How I Got The Vette III

I’ve already discussed the first two points, believing it was possible and investing in myself. Now, I’ll talk about investing in business, or at least what I did that could apply to you. At one point I started my own business. I invested money in stocks, which means I gave a company or group of companies my hard earned dollars so that they could make more money. I invested in my retirement plan, which can be another way of putting money into stocks. I invested in the stock sharing plan offered by my company.

Not all of these ventures were profitable financially, but I always learned something. I first started a business a year out of college. I bought a computer and some design software, left my engineering job and started making silk-screened t-shirts. Ironically, I lost my shirt in the process. I was, however, able to make over $30,000 in revenue, and by the end of that 12 month period I started to get repeat business. However, the profit margin was so low I only took home a few thousand dollars. What I learned was that a good business needs time to develop and cash to start with.

That business folded, I got divorced, moved in with my brothers and teamed up with a few guys from college making web pages. I didn’t make much there either, but because of that gig I got a jump start on the internet and all of my professional work since then has been internet-related.

After I started working full-time making web pages, I finally had a little bit of money to invest in stocks. There’s always an opportunity to make a lot of money there, but it didn’t happen to me. The dot-com bubble burst a few months after I started, so that was pretty much all downhill. By this time I was working at a financial services firm and I was beginning to focus my energy on learning how to make money selling stocks. During that process I learned that this isn’t something that’s commonly taught in schools or in African-American families, which explains a few things that I might have to make time to talk about later.

What I learned was that I could make money when a stock goes up (selling long) or when a stock goes down (selling short ), BUT (and this is important) over the long haul, the only people that consistently make money are the people who do it professionally. Even then it’s not even close to being a guarantee. So, then I finally figured it out. If I was going to invest my money, I was going to rely on the advice of only the best experts. So, I researched mutual funds (a group of stocks whose purchases are guided by professionals) and put my 401K retirement money into the best ones.

Of course, you can’t invest anything unless you save your money, and I wasn’t very good at it. So, I read books that guided me on the best way to do that. My favorite, The Richest Man in Babylon, says to save 10% of what you earn. Use that money to pay yourself before you pay anyone else. The book also talks about how much time it takes to get used to the pattern of saving, and just like in the book described, it took me two years before I could do it reliably.

Now, back to the 401K. In one year, I managed to put $8000 of my income into my 401K. Had I just kept the money for myself I would have had about $6000 in my pocket, since the money would have been taxed. So I saved $2000. Additionally, my company would match my contributions to a certain level. It turned out that by the end of the year, they added $4000 to my 401K, for a new total of $12,000 for the year. Now, instead of $6000 in my pocket over the course of 12 months, I had $12,000 in my retirement account.

It doesn’t stop there, though. Remember those mutual funds I put my 401K money into? Well, they went up and added another $3000 into my account, for a grand total of $15,000. So, by saving $6000 in spending money, I made an extra $9000 in one year; $2000 from the government, $4000 from my company, and $3000 from my mutual fund investment. I didn’t have to work any harder, get a raise, get a better job, nothing. To top it off, because my recorded income was $6000 lower, I got a lower tax rate, which means I got a second tax benefit.

What’s really interesting to note is that with a 401K, you can make a loan to yourself for half the amount in your account. So, at any time, I could take that $6000 in spending money back out along with an extra $1500, and pay myself back at 5% interest. Of course I didn’t do that. Then, I lost my job.

What most people don’t know is that creditors can’t touch your 401K money. If I had gotten into serious debt, my cars, bank accounts, and home (if I had one) could have been taken if I didn’t plan right, but not my 401K. It didn’t get that bad for me, though. I got another job and started saving again.

This time in addition to the 401K, I participated in my company’s employee stock purchase plan. I was able to save money in an account that would be used, at the end of the year, to purchase company stock at huge discount. Not only would they allow me to purchase it at a discount, the 15% off would be based on the lower of the beginning and ending price of the stock. That means if the price went from $10 to $20 or from $20 to $10 I’d still get to pay 8.50 for it. The stock went up, of course, (since I invested in myself earlier and provided the company with the tools they needed to make money) and I turned another $6000 saved into $11,000. That’s $5000 more in free money, in addition to the company matching, tax savings, and mutual fund growth that took place in my 401K that year.

So, now there’s $25K plus in the 401K and $11K in the stock purchase plan. What to do with all this money I’m not used to having? Buy a Corvette!!! Nope. Not yet. The last area of investment, which I’ll talk about next time around, is Real Estate.

Before I stop for today, though, let’s do a quick recap. 1. Starting a business is a solid option. Just make sure you know how much you can make and have enough cash on hand to be able to survive until you make it. 2. Investing in stocks is good too, but plan on spending a lot of time researching if you expect to get a reasonable return. 3. Get all the free money you can. 401K plans help you invest in stocks, can have company contributions added to it, and can reduce your tax payments both when you contribute and possibly by lowering your tax rate. Company stock purchase plans can also be a great source of free money. (On a side note, the company changed the terms of the stock purchase plan the following year. The terms weren’t as favorable and I didn’t participate in it.).

That’s it for now. Get your stuff together and start making some money to get your own Vette.