-by-Step Guide: How to Retire Early with Passive Income

Hi Guys!

I wrote this guide to help put you on the path for retiring early, and comfortably!

Me speaking at the World Stage Event at Babson College, #1 school for Entrepreneurship Me speaking at the World Stage Event at Babson College, #1 school for Entrepreneurship

I was only 12 or 13 when I first started. I’m not sure how much this would relate to other people, but I wanted to share my personal finance philosophy for readers who are interested in a comfortable life. I’ve written and published a book at 17 detailing my beliefs and philosophies on how to create success for yourself, Personal Success Comes When You Least Expect It.  I want to spread my knowledge and learning to as many people as possible, so that everyone can create the successful life that they want for themselves.

Imagine one day: You dont have to work anymore. You collect income from one or more passive sources of income, use that toward your bills (doing anything you want), with your egg nest still growing.

There are four basic principles of this guide:

1. Find ways to increase your income.

2. Reduce expenses and save more money.

3. Utilize your tax benefits.

4. Grow your egg nest by investing.

Early Retirement

Early Retirement

This guide is written for an audience whos in their early to mid twenties.  All the blogs Ive read on the internet assume that you want to save enough to live passively by the age of 65. Following this guide below will help you set yourself up to possibly retire earlier than that.

1. Find ways to increase your income

In order to begin saving money, you need to learn how to increase your income.  Income is what you bring in from work and side gigs.  I find that most personal finance blogs and sites dont emphasize enhancing your skill set to increase income, they only talk about how you can be frugal and save money.  You want to bring in as much money as you can each month, and save as much of it.  This is the key to building an egg nest.

1. Learn how to Sell & Negotiate

If you learn how to negotiate, you will get better results in every area of life than most people. This is one of the most important skill sets in life that will get you closer to the things you want.  Some people are naturally better at negotiation than others.  Whatever your current negotiation skills, these tips could help you improve.

Your first starting salary: Everything in life can be negotiated.  If you are getting your first job right out of college, and you are offered $45,000 per year, first, check on Glassdoor to see the average salary range for the role youre pursuing.  If you are stuck with a lower salary right out of college, when you try to get your second job, there will be a form to fill out stating your last salary, and the company will at max offer only 5-10% higher than your last salary; even if you have excellent skills.  This fact is common knowledge among many employers, so they know you cant easily get a higher offer from other employers.  Getting an extra $5,000 to $10,000 on your first job can save you an extra 1-2 years in trying to climb up to the salary you would get on your next job.

  • Establish the skill sets you bring to the table, and your past experience.
  • Some non-technical skills to demonstrate include: leadership, being a good team player, showing analytical strength, quick learning,  and enthusiasm to take on more responsibilities.  You can emphasize all this on your resume through showing clubs youve led, projects youve worked on, results youve achieved, the time span vs. results youve obtained, and a desire to learn more.
  • You can state more responsibilities you are willing to take on while in the company for your role.
  • Finally, you can state, According to my research on Glassdoor, I believe an acceptable salary range for my service rendered would be between X and Y.  Is this something that you can match?
Glassdoor.com Search Results Page

 

Usually if they are offering you the bottom of the estimated range for your role, you are in the power to negotiate higher.  If you are confident in your skills and qualifications, here are two things you can do.

  • First Choice: Go in for the $5,000 or $7,500 bump if what theyve offered you is on the absolute lower range, or even outside of the scale that you find on Glassdoor.  If you dont see info for your company, find a comparative company in the industry of the company youre applying for and use that as a rough estimate.   Keep in mind the position leader and difficulty of obtaining a job at each company.  Usually a more difficult company to obtain a job from will naturally have a higher salary offer, so dont expect to get the same salary.  Winning this will be key and help save a couple years on your ability to get a higher salary for your next job or promotion.
  • Second choice: Dont negotiate to avoid making the managers mad, and just take the offer.  Experience under your belt will help you win your next job while everyone else is unable to get one in 1-2 years.  Going to college these days is not enough to guarantee a job, even if you went to a private $50,000/year, top 50 one. Along with job salaries, learning to negotiate is critical in every aspect of life.
  1. When youre a customer of a professional service provider: If a gardener, plumber, private moving party, tax lawyer, freelance accountant is trying to offer you services,  dont forget there are many people who can easily replace that persons role.  If they are trying to offer you a high rate thats unfair, you should negotiate them down by 10%-20%.  They should be glad anyways to get your business.  If they have good ratings on Yelp, theyll probably have a lot of business, but they are still very likely to accept a lower offer from you at 10%-20%, rather than saying no completely.
  2. Negotiate with your landlord when renting: A good strategy is to call several weeks ahead of time to a location and figure out if a property is available.  Once you are aware its possible to move in, check in once a week asking questions such as, How many people have seen the property?  Is it still available for rent?  If you are renting from a private party, you have the best chance to negotiate the rate down a bit.  You can point to facts such as comparable properties and their price, location, whether they provide parking or not.  You can also mention that WiFi and utilities are not included, so they should give a discount on the rate.  Negotiation skills will come in handy too later when you negotiate your rental increases and ask for a lower increase.  You can use tactics like, My job isnt paying me enough (sympathy), or factual reasons like stating nearby rental properties havent increased or that you could switch over to the other ones.  Be careful if they have other potential tenants, then you cant call their bluff.
  3. Convincing customers to purchase your product: If you are starting a side gig which Ill be covering soon, you need to think of the benefits of your product, the unique selling proposition (why are you better than your competitors?).  With all this in mind, then you can come up with a pitch to persuade your customer to spend their hard earned dollars on your product.

