Author: admin

A lot of people are asking me to share how I am able to save more than 50% of my paycheck each month and still live a good life. I will try to answer this question below and tell you how you to can save a lot of money to.

The first thing to consider is that I earn a rather good income. I earn about $6000 a month (pre-tax). This makes it easier to save a large percentage of my paycheck. But I have not always had a good income and I was able to save 30% of my income back when I earned about half of what I am earning now. The bottom line is that it is almost always possible to reduce your expenses and save a part of your pay check.

Before we look at how I save money I want to stress how important it is to not only look at how you can reduce your expenses. You should always be looking for ways to increase your wage as well. Is there any class or certification you can take to make you worth more to your employer. Is there any side hustle that you can use to earn extra money on the side.

Question everything

We all grew up in a society where we are thought that you need to have certain things. Things that you can not live without. Things that every working person should own. But do you really enjoy having these things. I personally find that a lot of these things are not worth the price they cost. That to me they are not essentials but rather unnecessary expenses. You should therefore consider all your expenses and see if they are really necessary.

Which things you have been thought that you cant live without might vary depending in where you grew up. If you are raised in certain parts of the country then you might have been thought that you can’t live without a car, the news paper or Sunday dinner at a restaurant. In other parts of the country the essentials might have been a phone line, cable tv and magazine subscriptions. The truth is that none of these things are really necessary to all. If you really ask yourself what you need and what you might be bale to give up without negative effects on your life then you might be surprised over how much you can live without. I know I was and I was able to eliminate a number of monthly bills.

It does not matter what other thinks. Do not pay for anything that does not bring you a better life.

Sometimes it can be better to switch to a more expensive alternative than the one you are currently uses if that brings you more fulfillment per dollar spent. Your goal should not be to minimize your expenses. That might give you a boring life. Your goal should be to maximize what you get from your money.

Things I no longer spend money on

Below you can see some examples of the things I no longer spend any money on. Things that you might also be able to stop paying for.

• Cable TV: I no longer pay for TV. I know I am far from the only one who have chose to take this step. You can find all the entertainment you need online and you can save a lot of money each year by cutting your cable.
• Netflix: I no longer use Netflix either. I find that TV tends to steal too much time since I watch things I do not really like. I therefor try to see the films I really like in the movie theater and buy the shows I want to see on DVD. This does not cost me any more than TV used to do and I end up watching only the things I really want to see.
• Magazines: I used to subscribe to a number of different magazines that I hardly ever read anymore. I realized that I was able to read everything I want to read online and cancel almost all subscriptions. I still get one magazine that I read religiously.
• Newspaper: I no longer get any news paper. Not even a local one. There is no need to. Local blogs tends to report better than local papers on local matters. National and international news are easily available online.
• Landline: I do not need a phone line in my house when I got my cell phone.
• New cellphones: I do not buy new cellphones before me old one breaks. The new functions you get with a new phone is not worth the often very high price.
• Coffee in coffee shops: I do not go to star bucks or other coffee shops any more. The coffee in these shops are not as good as the coffee you can brew yourself with a quality roast. Going out to start bucks regularly is very expensive. It is very easy to spend $100 a month at star bucks without thinking about since each coffee only cost a couple of bucks. I was surprised what a large difference this made.
• Lunch: I no longer eat lunch in restaurants. Instead I prepare and bring my own lunch to work. This allows me to eat healthier, cheaper and better tasting food every day. A number of my colleges have started doing the same thing and we are now able to eat without stress during our lunch hour since we no longer have to rush out.
• Snacks: I no longer eat snacks, candy or chips very often. This have allowed me to save a lot of money. A small candy bar each day quickly adds up to a lot of money. I also realized that I used to eat a lot of snacks that I didn’t really like. I was just eating them out of habit. Once I realized that it was easy to break the habitat. Now I make sure to only eat snacks I really like when I do eat chips.
• Alcohol: I used to get way too drunk when I went out. I drank a lot of alcohol and cared more about getting drunk than I did about what I was drinking. I have come to realize that I can have a lot more fun while saving money by drinking less. I still drink, but I do not get completely hammered. An added benefit of drinking less is that you can choose to treat yourself to drinks you really like even if they are a little more expensive. I have completely stopped drinking when I am at home. I only drink at social gatherings where alcohol is prevalent.
• Credit cards and consumer credit: I no longer use these types of credits. I never buy anything I can not afford.

Things I spend less on

Below you read a little about things I spend less on.

