Formal Education is the Equalizer

Financial Literacy is the Pendulum

I recently read an article by the beautiful Cholia 'Lia' Johnson that gave great reasons why black women should invest in the stock market.

Before I became more proficient in investing, I read many articles that provided similar information (though not targeted to my demographic), but I was left with the question: How?

My question of “how” was two-fold: How and where do I invest my money? How is it better for me to invest rather than hold onto it in the bank?

I have never been a big risk taker and I need concrete examples to help me understand and believe something is good before I do it. If that is you, keep reading. This article is for you and my younger self.

“Traditional education will make you a living. Self-education will make you a fortune.” — Unknown

In her article, Johnson states that education is not the equalizer. Respectfully, I disagree.

Education is the equalizer; it is the application of it that determines how you tip your scales. We must use the same brain we used to acquire formal education to continue learning the foundational building blocks for success in our lives.

As an example, I was blessed to go to college on a full, academic scholarship. When I graduated, I had no student loans and a well-paying career. When I walked into the doors of my employer, I was equal to my white counterpart who had acquired the same degree from the same school but he went on a trust fund built by his parents instead of an academic scholarship built by stakeholders. Regardless, my ability to learn and acquire the same formal education for free made us equal.

With no student loans and a well-paying career, I could have done what most of my friends would have done with my money — buy GUCCI, Louis, Chanel, a new car, and lots of clothes. However, a trusted advisor suggested I buy a house. So, I did. I became the owner of a new house at age 23. (My workplace equal was still in an apartment at the time of my purchase. I also rose to a leadership role before him, too. Just call me the Equalizer!)

How and Why to Purchase a Home (Examples Provided)

I made a smart move, but in a not-so-smart way. Let’s discuss homeownership. More than ten years ago when I bought my house fresh out of college, it was almost unheard of for someone so young to buy a house, especially since social media had not emerged the way it has today.

In today’s society, homeownership has become this barometer of success and a box to check on one’s social media platform. Homeownership is not a luxury. We must start thinking ASSET over LIABILITY. An asset is something that brings you a resource. A liability costs you a resource.

When I bought my first house, I bought a new house at top-dollar value for that time. When I decided I wanted to buy another house (taking advantage of the lower interest rates and the housing crash) the house I was living in was not worth selling at the value I wanted to sell to gain a profit. In other words, the house had little-to-no equity. (Equity = home value — mortgage balance). The house was worth about the same as what I paid four years before, which was better than being it being valued less but more importantly, it was not worth the value I needed to gain the profit I wanted. My asset was becoming a liability based on my goal to buy another house.

So, I decided to use the property as a rental property. The monthly mortgage payment was high due to the interest rate; so, I barely broke even with the rent from the tenant. Ideally, a rental property brings in income. (Rental Income = Rent Payment — Mortgage Payment). The good news was that I was able to write off the mortgage interest on my taxes. As a single woman, I needed all the tax write-offs I could get, so that was a plus.

A better move when buying my first house would have been to buy a cheaper house that had room to catch up to the value of the current market rather than buying top-dollar, which is what I did for my second home. I bought a new home when the housing market crashed and took advantage of record-low interest rates (at that time) and a growing local area in a nationally depressed real estate market. I now sit in a home that has 65% equity.

Examples Let me walk you through two examples. We will use Tyechia and Bianca.

Example 1 Tyechia is approved to buy a home for $150,000. So, she buys a home for $150,000 in a market where the home is valued at $150,000. At a 4% interest rate, Tyecia pays a monthly mortgage of about $700. A year later, Tyechia decides to change job locations. Her realtor presents calculations for the options of selling and renting.

If Tyechia sells her home for $160,000 and deducts 10% in real estate fees, she ultimately sells the home for $144,000. Her mortgage balance is about $142,000 thanks to the 5% down payment she made at the time of purchase a year earlier. Tyechia would make about $2,000 on the sale of her home.

If Tyechia rents her home for $800 and pays the property manager ten percent, she gains a monthly rental income of $20.

Because Tyechia needs to minimize debt to purchase a new home in her new location and because the rental income is not enough to help her qualify for a new home, she decides to sell the home and take a $2,000 profit.

Example 2 Bianca is approved to buy a home for $150,000. She buys a foreclosed home for $90,000 in a market where the home is valued at $150,000. At a 4% interest rate, Bianca pays a monthly mortgage of about $430. After a year, Bianca decides she wants to buy another house. Her current house is worth $150,000.

She has two options: 1) sell the house and gain a profit of about $40,500 (deducting 10% in real estate fees and repaying herself the 5% down payment of $4,500) or 2) rent the house for $800, which would bring her a rental income of $290 (deduction for10% management fee included in calculation). Because Bianca is looking at her long-term strategy, she decides to rent the house and amass $290 of rental income every month.

After renting her first house, she buys another house for $100,000 that is worth $120,000. She has a monthly mortgage payment of $477 at a 4% interest rate. Two years later, she decides to rent the house for $900 a month, resulting in a rental income of $333.

She buys another house for $120,000 that is worth $150,000 and has a monthly mortgage of about $570. Her rental incomes of $290 and $333 are more than the monthly mortgage of her current house! Do you see how smart investing pays your living expenses? Further, she has a total equity of about $94,500 (assuming a 5% down payment on each home) and each home provides a tax write-off.

Here are the lessons and rules that I apply from those examples: 1) Never purchase for the maximum amount you are approved to spend

2) Every traditional asset is not an asset if you don’t consider all the factors in the investment. For example, a house is not an asset if it is costing you by keeping you financially strapped to it or if it is not bringing you more money via rent or equity.