Every successful person Ive analyzed and read about, they exhibit characteristics of being a successful negotiator, and theyre good at selling themselves. By my personal standards, Im considered a strong sales guy and negotiator in the fields that I work in.  At the age of 15 during the recession, I convinced a programmer to build an idea I had with no capital.  I told him I had a marketer who could gain users to our product.  I didnt succeed on my first try.  It took many tries to find the right person who would want to work with me.  Being persistent is an important value you need to have when you want to get the results you want.

Then I told a marketer I had a programmer who could build a unique product that didnt exist at the time.  Marrying the two, I took my modest cut, and we sold the site for a low six figures after one year of production. Since then, Ive been able to secure advertising deals without reputation, the workmanship of engineers or programmers through painting a vision and repetitive outreach. An important thing to learn is about personality types.  I found the two pages below helpful in helping me to understand peoples personality types:

  1. Human Metrics – A good place to take a scientific personality test.
  2. 16 Personalities  –  A good place to understand how people with certain personality types interact with the world.

One lesson I picked up through reading books was that you must understand that people are sold on emotions and they justify their decision with logic.   Thats why, story telling is very important. Some books I would recommend include:

  1. Influence: The Psychology of Persuasion by Dr. Robert B. Cialdini
  2. The Psychology of Selling: Increase Your Sales Faster and Easier Than You Ever Thought Possible by Brian Tracy
  3. Negotiation Styles  by Wikipedia

Im here to solidify in your mind the abundance mentality.  Just because you win a negotiations doesnt mean the other party is losing. You will get more out of life, if you can persuade people to take the action you want that will benefit you.  The key to winning negotiations is showing how they will benefit too.

2. Selling Side Gigs on Fiverr.com or TaskRabbit.com:

Why not make some extra cash doing the things you already love?  This is very simple to get set up, and if you build a good reputation, you will get more customers easily over time.

I want to talk about two ideas I find easy for those who want to get started with making money online.

  1. TaskRabbit.com

If you live in a big city such as San Francisco, New York, Boston, Los Angeles, you can earn an average of $30-$50 per hour just for picking up groceries for someone, doing laundry, or cleaning out their garage.  Some of these tasks like picking up groceries can be done at the same time when youre picking up items for yourself; essentially making your own groceries free.

If youre into manual labor, you can help lift or assemble furniture.  Think of it as working out for the day as well.

By using TaskRabbit.com, you can apply to do tasks to earn extra income in your down time or on the weekend.  This extra income could cover the cost of gym memberships (when normally you would cut back on that) or the occasional Starbucks splurge.

One positive benefit is that you are in complete control of your schedule.  You can accept a task for an allotted period of time,  and take on as much responsibility as you feel youre capable of handling, whether its a little bit or a lot.

Some have claimed to earn an extra $400 per month from these tasks; extra income that will help you get closer to your financial independence or help cushion your savings in case of emergencies.

TaskRabbit.com Homepage

       2.  Fiverr.com

If you are more tech savvy, you can sell Fiverr gigs for side income.  The key to getting sales is placing your offer in the right category, using captivating yet optimized titles, and getting good reviews from customers.

First, assess what youre good at.  Do you have photoshop knowledge, a good voice, or creative marketing ideas?  If youre still in college, you can list a gig where you post flyers around campus, and you will get paid $5 to do so. You can make an average of $300 per month doing this.

You can tell how successful a gig is by looking at how many stars or reviews there are on the page.

These are ideas for some quick gigs I recommend you to start selling on Fiverr:

Testimonials: You can offer to give a video review or testimonials of various products. People will ask you to take a look at their website or eBook.  You dont need any skill sets to do this.

Pictures of yourself holding up a sign: Start ups will hire you to do this if they are just starting out since they lack a substantial user base.  This will help them get off the ground.

Writing letters: You can write a cover letter for someone based on their resume.

Tweet to your followers: If you have more than 10,000 followers, you can get paid $5 to tweet to your followers.