• Insurance: Most people can save a lot of money by looking over their insurance and finding a cheaper provider. You need to make sure that you do not pay more than you need for the protection you need and that you do not pay for more protection then you need. I recommend that you look over your insurance once a year to make sure that it is always suited for your current situation.
• Internet and cellphone service: There is a lot of money to be saved by regularly reviewing and renegotiating your cellphone and internet service. I always set a calendar alert for when my contract is up.  I then move my business to where ever i get the best deal. Make sure you do not get tricked into paying for a service that is more than you need. Most people do. Paying for more than you need is a waste of money.

A large part of my modest success as an investor can be attributed to my frugal life style. I try to eliminate all unnecessary costs without reducing my quality of life. By eliminating some expenses that many would say are necessary I am able to save a larger part of each pay check each month and are able to spend money on things that other would consider luxuries even though I am living more frugally than most other people. The illusion of what you need can cost you a lot of money and deprive you of things you really want. I would recommend that you go over all your expenses with an open mind and see how many things you can find that doesn’t bring joy or comfort to your life. Things you only got because it is expected of you or because it is things you used to like. By eliminating these things, no matter the size, you free up money to use for other things.

With this in mind I have recently started looking over my living situation. I am trying to figure out if it would be better for me to buy a house and move out of the apartment I am currently renting or if I am better of renting.

Borrowing money or selling stock

The first thing I looked at is whether it would be better to get a mortgage or to sell stock to be able to buy a house. I would be able to buy a house without a mortgage but if I were to do that I would need to sell a large part of my main portfolio.

It didn’t take long to discover that it is much better to get a mortgage than it is to sell my stock. The return I get from my stock is a lot higher than the interest rate on a mortgage and I would therefore lose a lot of money if I chose to sell my stock to buy the house.

I have a decent credit score and would be able to get a loan at about 3% interest. My portfolio is currently owning an average dividend yield of 4%. This means that the stock will earn more than the cost of the mortgage, which does not take rising stock prices into account. Just the dividends themselves.

It therefor seems clear that the best option for me in the current market conditions is to take a mortgage.

The yearly cost to buy a house will be about 3%. My yearly payment will be larger than that but I do not consider the down payments a cost. They are an investment.

Monthly cost of buying a house vs renting

The main reason to buy your own house is that it is supposed to be cheaper then renting. Rent is often referred to as a tax on the poor that transfers money to the rich who own the properties. But is this really the case. Is it cheaper to own a house then it is to rent.

I currently pay $1200 a month for my 2 bedroom apartment in a central location. The apartment building have a community pool and a gym in the basement. It also offer laundry facilities. A similar house in my area would cost about $260 000. The interest rate on a 260 000 mortgage would be $650 a month, $7800 a year. $650 is lower then the $1200 I presently pay. But there are a lot of cost associated with owning a house.

$550 a month adds up to $6600 a year. Is this enough to pay for renovations, property tax, garbage fees etc. I am not sure. Hiring handymen for the renovations can be very expensive. Any larger renovation such as redoing a bathroom, a kitchen, or replacing the roof or windows will cost a lot more than that.

I can personally not see any large financial benefits from buying rather than renting and this is despite the fact that I am not counting the down payment of the loan as a monthly expense. If I take that into consideration then it is likely that I would end up paying more if I bought a house.

Increasing value of the property

A common reason stated to why it is better to own then rent is that the property will go up in value and make for a good investment. There is no doubt that this has been largely true during the last 30 years but there is nothing that guarantees that this will be the case in the future. Property prices in my area are very high at the moment. This is true even when put into relation with the average earnings in the area. It seems very likely that properties wont be able to continue to appreciate in value as they have in the past because if they do then no one will be able to afford to buy them. I am not saying that it is impossible that they will keep going up in value but it is far from certain that so will be the case. I feel a lot more certain that stocks will continue to appreciate in value than I do with residential real estate.

A better option?

A better option might be to buy a fixer upper and then renovate it to a good standard. This is a good option if you are able to do a lot of work yourself. This doesn’t really describe me but I might be able to learn. It might also be possible to to find a property that  is a good deal even after I paid professionals to renovate it. The profits will however be nowhere as good as if I would be able to do the work myself.

Conclusion

I can not see any economic benefits that would make me buy a house rather then keep renting. Doing so might allow me to save a small amount of money but this would likely be spent on renovations over the years. I think it is better to keep renting and investing money in stock. Increasing interest rates might bring the house prices down and make it a more attractive proposition to buy a house. But right now it does not seem to be worth the hassle to save a limited amount of money each year.

With this said. It might be worth buying a house for other reasons such as being able to change the house in any way I want to suit my needs and to get a garden. But if I decide to buy a house it will be due to other reasons, not due to the economic benefits of doing so.

Blue apron is proving to be one of my worst investments in many years.

