Saturday, March 29, 2014

Preface: Part 2 - Investments

Dividend Stocks
I've been dabbling in the stock market for about 10 years now.  When I started out, I was single with no kids...I am now married and have two kids.  Needless to say, my tolerance for risk has certainly changed now that I have a family.  Nevertheless, I've certainly learned a thing or two from the various mistakes I made along the way.  But it was from those mistakes, that I believe have transformed me into the kind of investor I am today.  Today, I find myself more conservative than in the past, yet still look for the growth potential.  The main difference, however, is that today I only invest in companies that pays a dividend.  In fact, I am happy to say that earlier this year, I sold my last non-dividend paying stock in our family portfolio.  We now only own dividend paying stocks in our portfolio and receive approximately $1,700/year in dividends.  
Lesson learned: Don't chase the home run...In investing, slow and steady generally wins the race.
In my first 5 years of investing, I think it was merely a hobby.  My portfolio would grow a little, then shrink, then grow again, then shrink.  It was like riding a roller coaster because I had no clear direction to my investment strategy.  I did what many experts say not to do, that was I bought and sold based on internet articles and the media.  On occasions, the media did end up being correct. However, those occasions were few and far in between, and most of the time I simply ended up buying and selling at the absolute worst times because I let my emotions influence my investment decisions.
Lesson learned: Invest with a clear plan and pay attention to a companies fundamentals, not the media.
Today, I no longer let the media or my emotions influence my decisions.  Although it took many years of trial and error, almost 10 years to be exact, I can finally say that every buy and sell I make now follows a pre-established investment strategy.  I'll define my investment strategy in greater detail on a future post; but generally speaking, my primary goal is to buy dividend paying stocks and simply continue to build the annual dividends payout within my portfolio.  I plan to use this income stream to supplement my retirement.  What I find most appealing about dividend stock investing is that you can one day decided to live off the dividends, yet still preserve the portfolio value for future generations.  I must give credit to the growing community of dividend growth investing bloggers out there for this revelation.  It was through following bloggers like:  All About InterestThe Dividend Guy Blog, Dividend Mantra, Dividend Growth Stock Investing, DivGro: A Dividend Growth Portfolio, Captain DividendCompounding Income,  Average Dividend YieldPassive Income Pursuit, Dividend Hawk, and Dividend Ladder that resulted in my "AH HA!" moment.  I am truly grateful to have discovered this community but now only wish that I would have discovered these guys sooner.  So with that, I say thanks to all dividend growth bloggers for my "ah ha" moment, and also thanks for the continuous inspiration and valuable insight.  I enjoy reading each and every one of your posts and I hope to one day provide similar value to the dividend blog community as your content has provided to me.

Lesson learned: Compound interest is a powerful tool, but so is compound dividends. 
UPDATE: I've since created a blogroll to list all of the blogs I currently follow: BLOGROLL

Peer-to-peer lending 
In addition to continued investments into our family's dividend stock portfolio, I have also been growing our exposure and returns with peer-to-peer lending.  Although there are a few different peer-to-peer lending sites out there, our family has decided to stick with the two largest peer-to-peer lending site: and  Since these are the two largest sites, I found that they are more trustworthy and therefore have more borrowers.  As a result, there are more many more notes available for investors to choose from.  
Even after a few years of existence, I still consider peer-to-peer lending as being in its infancy.  The reason is because I believe there are a lot of people who still doesn't know such a thing exists.  But as peer-to-peer lending becomes more and more popular in the coming years, I feel these two sites will continue to improve and peer-to-peer lending will contend as a truly viable investment alternative.  To our family, peer-to-peer lending is, and will always be an investment alternative.  In fact, my plan is to eventually replace our current emergency fund with peer-to-peer accounts.  Since investors receive steady monthly payments from all the notes they have invested in, and the payments are liquid, one can theoretically use the cash flow from the payments to live on for a decent length of time. 

Our family has been investing in peer-to-peer lending notes for approximately 2 1/2 years and currently receive approximately $700/month in payments from both Prosper and Lending Club. Currently, we are re-investing the payments we receive back into new notes in an effort to grow our accounts and the monthly payments we receive. Since we own over 800 notes (between both accounts), we receive a payment from borrowers almost daily.  And as soon as we have $25 in cash available in a particular account (occurs almost every other day), you'll find me looking for a new note to invest in so the money is never sitting idle for long. I must say that this is compound interest at it's best!!  
Lesson learned: Always keep your eyes open for new investment opportunities because as society and technology evolves, so do investment opportunities.

Saturday, March 22, 2014

Preface: Part 1 - Home Equity

PREFACE - the 7 1\2 years prior to this blog

Before I provide everyone with the actual financial details of where our family stands today, I believe it is important that I provide everyone with additional background on our family's journey leading up to the start of this blog. The preface below will hopefully provide everyone with a nice backdrop to better understand how our family is where we are at today. The preface will be separated into four parts: Part 1 - Home Equity (story behind the current equity in our home); Part 2 - Investments (highlights of investment tools I've tried to date); Part 3 - Retirement (various retirement accounts we have and hope to tap into during retirement); Part 4 - Saving & Emergency Fund (How we have planned for life's unexpected events).
Part 1 - Home Equity
Approximately 7 1\2 years ago, our journey officially began when I married my wife (whom I met and dated for 6 years). We actually tied the knot on the day of our 6th anniversary together.
Shortly after our wedding, my wife and I decided that she would move in with me and that we would continue to live in my first home (a home I had purchased from my parents a few years prior and where I spent the tail end of my bachelor years). This living arrangement, however, ended up lasting less than a year. As we saw home prices soar and the value of the home triple in value, we decided to seize the opportunity and put the house on the market. To our surprise, the home sold for asking price (more than 3x purchase price) and in less than a week! We walked away with almost $300,000 profit, after paying for related real estate fees.
Lesson learned: Even though things don't always go as you had planned, sometimes it is actually for the better!
That led us to the next part of our journey as a married couple. Since we had not planned for such a quick sale, we had to scramble to find a new place to live. Luckily, our search ended as quickly as it began. My in-laws were empty nesters at the time so they generously offered to provide us with a free place to live while we looked for a new home. Rather than go out and find a place to rent, my wife and I accepted their offer. We ended up staying with my in-laws for a little over nine months.

