The real path to wealth and riches…multiple income streams.

Sure there are a lot of blogs out there that teaches you to live within your means and to try to live as frugal if not down cheap as you can so that at the end of the day, you keep more than what you have earned. These are all very good and sound advise. But to really make a good amount of money to be able to live comfortably and not worry so much about how you nickel and dime your money, you have got to make more money than what you need. A lot more.

Over the last few weeks, we made a well laid plan on our path to frugal living. But a best laid plan met reality last week which made me realize that it may not be in our best interest to try to nickel and dime our way towards wealth. You see, going to these discount stores last week created a lot of stress starting from trying to outrun other drivers in the parking lot to the sardines-packed stores and the long lines. It will be the death of me trying build wealth this way. Plus, we really missed the aromatic and music filled halls of Neiman Marcus, the piano music at Nordstrom and the tranquil ambiance of the high-end stores.

It just dawned on me. It’s better for us to just try our best to be money smart by saving 10-15% for retirement, take care of the bills, paying all credit card debts at the end of the month, removing excesses and keeping emergency funds. The main focus should be building multiple income streams in order to exponentially grow our wealth.

 

I paid myself $700 today

After closing my HES trade, I paid myself $700 which is 30% of the capital gain from the transaction. I will use $350 to paydown my credit card debt and the remaining $350 will go into our emergency fund.

 

Looking at the big picture

We have a established a lofty goal for ourselves. The ultimate goal is to be able to free ourselves from all worries about money and have the financial freedom to pursue other interest.

I would like to switch career into a full-time stock and a hedge-fund manager.

My wife would like to start working part-time and devout more time to our almost 3 year old big boy.

To achieve these lofty goals, we have to take baby steps, one step at a time.

Baby step#1 Make some of my financial decisions automatic and start purging some excesses

Following the advice from the Automatic Millionaire book, we changed the contribution percentage for our 401k to 10% of our pre-tax salaries which should bring us close (if not over depending on bonus) to the maximum amount allowed per year. My wife also modified her direct deposit set-up  to direct $1,500 of her monthly income into our emergency fund and the rest of her salary will go to our checking account. No change required on my side.

I have also established a recurring payment of $100 for credit card#2 ($504 remaining balance) and $400 for credit card#1($11,000 remaining balance) to automatically pay these credit card debts.

I will look into establishing by-weekly payment of our mortgage which should cut down the years to pay from 30 to around 21 years. Instead of sending a $5000 check at the end of each month, I will establish a recurring payment of $2500 every after 2 weeks.

We will also look into reducing our spending excesses such as the super-loaded satellite tv subscription, $100 monthly overseas call expense, change gym membership from NYSC to a local gym. Try to cut down on those small items such as Starbucks coffee every morning and the frequent trips to fast-food stores.

Baby step#2 Pay the $504 debt from credit card#2

Any money coming from my income from the trading account will be used to pay this card quickly.

Baby step#3 Pay the $11,000 debt from credit card#1

After paying down credit card#2, I will add the $100 into my recurring payment for this card which should bring the monthly payment up to $500. I will also use 30% of my per-profitable trade income from my trading account to pay this credit card debt.

Baby step#4 Pay the remaining balance of the car loan

After paying down the $11,000 debt from credit card#1, we will add $500 to my existing monthly payment for the car loan which should quickly help bring the balance down. I will also use 30% of my per-profitable trade income from my trading account to pay this loan.

Baby step#5 Build the emergency fund to $100,000 to cover 1year worth of expenses

This emergency currently stands at $26,000. A monthly deposit of $1500 should give a lot of progress towards the $100k target. We will also direct into this account all bonuses and the 30% of my per-profitable trade income from my trading account. I expect this account to be fully funded by the 3rd quarter of next year.

Baby step#6 Build a $200,000 the college fund for daughter

This account currently stands at $12,000. We have a recurring monthly deposit of $500 to this account. After paying down the credit card debts and the car loan, I will redirect additional $1000/month to this account.

We have 5 years before our daughter goes to college so there is no rush in fully funding this account.

Baby step#7 Open 529 plan for our son with monthly contribution of $300

He haven’t started going to pre-school yet but we are looking into open his 529 college plan after we meet our target for our emergency fund.

Baby step#8 Start pre-paying the mortgage loan

Upon meeting the $100k target for our emergency fund, we will look into redirecting about $700 a month into pre-paying our mortgage.

 

Stablishing the baseline for my financial health

Starting today, I will have a monthly check-up of our financial check to see if we are moving towards our goal. I will perform a check-up of our financial state for the previous month that just ended on every 1st day of the month. But before I can do that, I have to establish a baseline for which we can compare our progress towards the ultimate goal.

Assets ( $1,001,700.00)

$ 90,000 combined 401k
$ 26,000 savings/emergency fund
$ 12,000 money market account for daughter’s college
$   2,700 CD account for son’s birthday money
$850,000 home value ( 80% of assessed value from Jan 2008 )
$  31,000 brokerage account

Liabilities ($584,188.52)

$545,000.00 mortgage
$ 11,034.10 credit card#1
$ 504.42 credit card#2
$ 27,650.00 car loan