Blog about their site: You can also blog about a customers site.  For this you just need a theme that doesnt look like the default one.  You dont need to have substantial metrics or traffic to get started.

This seller has 1337 copies (Im not kidding), and they must have a lot more purchases. So this seller made at least $5,000 from just a 30 minute task (I even bet you, he has a template laid out for certain professions, over time and he just plugs in details from the resume)

I find any of the above tasks easy for anyone to get started with.  You dont need to have a complicated website and deal with messy code.

Extra Fiverr Tip

To generate extra additional revenue per gig, a trick is to set normal delivery time to 3 days (this wont turn customers away), and for $5 extra, you can offer 24 hours delivery.  The chance for upgrade is at least one out of three.  Most people make impulse purchase.

Getting Entrepreneurial

If youre entrepreneurial like I am, you will notice a tremendous opportunity.  Some of these gigs are dirt cheap.  Instead of offering yourself at $5 per hour, why not build up a small business around reselling other gigs from Fiverr?  I know it sounds like a daunting task, but baby steps at a time, and you will be able to resell other peoples gig.  This is an example of a gig I noticed right away, that could add value to the lives of job hunters around me:

For only $5, you can have a nicely designed Resume.  From my experience, I have never considered using a nice resume before (some may actually warn against it).  But this is definitely a value added proposition you can add to other peoples lives.  If youre feeling entrepreneurial, you can set up a site, or an offer to customize other resumes for $35 to $100.  You can market your service out on Facebook, Twitter, by word of mouth to your friends.  I usually judge someones quality of work by the reviews and the amount of it. Here, we can see shes a reliable seller who can deliver within 2 days, and theres over 1800 reviews.  Here are the steps in summary:

  1. Find a product you feel that can add value to peoples lives
  2. Make sure the seller is reliable by checking that they have over 100 reviews, that their Average response time (on the right hand side) is within 24-48 hours or less.
  3. Read the comments to make sure that the author is trust worthy and can get the job done well.
  4. Set up a website, or simple WordPress site offering the service for sale.
  5. Start letting your friends know by word of mouth, that you are the point of contact if they need that service done.
  6. When you receive orders, make an order on Fiverr.com for $5 through your seller.
  7. Deliver the product with the appropriate mark up.
  8. You are getting compensated 3-5x your cost for the marketing risk you had to take to find the buying customer.
  9. Congrats, and welcome to your first taste of the world of entrepreneurship!
  10. Dont forget to pay your taxes and make sure to properly account for expenses.  Keep all receipts.

Take it a step further, and you can find sales guys to push your product.  You can offer a $10 per sale commission or referral when they bring customers to your business.  Now, everyone can be an advocate of your product.  This is a method that works really well.  You just have to have some courage, plan out all the steps in advance, and then give it a try.  Every business is started off with having a valuable service to a customer, and being able to source the creation of the product or service at a cheaper cost.  Throughout your journey, you will find some barriers and struggles, or it may turn out to be easier than you expected.

Some people who are focused on career and earning income that they forget to save it.  I know a lot of friends who have high earning jobs but they fail to save any of it.  As a result, they wont be able to generate passive income in the future.  I would rather give up enjoyment now, to have an egg nest that produces passive income for me.

2. Reduce expenses and save more money.

Some people have trouble saving because they dont realize how valuable each dollar could be to their future.  Once you realize the impact of a dollar saved, you will be more cautious with how you spend your money.  When you save a lot of money, your money will work for you, and provide you with income.

The Power of Saving Early Compounded Interest

Bills.com has produced a great calculator which shows the impact of your savings.

  1. Select various items that you want to save money on.
  2. Set the rate of return this indicates what yield you will get on your savings ever year.
  3. Set the period duration this is how many years you want to run this scenario for.
  4. How much to save weekly adjust how much you want to save weekly.
  5. Total Savings this is how much you will save after the duration.
  6. Share your results with friends and see what their results are!

What happens if you eliminated one coffee per month?

I like the idea of setting modest goals and then turning up the volume. For example, I decided to see how much I could get by investing just $4 a month for thirty years. That is an investment of just a mere $1,440. Using the US government’s Compound Interest Calculator and assuming a 7% interest – compounded monthly, I discovered that I would have $5294.00 at the end of the thirty years.

Then, by investing that “small” fortune in a 7% investment, I will have generated a yearly income of about $367.54 per year.

What if you eliminated one coffee per day?

Coming up with $4 a month doesnt sound like a daunting task. However, what if I could make that $10 a month, or $100, or $1000. Then, I could start dreaming about retiring in style.

So, I started thinking about my expenses. How could I cut down on expenses and save money. Fortunately for me, Bills.com created a tool to help me save by allowing me to change the item that Ill be cutting back on and seeing the scenario of how effective this reduction is for my savings.  Use the Bills.com Way to Save Machine.