Looking back, although not the ideal scenario for a newlywed couple, it turned out to be one of the better decisions we've made. Living with my in-laws allowed us to patiently look for our home while continuing to build up our savings. During the nine months, my wife and I agreed to only live off the interest from the proceeds of our first home. And since both of us worked at the time, we save close to $100,000 during this time. Needless to say, if I had to do it over, I would waited a little longer to buy our home and come as close to buying a house outright as possible.
Lesson learned: You can really build savings fast when you have very little expenses!
We ended up looking at close to 100 homes in four different cities before we found our home - a beautiful seven year old home in master planned community, with excellent nearby schools, and several parks within a two mile radius! It was definitely our dream home and the home we saw ourselves starting a family in. It was perfect, except for one was a short sale! If you are not familiar with short sales, the process is painfully slow! I remember calling the agent almost every week for several months! At one point, we considered taking our offer off the table and find another home. In the end, after approximately four months, we finally closed escrow. Next month will be 5 years since we've move into our home.
Lesson learned: Never settle...good things come to those who wait!
Since moving into our home, we have refinanced three times because of falling interest rates. We started with a 30-year fixed at 5.875%. We refinanced a year and half later to a 30-year fixed at 4.875%. Then a year and half later, we refinanced a second time to a 20-year fixed at 3.875%. And just last June, we refinanced a third time to a 15-year fixed at 2.875%.

Although we've had to refinance three times now, I have no regrets because I know in the end we will save much more than we've spent towards the cost of refinancing.  And I'm pretty sure it's the last we've seen of rates at that level so I can say with some confidence that we've likely done our last refi on our home.  I'm really thankful we put a big down payment and didn't buy more home than we could afford.  Had we done either, I honestly don't think we would have been able to refinance our home.
Lesson learned: The general rule of thumb to lower your rate by at least 1% when refinancing works every time when you do the math.
During the first 3 years after purchasing our current home, we watched our home decline in value and dipped by up to 20% below our purchase price as the market continued its decline. Nevertheless, my wife and I never worried or panicked because we knew we got the house at a discount ( was a short sale) and that in time, prices would eventually recover. Since our plan was to live and raise a family in our home, we knew we had time on our side.  But I'm happy to say that, during the last 2 years, we've seen prices in the neighborhood steadily increase and the home value of our current home is now back above our purchase price of $720K.

Because we were lucky to have sold my bachelor home for almost $300K profit, and lived with my in-laws to save another $100K, we put a fairly large down payment on our home.  After 5 years and 3 refi's, we currently owe approx. $350K on our mortgage.  More than I truly prefer, but since we now have a 15-year mortgage, I'm really seeing our mortgage balance shrink each month. In fact, almost 2/3 of our payment now goes straight to our principal.  We sort of view our mortgage payment as a forced savings!

And once my wife goes back to work, our goal is to aggressively pay the house our mortgage (now approx. 14-year left).  Without a mortgage, our monthly expenses would drop significantly and so would the amount of money we would need to be FI!   
Lesson learned: When making financial decisions, always think long term for it allows you the luxury to wait out a storm.

Saturday, March 15, 2014

DAY 1: A Frugal Family's Journey Towards FI

DAY 1 - March 15, 2014

Join our family in our journey towards Financial Independence (FI).

I'm 41 years day, I am a local government employee; by night, I am an aspiring blogger. My wife is 31 years old and is currently a stay at home mom. We have two kids: our daughter is 4 (turns 5 in August) and our son  is 1 (turns 2 in April). Although it is definitely nice to have my wife home with the kids during this stage in their lives, it does come with sacrifices. Our plan is for her to eventually ease back into the workforce (possibly later this year). But until then, progress towards FI will be limited by my income. 

Although this is the first blog post, I should clarify that my wife and I have lived frugally since we first married 7 1/2 years ago. In fact, 7 months after we got married, we moved back in with my in-laws just to save money. So to be fair, our journey truly began 7 1/2 years ago. Through our frugality, some luck, and the blessings of great family support, I must admit that we already have a great start towards FI. I will provide more clarity and detail on these first 7 1/2 years in upcoming posts.

Please subscribe to our blog and stay tuned!

Primary Goal
Although we do have yearly goals to help keep us on track, our primary goal is to become Financially Independent in 14 years or less. To clarify, we hope to accumulate enough wealth to simply live off our retirement, savings, and investments. Our motive for FI, as probably true for everyone chasing the same dream, is to have ultimate freedom and flexibility to live the life you desire.

Whether we ultimately succeed or not, this blog will be our outlet to document our goals, strategies and progress along the way. If nothing more, this blog will help provide us with that extra incentive to succeed. Meanwhile, it should make us more accountable throughout our journey. For our readers, we hope our blog posts will provide you with some insight into what has or hasn't worked and maybe even motivate you throughout your own journey towards FI.

We would be honored if you join us for the ride!!