I did not take part in the IPO since I though the original guide price of $15-17 was too high. I could not see the company being worth that much. The stock ended up entering the market a lot lower. At $10. This seemed like a much more reasonable valuation. The stock ended up gaining 9% on the first day. It then started falling. I couldn’t help myself and added the stock to my high risk portfolio at $9 a share. This seemed to be a deal for a share that surely was going to go up again. The original IPO price was after all a lot higher.

This was a big mistake. The stock is now trading around $5 and I have lost almost half of my investment. I have considered buying more shares to lower my average purchase price to make it easier to earn my money back. The problem is that I am no longer sure that this company will go back up. After having done more research into the company (which I should have done before I bought the stock) I am starting to think that blue apron is a black whole you lose money into. A company that have their best times behind them and that will die a slow expensive death. This makes me think that it might be best to to take the loss and move on. Although the stock might make a few jumps before it dies and that would be enough for me to get out of it without losing any money.

Why I lost fate in the company

I lost fate in blue apron due to external and internal factors. Below we are going to look into both internal and external factors.

External

The external factors that make blue apron a less than appetizing investment can be described in one word. Amazon!

Amazon and Amazon NOW has been a big threat to Blue apron for a long time. This danger became a lot larger when Amazon announced their purchase of Whole foods and their introduction of meal kits. Meal kits will compete directly with Blue apron and whole foods will give amazon a large distribution system to be able to deliver these boxes in all of the country. Whole foods helps Amazon be able to offer perfect groceries in their meal boxes no matter where you live. This is bad news for Blue Apron since Amazon had a superior distribution system already before they added whole foods to the mix.

Amazon is very good at internet based retail and they have a huge audience to sell their products to. This makes it very likely that they will take a large part of the market for pre-made meal kits.

Internal

The most important internal factor that I looked at when I lost faith in the company is the customer acquisition cost. This cost was misrepresented in the IPO material to make it seems a lot better than it really was. The IPO material contain the average customer acquisition cost over several year. Not the avarage cost for the last year. The average cost for the last year is a lot higher than the cost in the IPO material and it shows how Blue apron has to pay more and more to attract new customers. Their current customer acquisition cost is according to my sources over $400 a customer. According to the CEO the average customer brings in $900 to $1,000 over a 3-year period. This means that it would take more then a year to earn back the customer acquisition cost for each customer. This might be okay if blue apron had a high customer retention and if most customers stayed customers for more then a year. This is unfortunately not the case. Blue apron have a low customer retention. Blue apron loses money on more than 70% of all their customers. All this makes it very hard to see a bright future for the company even without the added competition that Amazon will add to the market space.

Conclusion

At the moment I can not see a long term future for Blue apron. A more likely future sees the company keep losing money and eventually disappearing unless they get purchased by someone else like Amazon. If I decide to buy more stocks then it will be a short term speculation to try to get my money back and then get out of the stock again. I will not retain a long time position and I will most likely just accept the loss and move on to new ventures. The risk of the stock going down another 50% seems very high. I will just have to see it as an expensive lesson to newer buy stock without doing extensive research and never to trust IPO information without digging into it a little deeper.

I guess I should be happy that I at least avoided the other nightmare IPO of the year, Snapchat

My main portfolio contains 85% of my investments. It is completely devoted to long term investment in solid high yield dividend stocks. I only invest in stocks that I think I will be able to keep for at least ten years but my goal is always to never sell a stock once I have added it to this portfolio.

This does however not mean that I never sell a stock. I do regular overviews of my portfolio and any stock that does not meet my requirements to be in the portfolio will be sold. I do not keep stock in companies that I do not think have a future. To date I have never been forced to remove any stock from my portfolio and I do believe that I will not be forced to do so in the future either as long as I do my research before I add a stock to my portfolio.

Criteria to be added to the portfolio

A stock needs to fulfill certain criteria to be considered to be added to this portfolio.

• It needs to pay high yearly dividend. At least 3% although 5% is preferable.
• It needs to be a well established well ran company.
• They need to sell a time tested product. (It can not be a fad)
• They should be relatively recession proof.
• They need to be growing
• They need to have a history of high dividends. At least 5 years. I might make exceptions from this rule in certain cases if the company has strong growth.
• The yearly dividend have to increase from year to year (Disregarding one time payments and spin offs)
• The company should be associated with low political risk. I.e cigarette companies is vulnerable to new legislation, the same goes for gas companies.

I try to diversify my portfolio by adding stocks in different industries and based in different countries. I do however diversify my investments less than many advisers would recommend. I do this to keep my dividend high and due to the fact that the stocks I chose are relatively low risk to start with.

