Tuesday, January 31, 2012

Dividend Update - January 2012

January was a poor month that only saw 2 dividends get paid out. And only one, EOG Resources, for my brokerage account the other, JP Morgan, in my Roth. So it’s a slow start for me in trying to reach my lofty goal of $1,000 in dividends, especially considering if all the dividends stay at the current payout rate I’ll only receive around $420 for the year. February will be a better payout month for dividends. However March will bring my biggest payout.

Dividend Shares
EOG Resources $0.64 0.006
JP Morgan $5.00 0.133

Total January Income $5.64

Total Dividends received in 2012 $5.64

Waiting on a pullback...

I'm currently sitting on some cash that I want to put to work but am waiting on the markets to pull back some. I thought today might have been the start with the European mess rearing its head again but the markets bounced back up. I'm hoping for a second half pullback like we saw in 2011 because I won't be having much capital to invest until I can get my debt paid off around September of this year. I'll be paying off approximately $22,300 in debt between now and September which will be great to be done with that. That will free up my cash flow so much and allow me to invest much more. I'll be able to truly save between 70 and 80% of my after tax income instead of "saving" it in debt repayment.

I haven't had any new purchases recently and I'm getting a little antsy, I need to find something to distract these idle hands until I can get a better entry position.

Monday, January 30, 2012

15% Capital Gains Tax Myth

Just for a little perspective I made a quick graph showing the true capital gains tax rate adjusted for inflation. To make the math simple let's assume you invested $100 in a stock and it doubled in value to $200 so the capital gains taxes owed would be 15% * ($200-$100) = $15. If you use a 2.5% inflation rate you're $200 investment is actually only worth $195 after 1 year. You taxes stay the same at $15 but is being taxed in reality on $95 ($195 - $100) meaning your actual capital gains tax rate is 15.8%. If we go out to year 2 your inflation adjusted investment is worth $190.13 but you still pay the $15 in taxes giving you an adjusted capital gains tax rate of 16.6%. See chart below assuming 2.5% inflation rate.

Of course this is assuming just a 2.5% inflation rate, if you're saving to cover college costs or health care costs the actual inflation rate is closer to 7% on the low end. After 2 years you would be paying a 20.6% capital gains tax. So what does this mean? Well I don't have any faith that the government can overhaul the tax code to make it a lot simpler like I would prefer. And they do like to make things complicated so maybe they should add an inflation adjustment to the tax rate. I don't see either of these happening but it does add a new piece of information to help determine sales on stocks that run too far too fast. I have several positions as you'll see in my next portfolio update that have gains of 10-20% over a very short time period. Most of these are financials which I expected to see but nowhere near this fast. I think this is definitely another knock against buy-and-hold investing and another plus for buy-and-monitor.

Friday, January 13, 2012


Well my ESPP shares officially hit my brokerage account today. I was able to get 184.524 shares at $29.33, which is the 15% off of the $34.51 close. Since it transferred to my brokerage account I'll be able to go through with my plan to sell call options to get added income. I'll be running numbers to see what call options will be giving me the best return for the risk of having the shares called away. As long as I can get enough money to pay off the tax hit then that will make up for shares being called away. As I said earlier I hope to be able to target $100 in added monthly income from selling the options. February will be the earliest call that I sell. I'm also looking to possibly purchase some LEAPs in the future. I'll update should I decide to do so. While I don't necessarily want the shares called away from me it wouldn't be the worst thing in the world since they currently represent around 37.5% of my portfolio and I feel that the risk of holding such a large percentage of my portfolio in my company stock is high even for me. Should the oil field go down and I get laid off I'd lose my job and most likely a large portion of my portfolio as well.

Thursday, January 12, 2012

Saving is a mind game

Being able to save money and become financially independent is strictly a mind game of self control. Some people, like myself are naturally inclined to save money, and others find it very difficult to save. If you aren't a natural saver then the best thing to do is to take the inertia required out of it by setting up automatic transfers to take yourself out of the equation.

Monday, January 9, 2012

Income Update - December 2011

Here is the chart for my income/expenses from December 2011. My expenses came down some but not by any significant amount. My income was way up and the second highest monthly total that I received all year. Because of the high income for December I had a big difference between my income and expenses allowing me to save a lot. Unfortunately there's that debt that I have to pay off so I wasn't able to add to my portfolio. I'm on track to have that finished off between September and November of this year depending on how work goes. My potential retirement income is very low but if you follow this blog you'll see that I'm working on it. I have some lofty goals to receive $1,000 in dividend income in 2012. That will be a huge increase considering that I'm on track to receive around $280 while not accounting for dividend increases and since I won't be contributing much to my portfolio until the last quarter of the year.