The results are shocking.  At the end of the 30 years period, you would amass a fortune of $159,661.00 in savings and through the power of having a 7% yielding asset. You would have a $11,176.27/year contributor.

What if you eliminated one coffee per day and packed your own lunch?

For the simplicity of the calculations, I assume instead of eating out on the weekends, you will be eating a sandwich you made at home.  I assumed the average cost of eating out will be $20 which you will save, but the cost of making the sandwich will be $5.00.

Packing your own lunch and reducing coffee, you will amass $1.2 million.  After 30% taxes, you have $900,000 left.  You will generate $63,000 per year from a $900,000 fortune, in a 7% asset.

I also wrote out what it would look like if you eliminated cable.  I assumed $60 per month in savings, which is the average cable bill.  A lot of the few TV shows that you would enjoy watching would be on Netflix, Hulu, or streaming online.  I personally love watching Poker and other crime series.  Thankfully, they stream it at the gym where I work out during the evening.  While Im running or lifting weights, I can glance at the episode.  Im avoiding the typical couch potato lifestyle, and enjoying my time at the same time.

This table shows us the shocking horror of just an extra $2 per day saved, will result in a difference of $300,000 (if investing in a 10% yielding class).  At 65, that extra $300,000 at 10% yearly, could contribute an extra $30,000 per year to your life.  This extra $30,000 per year that is generate will never touch the principle, and your $300,000 will stay intact.

I hope this illustration will make you more cautious about how youre spending and make you more aware.  Set a goal of making small changes in your life, then slowly increase the savings you make.  By building good habits, youll be able to save a lot in the long run. Then you can watch your savings grow with compound interest.

My way to save on vacations

Some people advocate seeing the world when youre young.  Some say traveling and seeing different cultures will give you great insight into other lives, and its one of the most enjoyable activities in life. I personally never understood that, or maybe because I experience sensations in a different manner.

According to my personality type (and Im an ENFJ), I respond better to objective experiences rather than subjective experiences.  For me, just reading about someones experience in a novel or watching a movie is already enough for me.  I have a strong and descriptive imagination.  Actually experiencing it doesnt increase my enjoyment of it. Its important to enjoy activities that cost little to no money.

This will help you de-stress from work, and save more money in the long run. Assuming you live in the bay area, instead of going to Hawaii for a vacation getaway, you have Santa Cruz just an hour away.  You can also visit mountains nearby for a tranquil scenery.  The city of San Francisco is just around the corner if you need to switch to a urban life.

  • Visiting the many beautiful parks in the area; simply just open up Google maps and youll quickly find many plot of green areas in your surrounding neighborhood.
  • Grabbing sandwich ingredients and having a picnic at the park on a Saturday can be cost saving, enjoyment and give you an opportunity to have a meaningful conversation with your friends or family.
  • Camping and Fishing: This is one way to appreciate the wilderness and take a few days to relax.
  • Borrowing and reading from the library or book store: Why spend $20 or so to purchase a book (OK, I know Im an author and I should advocate people to support their favorite authors)?  But when you have little money, you can just spend time at the library or book store, rather than taking a costly vacation.  This is just as enjoyable and you will gain a lot of insight too.
  • Watching YouTube videos: If reading is not your interest, you can watch YouTube videos and learn more about your interests while youre at home.  Opt out of the typical Friday or Saturday night hang outs.
  • Game nights: Have friends in the area?  Enjoy game nights with your friends.  This is a great chance to chat with friends, learn more about each other, and experience a kind of closeness thats lost in todays world.

3. Utilize your tax benefits.

Tax reduction and tax shields are the third major component of any wealth management tactic.

The fourth component of our strategy will be investing the funds we save.  I talk first about tax reduction strategies so you will understand investing principles in the fourth chapter better.

Just starting out, it can be really hard to save.  Assuming youre already controlling excessive spending, theres the problem of paying rent, car payments, auto insurance. These things could limit your ability to save, but you still need to make the effort to save.

When you earn $100, assuming you pay a 25% tax rate, you will only have $75 left to invest, when you are using a normal taxable investing account.

If you are using a 401(k), you are able to take the $100 you earn, not pay the 25% tax rate, and invest the entire $100 into the account.  After 40 years of compounding, the extra $25 will make a difference in your wealth accumulation.  At the end of 40 years, when you withdraw, you will get taxed at your ordinary income rate.  If you withdraw at the age of 59 1/2, then you will have to pay a 10% penalty in addition to taxes.

401K & 401B Plans: These plans which are nearly identical are offered by employers.  The benefits of these plans are that when you set aside a certain percentage of your income to these plans, your employers will usually match between 50%-100% of the contributed amount.  Lets say you earn $5,000.  If you choose to have $1,000 contributed to an account, $1,000 gets automatically deducted, and you only have to pay taxes on $4,000.