How to find stock

I always start by looking at a list of the stock with the highest dividend yield on a certain stock market. It easy to find list likes this by googling. It easy to find list of the highest yield stocks on a certain market as well as they highest yield stock overall. Both types of list have their value. List that shows the global dividend kings can give you a good start to find good stocks for your portfolio. Lists with the highest yielding stocks can be very useful when you want to diversify your investment between different markets. By buying stocks in different countries you reduce your risk.

Once I have the list I remove all stock that do not meet my dividend requirements. I then do a deeper analysis of the remaining stock.

Evaluating the stock

When I evaluate the stocks I am not looking to find a stock to my portfolio. My goal is the opposite. I try to eliminate all stocks and discover that they are not suitable for my portfolio. I only want the very best stocks in my portfolio. I therefore want to eliminate any stock that is not worthy to be in it. I rather buy more stock in the companies I already have in the portfolio than adding a company that is not good enough to be in the portfolio.

The first thing I do is to look at the key figures. Does everything look good or are there any red flags. Is the profit growing. How is the profit margins. Increased total profits with lower profit margins can be an early warning sign that the company will have a harder time in the future. I am looking at all data points I can find.

I always avoid companies that have shrinking profits but growing dividends. This is a sure sign of a company that has run out of ideas about how to grow. A company that will die a slow death and can bring you down with it.

Does the company have a good history of increased dividends?

After that I look at the CEO, board and largest shareholders. Is that CEO and board well established within the company or have the recently been replaced. If the company has a new CEO then I try to research the work he has done previous to becoming CEO of the company in question. I always make sure that there are no new large stakeholders. If there are then I look at what type of owner they are. If it is a passive owner that will allow the company to continue business as usually or if it is one that is likely to try to force changes to improve short terms results.

When I know that the company itself is healthy and well managed then I look at the industry they are in and the products they sell. Are they too dependent on one product (common in pharmaceutical companies) or do they sell products that might face legal restrictions. I only invest in companies that have a good mix of products and that introduce new products that will keep them on top.

If a company contain all the quality to be added to my portfolio then I start buying stocks in it. I do not worry about buying at the right time since I am a long term owner. The exact price is less important than that I am able to add the stock to my portfolio. If the stock price goes down a lot then that is a chance to buy more stock.

My main portfolio currently contains the following stocks

The profits in the table below does not contain the dividend I have earned from the stock. The dividend yield can in some cases be higher than the appreciation in value.

CFD certificates are a type of financial instruments that allow you to trade stocks and other assets with large leverage. Many brokers allow you to trade with x250 to x 500 leverage. This allows you to make very large profits on small fluctuations in the market value of stocks and other assets. CFD certificates are a day traders best friend since they allow you to make large profits, large enough to live on, despite not being fabulous wealthy. It allows the trader to make the same profits at someone with a lot larger portfolio that invest directly in the assets.

CFD certificates are extremely high risk investments. You loses are not limited to the amount you invested. You can lose more than you invested. You can even lose more money then you have in your brokerage account. If you lose more money than you have in your account than you need to deposit more money into your account to cancel your debt to the broker.

Lets start by looking a little bit closer at how much money you can make and how much you can loose.

How much can you earn

There is no limit to how much money you can earn when you are trading with CFD certificates. The more the underlying financial instrument appreciates in value the more money you will earn. Lets assume that you have invested USD 1000 in a CFD with x250 leverage.

• If the assets appreciates by 0.5% then you earn a 125% return on your investment.
• If the assets appreciates by 1% then you earn a 250% return on your investment.
• If the assets appreciates by 2 % then you earn a 500% return on your investment.
• If the assets appreciates by 5% then you earn a 1250% return on your investment.
• If the assets appreciates by 10% then you earn a 2500% return on your investment.

CFD certificates will, as you can see in the examples, allow you to make large profits on normal daily fluctuations in the value of a stock or other asset.

A skilled trader can earn very large sums of money very quickly while trading with CFD certificates.

How much can you lose

You loses are not limited to your investment or to how much money you have in your account but they are not unlimited either. Your loses are limited by the fact that the asset price can not sink below 0. Your loses are therefore limited to your investment multiplied by the leverage. If you invested USD 1000 in a CFD with x250 leverage then you can lose up to USD250 000. Once you have lost 250 000 then the asset is worthless and the value can not sink any lower.

You can limited your potential loses by using a stop loss that automatically closes your CFD position if you lose a certain amount. Please note that stop losses are a great tool that I recommend whenever you trade with CFD certificates. They are however not a fool prof way to limit your loses to a certain level . You can still lose more in the event of a flash crash where you position cant be closed at the desired level.

