Principle Two: Investments – Xers, 529 Plans, and Real Estate

Two of the challenges for gen Xers are college savings and retirement.  As a lot, we tend to be cynical about social security, and even pension systems for those of us lucky enough to have them. We are mixed about our 401(K) contributions. We are, however, as a group, fiercely committed to college education for our kids.  Along with getting them on the preschool list while still in-utero, many of us started college savings at the same point we started baby sign language, underwater swim classes, and flash cards.  (That’s what happens when latch-key kids parent… big pendulum swing)

So, like many, my husband and I socked a big chunk away when our daughter was one (2004). At that that time with the market and current investment thinking, we felt pretty confident that our 20K investment would be a solid base for college and we could breathe easily for a while.  Then it went to 25K (great), then 27K (on track), then 15k (panic and hold) and finally in spring of last year 2009 is settled in at 22K.  So five years, $2000 gain.  Treading water? Hello community college two-year plan? Summer Euro rail pass and then you are on your own? Better earn your living as a musician like grandpa did?

I work in higher education and am watching fees rise at unprecedented rates.  This was never going to work.

So we changed course.  When our daughter turned seven in June 2010, we pulled the money out of the 529 plan (paying 10% penalty on the interest = $200, they make it sound so much worse), and jumped into investment real estate. When I say jumped, I mean researched, obsessed, gathered info, learned from friends’ horror stories, poured over blogs and stats, researched some more, found the best experts in the business, ignored or debated the naysayers, and then jumped.

We bought a 90K home in Memphis, TN from a high integrity, reputable company that specializes in offering positive cash flow real estate to investors.  They specialize in Memphis because of the 400 metro areas in the U.S., the numbers in Memphis work best.  High rents, low home prices, low insurance, low incidence of severe weather/natural disasters, great local economy (Fed Ex, health care), Elvis and good BBQ.  O.K, the last two are my own additions.

Our 3Br/2Ba home in Memphis rents for $1000/month.  So with total expense of $670/month (mortgage, insurance, taxes, property management, maintenance), we are cash positive $330 per month.  We bought in June with a down payment of $23K +4K in closing costs (27K). Since that time, we have already earned over $2300 in cash (mostly tax free due to depreciation). 

20 K Investments, $2200 Return in 6 Years

Vs.

27 K Investments, $2300 Return in 8 Months

This is just cash in hand. This does not take into account equity buildup or appreciation (modest 5% is historical average) that will help ensure we have additional cash upon exit.

So, Principle Two "Invest in sound real estate and business opportunities" -  check. We plan to purchase another home this June with the cash flow and the money saved from Principle One.  And Mila will be going to college, or shredding on the drums in a blues band in one of her several homes in Memphis…..

2011 Live Beneath My Means

Principle One: Live beneath my means

Off to a great start for investing, saving, and life satisfaction in 2011.  We have successfully charted our daily spending with a fridge calendar, set up monthly withdrawals to our investment account, and are working on ways to save money while still enjoying what we love.

A few quick glimpses into how we do this:

1) My rediscovery of dried beans.  Recently I started cooking our taco night, lentil soup, and Indian food recipes using dried beans instead of canned.  For one the price is much cheaper, but more importantly, they taste better.  My seven year old will eat any vegetable as long as it is concealed in lentil soup.

2)  I've become a better cook and cook mostly vegetarian food.  In our family, I am the one with the soft spot for venison, pork, lamb and herring. My husband prefers mostly vegetarian, and my daughter is somewhere in the middle with chicken satay as her favorite meal.  I've become a better cook through subscribing to a monthly CSA Community Supported Agriculture box.  Every week, we get a box and my job is to figure out how to cook it so we will eat it.  My favorite cookbook is Madhur Jaffrey's World Vegetarian. Since it lists vegetables alphabetically, I can find an Italian, Indian, or Chinese way to make cauliflower depending on my taste.

3) We've quit all non-essentials - gym membership, cable, Starbucks, one cell phone, and are spending free time outside, jogging, playing music as a family (or Apples to Apples), cooking, and indulging in our $8.99 Netflix or Hulu accounts when we need a 30 Rock or Wizards of Waverly Place fix. Our daughter doesn't ask for things on TV since she doesn't see them advertised. We don't see all of the things we are missing either.

4)  We eat out smarter.  Previously our foodie habits and our over-tipping tendencies have drained our accounts.  We still eat out, but do it in a smarter way.  We go to local, ethnic, family owned places.  We also have stopped ordering meals for all three of us.  As a mom, one often finds many kids never finish their portions, so I order a side salad or soup and share with my daughter.  Smart mom health tip - we also ask them to mix her Sprite with club soda to cut down on sugar. No kid needs 16 let alone more ounces of soda...

5) And yes, I have become my mother and am sneaking popcorn into the movie theater.  When calculate $5 a day as investment dollars with compounding interest, you would too.

First Steps

This blog will serve to document my financial independence journey from age 40 to 50.  I plan to work from a paycheck to paycheck existence, to a $5000 per month cash flow/passive income from investments.

I will do this in the following ways:

1) Live beneath my means
2) Invest in sound real estate and business opportunities
3) Only purchase products, investments, and businesses that align with my values
4) Ensure that this process allows for family balance

The reasons I am doing this are:

1) To spend the most quality time with my family
2) To open up time for my hobbies, music, cooking, reading, travel and exploring tea
3) To live life to the fullest
4) To model the possibilities for other moms

So, with my seven year old outside playing, shall we begin?