  • Lower your taxable income: When you reduce your taxable earnings, you pay less in taxes. Also, you may end up in a lower tax bracket simply because of the amount of money that gets deducted for the 401K.
  • Employer Match: This is the only time in your life where you will get free money as everyone says.  Imagine investing into an asset, and getting a 50-100% return on your money.
  • Limited Investing Options: With your funds in a 401(k), you are limited to investing in ETFs and Vanguard funds selected by the employers.  Usually youll only have 2-3 options.  They do this so that you invest in safe equities.  Im not particularly against this, since I advocate low, safe returns over risky returns, but for those who prefer a more aggressive strategy, then the 401K may not be what you want (we will talk about Roth IRAs next).  Despite this, the employer match is already a very strong benefit.

If you withdraw these funds before 59 1/2, then you will have to pay a 10% penalty fee, and taxes at your ordinary tax rate.  When you withdraw these funds after you turn 59 1/2, then you will have to pay taxes at ordinary tax rates, but theres no penalty.

The positive benefits of using a 401K/401B plan is that your  asset grows tax free.  As your earnings are growing tax free, you have a larger amount of assets that will generate a higher interest rate, than if you were to use after tax dollars to try and replicate the same effect.

This table will illustrate after 30 years, option a) If you invest after tax dollars into a conservative 5% yielding asset or option b) If you invest into a 401k plan (with 100% match), and how much you are left with if you withdraw the full amount option.  For simplicity sake, I will assume you make $50,000 per year and you save $10,000 per year, being taxed at a 25% tax bracket.

Year Yearly Addition Tax Rate Nest
1 $10,000 25% $7,500
2 $10,000 25% $15,750
3 $10,000 25% $24,413
4 $10,000 25% $33,508
5 $10,000 25% $43,059
6 $10,000 25% $53,086
7 $10,000 25% $63,616
8 $10,000 25% $74,672
9 $10,000 25% $86,280
10 $10,000 25% $98,469
11 $10,000 25% $111,268
12 $10,000 25% $124,706
13 $10,000 25% $138,816
14 $10,000 25% $153,632
15 $10,000 25% $169,189
16 $10,000 25% $185,523
17 $10,000 25% $202,674
18 $10,000 25% $220,683
19 $10,000 25% $239,592
20 $10,000 25% $259,447
21 $10,000 25% $280,294
22 $10,000 25% $302,184
23 $10,000 25% $325,168
24 $10,000 25% $349,301
25 $10,000 25% $374,641
26 $10,000 25% $401,249
27 $10,000 25% $429,186
28 $10,000 25% $458,520
29 $10,000 25% $489,321
30 $10,000 25% $521,662

In this calculation above, I did not include the 20% tax on passive yearly income since I assumed the yearly income is not significant.  But this further deteriorates the final asset amount.

Note: Please double check with a professional financial adviser before making any investment decisions.  I am not a professional and cannot be held responsible.

The table below illustrates option B)

Year Yearly Addition Tax Rate Nest
1 $10,000 0% $10,000
2 $10,000 0% $31,500
3 $10,000 0% $54,075
4 $10,000 0% $77,779
5 $10,000 0% $102,668
6 $10,000 0% $128,801
7 $10,000 0% $156,241
8 $10,000 0% $185,053
9 $10,000 0% $215,306
10 $10,000 0% $247,071
11 $10,000 0% $280,425
12 $10,000 0% $315,446
13 $10,000 0% $352,218
14 $10,000 0% $390,829
15 $10,000 0% $431,371
16 $10,000 0% $473,939
17 $10,000 0% $518,636
18 $10,000 0% $565,568
19 $10,000 0% $614,846
20 $10,000 0% $666,589
21 $10,000 0% $720,918
22 $10,000 0% $777,964
23 $10,000 0% $837,862
24 $10,000 0% $900,755
25 $10,000 0% $966,793
26 $10,000 0% $1,036,133
27 $10,000 0% $1,108,939
28 $10,000 0% $1,185,386
29 $10,000 0% $1,265,656
30 $10,000 0% $1,349,938
Pay 35% Tax $877,459.90

These are rough numbers.  You can gain a more accurate insight here:  http://www.bankrate.com/calculators/retirement/401-k-retirement-calculator.aspx

AARP.orgs calculator produces similar results:

Here are the results summary comparing the two options:

RESULTS SUMMARY
Current 401(k) balance $1,000
Years to invest 30
Annual rate of return 5%
Annual salary $50,000
Expected annual salary increase 0%
Percent to contribute 20%
Your 401(k) contribution* $10,000.00 per year
Your employers 401(k) match $10,000.00 per year
This is a 100% employer matchup to a maximum of 20% of your annual salary.
Total you will contribute $300,000.00
Total your employer will contribute $300,000.00
Total at age 60 $1,368,813
Total without employer match $686,567

Roth IRA: A Roth IRA is a new popular choice.  You put in after tax dollars into your account, and you dont pay taxes when you withdraw it in the future.  Second, a Roth IRA is popular since you can use your Roth IRA to decide which equities you want to invest in, plus, you accumulate wealth tax free.  If you invested into assets outside of the Roth IRA, you could get taxed at 20%-40% on earnings.