Sunday, January 8, 2012

Selling Covered Calls to add income

I've been searching through the plan documents but haven't been able to find whether or not I can do this with my ESPP through my employer. I'll know for sure come around the middle of January. If I can sell covered calls then it will be a great way to get extra income on those shares to help fund further purchases. I'll be getting approximately 180 shares that will hopefully not be called away from me and I can continue writing covered calls. I get a 15% discount on the shares which will be bought at $29.33. I'm researching the calls to write that would give me the best reward for the risk of the stock taking off. Just for some background I work for Halliburton and oil services stocks could easily go on a tear and jump above the strike price which won't be horrible but would just possibly limit some profit. With the 15% discount I can see some big gains should the options be exercised. I'll be targeting around $100 in income per month from the options that I write. If I am able to write the calls on the ESPP shares then I will be able to fuel an extra $1000+ in purchases for this year. I would highly recommend this option for anyone that can participate in an ESPP to get shares at a discount and is allowed to do sell options in their plan.

Friday, January 6, 2012

Net Worth Update - December 2011

December wasn’t a great month, but that was mainly due to the fact that I finally got a chance to be a home and recalculate my debt that I owe. This change should’ve been reflected back in October but I’ve been working a whole lot and haven’t had much time at home. So it just now got added on. If you take out the change in debt I would’ve had around a $5,500 increase in net worth. I’m excited to see that my assets are well into the $100,000’s.

Current Assets: $110,758.39
Current Liquid Assets: $ 96,188.39
Current Debts: -$41,994.94

My savings rate from my take home pay for Decemnet worthber was 80.65%, including the extra debt payments that I made. This was my highest of the year.
YTD my net worth has increased $67,489.11. I’m excited with the progress that I’ve made and am looking forward to what 2012 will bring. All my investments, both taxable and tax-sheltered, are currently at $63,552.55 and will hopefully see a large increase again in 2012. They should increase by around $35,000 in 2012 with maxing out my 401k, my Roth IRA and beginning a Roth IRA for my fiancĂ©. YTD my net worth increased 5,296%, of course starting with a small negative number really helped. I don’t expect to see huge monthly % gains from now on but as long as it’s positive it’s moving in the right direction. I’ll be getting married in June so unfortunately that will be drawing down my savings but the good thing is that we won’t be going into any debt to pay for the wedding. The good thing about having the money saved up for the wedding is that I can charge all costs to my credit card and get points/miles to help with either getting extra cash back or to get some extra miles to go towards our honeymoon.
2012 will be an exciting year with my high interest debt being paid off. I'll keep updating on my progress and hopefully everyone else sees moves in the right direction.

Thursday, January 5, 2012

Happy Birthday to me!!!

Today I turned 28 and this year is going to be full of changes. I'll be getting married in June and starting my new life together with Lynsy. I can't wait to be able to make great strides towards getting financially independent and being able to replace all my income through passive income.

Monday, January 2, 2012

2012 Goals

My ultimate goal is to be able to retire by 40 by replacing all of my income with dividend payouts. I have a long ways to go but am working on making progress towards it.

Budgeting goals for 2012:
Average 70% after-tax savings rate
Average less than $1,600 per month in required expenses
Reduce miscellaneous spending by 20%
Reduce restaurant spending by 20%
Reduce grocery spending by 10%

Savings goals for 2012:
Payoff all debt
Surpass $100,000 for my net worth

Investing goals for 2012:
Receive $1,000 in dividends
Obtain 3.00% or higher YOC for my brokerage account
Surpass $100,000 in investable assets
Max out 401k
Max out Roth IRA's for myself and my fiance

Personal Goals for 2012:
Lose and keep off 20 lbs
Workout 3x per week
2+ blog posts per week

I think the hardest goal to reach will be the $1,000 in dividends since I will be focusing almost exclusively on paying off debt. The plan is to get the debt paid off by October 2012. For 2012 I will be including my debt payments in my savings rate calculations.

Sunday, January 1, 2012

Happy New Year!!!

Happy New Year to everyone. I hope to finally get home early in the new year. Good luck on everyone making more progress this year than the last. You can check out my goals page to see what I have in store.