You can also use binary options to hedge your CFD positions.

Broker support

Most CFD brokers will work very hard to give the traders the tools they need to be able to be successful traders. CFD brokers earn more money the more successful you become. A successful trade will make more trades and is more likely to hold positions over night (and pay the overnight fee). All this make successful traders a lot more profitable for the brokers.

Brokers do despite common misconceptions not make any money when you lose money. All CFD:s are hedged on the open market and the broker makes money from the spread and the overnight fee. Not from your loses.

Bottom line

CFD certificates allows me to keep the bulk on my net worth in my low risk main portfolio. Thanks to CFD:s I can keep 85% of my money invested in dividend stocks. I do not have to worry about the daily stock price of these stocks and I know that I will be able to keep them for years. Thanks to CFDs (and to a lesser extent binary options) I am able to use a mere 5% of my total investments in working capital that allows me to make a decent side income. Enough to to pay my mortgage and to contribute to my main portfolio each month.

I often get asked why I do not invest more money in CFD:s if I really make good returns from them. The answer to this is very easy. Yes I might a good return on my CFD positions but they remain high risk investments and I do not want to risk my financial future to greed. Greed goes before fall. I rather take my time and know that I will reach my goal then risk it all to get there sooner. Slow and steady wins the raise.

Binary options are often referred to as scams. As financial instruments that has more in common with casino games than they do with stocks and other investments. Many will tell you that it is impossible to earn any money from binary options and that they are designed to make sure that you always lose money. That no one who knows better would ever trade with them. Me myself recommend that people avoid them. Despite all this I trade with them regularly. In this post I am going to explain why this is. Why I trade with a financial instrument with an awful reputation. A financial instrument that I discourage others from trading with. You can read more about my investment strategies here and my investment goals, here.

The bad reputation

Lets starts by looking at why binary options have a poor reputation, why they are often referred to as scams.

Poor knowledge

People have a lot of misconceptions about binary options and a lot of traders start trading without really understanding the answer to the question “how do binary options work?“. All information about how binary options work are freely available on numerous websites. Most brokers provide detailed information about how the options work. It is very easy to learn how binary options work if you want to do so. A lot of traders are unfortunately too lazy to read the information provided and just assume that they understand how everything works. They assume that binary options work the same way as regular options. This is not the case.

Traders start trading with these options without understanding how to use them effectively. Without understanding that you need to be a skilled trader to make money. Unskilled traders will lose money and all new traders should always use their demo account to train until they become skilled traders. Binary options brokers make their money from the large quantity of unskilled traders that starts trading with real money before they are ready. Traders who in their hubris thinks that they are skilled enough to make money without ever taking the time to learn if they really are.

Misleading advertising

Binary options have been advertised very aggressively and it is very common that the advertisement make it seem easier than it actually is to earn money from binary options. The ads make it seems like anyone can start trading with binary options and earn large profits. This is technically true, anyone can make money if luck is on their side, but it disregards that fact that most unskilled traders will lose money. You need to be skilled to be able to make money from binary options. Most people who see the ads and think that binary options are going to make them rich will lose a lot of money.

Binary options might not be a scam but it is fair to say that a lot of the ads are dishonest.

The adds make people think that it easier to make money than it is.

Passing the blame

Traders who have been too lazy to do their research or that has fallen for the misleading ads that make it seems easier to make money than it really is will often feel scammed. Claim that binary options are a scam. It is easier to pass the blame on to someone else than to admit that they where too lazy to learn how the options really works. Too stupid to remains skeptic to the ads and find out the truth before they started trading with binary options. All the information they need to make an informed decision is freely available and easily accessible through google or on the brokers website.

Impossible to make money

It is not true that it is impossible to make money from binary options. A lot of people are making good money from binary options and me myself make modest profits from the trade each month. I would be able to earn more if I was able to devote more time to the trade. If I was willing to devote the time necessary to become a truly skilled trader.

It is true that each option is design to make the broker money. You lose all your money if your option matures outside the money but you earn a lot less (70-90%) when an option matures in the money. The broker has an edge on each option. If you were forced to buy random options than it would be impossible to earn money. But you are not forced to buy random options. You are allowed to pick and buy exactly the options you want to buy. This gives you the edge to earn money. If you are skilled at picking options that matures in the money then you will earn money.

Why I trade with them

The simple answer to this questions is that they allow me to make money. They allow me to get a good return on invested capital with minimal effort.

The more complex answer is that binary options can be used to hedge other investment such as FOREX or CFD positions. This allow me to reduce the risk of certain high risk trades. In some cases I am able to completely eliminate the downside of certain positions. I am hoping to address this topic in a more in depth post at a later date.