4. Grow your nest egg by investing.

Now you know the secret on getting a tax break, combine that knowledge with a way to grow your money year after year.  Since youre starting early, you have an advantage.  By the time you retire, you will have a nice cushion.

A lot of people and websites would recommend aggressive stocks when you are young stating that you can afford to take the risk.  I dont recommend this at all, even if you are good at picking stocks.  Stocks that rise up a lot have been known to go down, and if you are individually managing your portfolio, emotions will prevent you from taking necessary losses when a stock reverses direction, even if you set hard rules in place, and you could end up losing more money than you earned in the past several years over a matter of weeks in a major market down turn.

Please note, Im not a financial adviser and I am not giving any financial advice.  These are my personal thoughts and opinions.

My strategy is to target investment assets with minimal risk and produces a steady return per year.  With guaranteed yearly returns, your earnings will increase constantly.  A portfolio with wild swings of going up and down a lot could lose out compared to an investment asset thats generating a stable 3-4% per year.

The Street talks about how one company lost about 26% in 2008 when the S&P 500 fell 38%, which shows how suddenly companies can lose value over a short period of time.

CDs

If you are first starting out with investing, CDs is the easiest way to get started since the risk of losing money is very little compared to Junk Bonds or Stocks.  You put your money into a CD, and you lock it up for a duration of time.  The longer you lock your money up, the more interest you will get.  I was 10, I put my money ($1,000 at the time), into a CD that paid 3.5% per year for 3 years. When I was 13, I withdrew out $1,100. That was the first time I was ever involved with CDs.

A disadvantage of CDs is that you cant withdraw early without paying a penalty or losing interest. For a CD with a maturity of one year or more, typically you have to pay six months worth of interest; even if you havent earned that much yet. Its hard to be liquid and purchase anything when you have money tied up in CDs.

Starting off this way can be a really encouraging way to see your money grow with better terms than what the bank is offering.  CDs are also FDIC insured, if the company states they are insured by the FDIC. Check this carefully. If something happens to the bank, you will get back your money up to $250,000. Unfortunately, in 2015 the 1-Year CD interest rates are poor, earning a measly 1.3% a year.

You can lock your money up for 3 months or up to 5 years in a CD. Here are two places I use to compare available rates.

  1. Ally: Compare CD Rates
  2. DepositAccounts.com: 1 Year CD Rates

Stock Market

Some financial gurus and blogs will suggest that when youre young, its okay to take more risk for the potential to make bigger gains.  Unfortunately most people without real experience will lack the knowledge to select the right stocks. Some people will buy big name hyped up stocks like Facebook, Linkedin, Tesla, and Twitter thinking they have a good growth story. Buying stocks in these kind of companies does not mean you will have big upside when the company grows. Sometimes the believed growth is factored into the price of the stock already.  You could be overpaying for the company, and if there is a correction, it could drop significantly.

If you can identify signs that makes a stock good, you have a better idea of finding winning companies.  Some signs that a stock is good:

  • Revenue and Profits is/are increasing: The company has the ability to sustain itself and fund research to grow further.
  • The company is hiring more employees: This is an indicator that the company is making revenue and has funds to hire new employees to expand marketing, or build more products to sell.
  • P/E comparable in price to peer group (not too expensive): P/E measures the price to earnings, which measures the price of the stock to earnings by the stock.  You compare this P/E to other companies in its group.  If the company youre looking at has superior research, team, and results than other companies in its industry, its P/E will naturally be higher.  But if the P/E of a company is same as other companies, then you know that its not over priced.  Companies like Linkedin, Facebook, Tesla have really high P/Es, because everyone are willing to pay more per share believing the company has a lot of growth potential.

Dividend Paying Stocks

If you can invest a majority of your assets into dividend paying stocks, by the time you retire, you will most likely only be taxed at 20% on yearly gains from the stock dividends.

1. Know the risks of investing in high yield mortgaged-backed REITs

A mortgage-based REITs is a real estate investment trust that lends money to real estate owner of mortgage.  The REITs makes money from interest it collects on the loans it provide.  Since these mortgages could last for many years, distributions will come on a consistent basis if there is no default.  REITs with a good record will do their due diligence to make sure real estate owners will have good credit score, the ability to make payments, and low risk for default.  REITs are required to pay out at least 90% of their earnings to shareholders.

A lot of mortgage-based REITs have yields close to 10%.  Understand that these yields, and the stock price may drop if the governments monetary policy changes.  Some people believe a change in interest could have an adverse effect on the stock price and yields.

Here is a chart which shows the REIT index rising as the interest rate of treasury bills are falling:

Source: http://www.investopedia.com/articles/04/110304.asp

Some people believe that interest rates will eventually have to rise.  As a result, REITs could go back down in price.

Some companies have a 10%+ yield or monthly distribution.  Beware of these companies. If interest rate rises again, these companies could be negatively impacted (for many economic reasons).

In addition to being careful of high yield mortgage-backed REITs, be aware of funds with high yield and a decreasing stock price.  The Cornerstone companies (CRF, CFM, CLM) all feature monthly dividend, but their stock price is deteriorating over time.  The dividends dont make up for the stock prices decline.

2. Utility companies with a strong customer base can offer growth and reasonable yield

Average Yield: 3.72%

Another area that Im interested in is utility companies.  I used to bet on speculative ventures, and I would win some.  The third one was a big loss which wiped me out completely.  After that, I decided I will go for safe consistent returns to preserve capital.

Utility companies pay good dividends, and theyre not going anywhere. They already have their customer base, and so they can afford to pay a quarterly dividend.  Some companies would service entire cities or states.

These companies used to pay good yield back in the day.  After CDs have fallen in rates, utility stocks have been sought after and the yields have been pushed down.

Two utility stock companies Im liking (and remember, Im not a stock adviser and cannot give advice) are:

  1. Consolidated Edison, Inc. (NYSE: ED)
  2. Southern Co (NYSE: SO)

The reason why I like both companies are because:

1) they are safe utility companies with low beta.  They are following the overall pattern of the U.S. Stock market.

2) Their yield of 4% is not bad.

3) There is appreciating value in the company year after year.

In addition to holding onto the stock, you can write a covered call every month.  This is one branch of options trading.  Writing a covered call every month could net you an extra 1.00% per month from the asset.  With the current price of ED at $61.47, a call sells for $0.60 at $62.50.  You make $0.60 on every 1 share of ED you are writing a call against.  If the stock goes to $62.50, you are forced to sell the stock (and realize an additional profit).

3. Safe, divided growth stocks are another option that minimizes downside

Another area that Ive been looking into is, household name companies with moderate dividends.  My belief is that selecting these kind of companies will minimize downside risk that the stock will drop in price.

There are three qualities that make up a safe, dividend, growth stock.

In my opinion you should be looking for companies with:

  1. A moderate dividend payout yield of around 5%.  Higher than that, and the company could be risky and have drastic price increase and decrease.  Too low, and the yield is not enough to compensate you for the risk of the stock price falling.  Also, if you can get a 5% yield for the same risk as a 1% dividend yield, then might as well take the 5%.  You can evaluate this by the points below.
  2. A big household name, so you know the company wont fail.  You can check if the market capitalization is greater than $1 billion.  If the company is just $100 million, there is a risk that they wont have enough capital, research, and funding in order to keep the company afloat if something were to happen.
  3. A positive 52 week price advancement from the beginning of the year indicates that since the beginning of 365 days ago, the stock hasnt dropped in value and that its at the same or higher price since 52 weeks ago.  It gives a level of confidence that the stock isnt on a decline.

Following these criteria, you have safe, secure, growth of the stock with a good moderate amount of dividends.

 

To look for other good dividend yield stocks, go to finance.google.com, click on Stock Screener on the left hand side.

Click on Price, and click on

  • 52w price change (%)
  • Dividend -> Div Yield (%)

Drag the slider of the 52w price change % so that its above 0%.  This helps to remove all stocks that are currently lower in price than 52 weeks ago.  This means you will only look at stocks that havent lost share value for the year.  I want to find stocks that have rising momentum.

I would then drag the upper dividend yield to around 15%, so that stocks with unusual situations or pay outs wont show up.  Stocks that pay dividends above 20% tend to have rapidly falling share prices or cases about them, that makes them too risky to own.

Click on Div Yield (%) in blue, to sort it by highest to lowest.

Go down the list, and this is a good starting point to research which companies would be a safe investment.

Real Estate

You want to consider whether it makes sense to rent or own a home.

When you make a down payment on your first home, and pay the monthly mortgage for it, the interest payments are deductible.  Although it may not be a lot, this is something to keep in mind.

When your home appreciates in value, you benefit from it, using leveraged capital (the loan from the bank), rather then cash.

This is how people get wealthier; using capital thats not theirs to make smart investments that appreciate.

Review.org Action Plan

In order to save and retire the life you want, you need to increase your income, save a lot of money, utilize your tax benefits, and invest into assets that will grow your wealth.  Your goal when to retire is to generate passive income from your assets from passive investments which gets taxed at a lower bracket than regular earnings.  This is a safe and reliable system that you can start out with in order to help you achieve a stable and sustainable retirement.

Hostgator Review

Hostgator is a popular hosting site with over 1.9 million customers last reported in 2010, and growing til this day.  A lot of big established companies trust Hostgator, and the company supports many independent small business owners and first-timers too.  I actually first used Hostgator when I was starting out with my first websites and internet marketing. Below is my review of Hostgator.

Hostgator shared hosting is perfect for:

  1. Deploying wordpress/review sites/niche blog sites/existing scripts from Codecanyon or other sources
  2. Getting set up really fast, and expecting less than 1,000 visitors per day.
  3. Little technical experience

When I first started out, I was completely lost with how to host a website.  Hostgator was really good, since it was simple and got the job done.  This is a great affordable host to get started with, until you really need to upgrade.  Then you can simply upgrade to something better once you’re earning more.

Most Hostgator reviews won’t give you the real scoop like I will – since they never even used it themselves.  But since I used it, I can tell you about the pros and cons.

Pros

  1. Easy to Use Cpanel – Some hosts don’t even provide Cpanel, which you might have to pay extra or use a boring command terminal to access your code.  102
  2. Very affordable – The amount of value and reliability you are getting for the price of shared hosting – $9.95 per month is very cheap and affordable.
  3. Support is great – They have live chat 24/7, which is the biggest selling point for me. I’ve been used to some hosts taking many hours to reply back to me.  Especially if you see your site down, you want to be able to contact them right away to take a look at hosting and see what’s wrong.101-chat
  4. Speed is fast – If you are just starting out and your site isn’t too technical (like a complex ad network), then your visitors won’t notice a slow site speed – even on mobile. This is perfect if you are just starting out and don’t want to deal with the headaches of optimizing your own server from scratch in order to get fast speed.
  5. A lot of storage and bandwidth – The amount of disk space and bandwidth (unmetered) they provide is reasonable for the price they’re charging, and actually an over delivery.
  6. Fast set up – What I like about them is when you set an account up – they usually instantly set up shared hosting for you – and you can get access to an account right away. Other hosts, you usually have to wait 24 hours for them to activate an account! 100
  7. Good Server Uptime – Hostgator is rarely down if you are just starting out and getting under 1,000 visitors per day.uptime

 

Cons

  1. Not good after 1000 visitors per day – Once you are getting at least 1,000 visitors per day, time to move onto another host. You will probably be able to afford something else at this point anyways.  One of my news sites was getting 10,000 visitors per day.  That’s when I started seeing the site slow down.  I had to switch to a different provider at that point.

Many people have wasted time trying other hosts, only to switch to Hostgator and realize this is a much better starter option.

Try Risk Free Today

Best of all, they’re offering a special coupon promotion deal right now.  Using the coupon code of 1CENT, you can reduce your first month’s cost to $0.01 for the first month.  I recommend you to try it out as it’s very easy to cancel and get your money back if you’re not happy, with a 30 day money back guarantee.  They’re committed to having a good customer reputation.

Click Here to get started with Hostgator.  Offer Valid until 12/30/16.  

If you decide to try, feel free to get the free scripts below that you can install onto your Hostgator host right away.  These were my first top 5 sites that made me my first $100 online (will post them later).

 

Top 5 EDM Raves For NYE 2016

Top 5 EDM Raves for NYE 2016

1
Resolution - Seattle, WA
Above & Beyond. Adventure Club. Yellow Claw. Tritonal. Botnek. Brillz. Cesqeaux. Delta Heavy. Eptic. Party Favor. Slushii will be in the house.Read full review
2
Countdown - LA, California
Diplo, the Chainsmokers, RL Grime, Anna Lunoe, Zedd, W&W, Rezz, Seven Lions, San Holo, Billy Kenny, the Bassrush squad, and dozens more will join thousands of Headliners for the last dance of 2016.Read full review
3
Snowglobe - Lake Tahoe, CA
The Chainsmokers, Flume, Major Lazer, Odesza, Rüfüs Du Sol, RL Grime will fire up your night in the cold wintery night in Lake Tahoe.Read full review
4
Reaction - Rosemont, IL
FLUME - THE FREE NATIONALS - DILLON FRANCIS - DANNY BROWN - MR. CARMACK - NONAME - KWEKU COLLINS - ZEDS DEAD - GUCCI MANE - TCHAMI will show you a great time!Read full review
5
Decadence - Chandler, Arizona
The Chainsmokers, Deadmau5, Disclosure, Porter Robinson, DJ Snake, Zedd, Jauz, Marshmello, 4B, Arty, Green Velvet, The Him, Justin Jay, Sam Feldt, Shiba San, Slander, Slushii, Tritonal, Vanic, Zomboy will light up the New Years with energy!Read full review