3) Think long-term when making investments. Consider the potential growth for the asset (that’s for any asset investment, not just a house)

4) I repeat: Think long term. Bianca could have walked away with $40,500 by selling her first house, but she thought about her long-term strategy to have more passive income and to plan for early retirement. She did not forfeit the $40,500; it is still hers and sits as equity in the home she owns. However, she earns income every month from that house and will continue to do so as long as she owns the home. When she pays off the mortgage, the full $800 (minus the management fee) will come to her. With three houses, she can earn just as much passive income as she does active income (income she works for).

5) It is not about the money you can see; it is about the money you can’t see. Sure, a friend has a bigger, more lavish house, fancier car, new hair and nails every week, and so on. You have $90,000 in equity and passive income every month. Gain your SELF-esteem and confidence from knowing that your rental income pays your living expenses and your work income allows you to slap down your debit card on any GUCCI counter but you choose not to because you are smarter than that. You know to invest in assets and not spend on liabilities.

How and Why to Invest in Stocks (Examples Provided)

Now, let’s discuss stocks. A stock is a piece of a company that signifies ownership and claims part of the corporation’s assets and profits. There are two ways to earn money from stocks: trading and dividends.

If you buy a stock for $1 and tomorrow it is worth $2. You can sell that stock and profit $1. Uncle Sam will ask for his percentage for capital gain (profit).

Dividends are when a company pays you for holding their stock. Oneok, Inc is an example of a dividend stock. Currently, Oneok pays shareholders $0.935 per quarter for every stock they own.

Let’s say you decided to put your tax refund in the stock market. With a $2,000 refund check today, you can buy 32 shares of Oneok. In a year, you earn $136.89 just by holding Oneok stock. This does not include the gains from the increase of the stock.

Let’s say you got a large lump sum of $50,000 and purchase 800 shares of Oneok. You earn $2,992 in dividends in a year for owning those shares. (Dividends are paid directly to your brokerage account for you to withdraw at any time, but you will pay capital gain taxes on it when you withdraw it.)

Now, let’s say you put that same $50,000 in a savings account that earns .06% (national average). In a year, your savings account would earn you $30 on your $50,000. $2,992 versus $30…come on!

Here are the lessons and rules I apply from those examples: 1) It is not about how much money you have; it is about how that money is working for you.

2) To stow money, put it in a safe savings account. To grow money, put it in the risky stock market. (No risk, no reward) Stowing and growing my money afforded me the opportunity to leave a toxic workplace for my mental health with no plans for the next source of income.

How You may be wondering how to find stocks and how to know which stocks are good. Use your social media to follow reputable stock traders. I bought a class for $40 that taught me how to read stock charts and directed me to online tools to research stocks. I also joined a reputable group (for a monthly fee) to exchange tips and advice for stock trades. Want to know more about this? Comment and let me know! Now, is also a good time for you to go buy me a coffee, too! Whew! I need the energy.

The New-Age Stock…Crypto

Now, let’s discuss the new stock…crypto!

I am not a crypto expert, but I understand it is the new-age stock. I am learning more on this topic, including an online class that is awaiting my login. Currently, I own two different crypto coins. One has doubled in value. (I wish I had bought more!) How did I find it? A friend explained it to me. He is a very smart person, had done well with it himself, and I corroborated what he said with research.

Imagine if you purchased Apple or Amazon stock when they were $1 or Bitcoin or Ethereum coins when they were $1. Well, many crypto advisors will argue coins like Ethereum are still at the lowest they will ever be. Just type “Ethereum price” in your search engine and see how much it has grown in a year. Also, don’t forget the stocks associated with crypto and stock trading.

Here are the lessons and rules I apply: 1) Never get comfortable.

2) Never stop learning.

3) “Yesterday’s price is not today’s price.” — Fat Joe

4) Keep a good network. If your friends, associates or those you follow on social media are not talking about growth and are not willing to share how they grew, get a better network. You have heard the statement, “your network determines your net worth.” That is not just about rubbing elbows with the big-wigs at work to get your next promotion. It is about the people you associate with and allow in your psyche. Competition and hate have no room in my life. I surround myself with smart, inspirational, and generous people, such as my friend who took the time to explain a crypto coin to me and insisted I invest. I thank him all the time.

5) Be patient. Impatience has made me pull out of stocks too soon. When I made my first crypto purchase, it immediately went down, but patience paid off.

Multiple Streams of Income

Multiple streams of income is also the new trend just like having a nice house. While I agree with the premise, I don’t always agree with the execution.

Aim to have multiple streams of passive income. Recall Bianca with the multiple rental properties that bring in rent every month.

Ways to have multiple streams of income without having multiple jobs: 1) Stock Trading and Investing (trading is when you buy low, sell high in a short period of time (days, weeks months); investing is putting the money in a stock and not touching it for years, likely for retirement)

2) Crypto Trading and Investing

3) Rental Properties

4) One passion project that you’re paid to do and that makes money even when you’re not there, i.e. writing on Medium. I spend a couple of hours a day on Medium because I enjoy writing, but I earn money on Medium even when I am not logged in.

A Financial Strategy to Get Started

Finally, I will leave you with a financial strategy. I have always earned a paycheck biweekly. My goal was to pay all my bills with the first check and then save and invest the second check. I lived on half of my income.

In my early days, I saved more than I invested, and I am okay with that. Again, I am not a big risk-taker, and I gained peace of mind knowing I had money in the bank that I could grab anytime I needed with no penalty or tax unlike my retirement plan or brokerage account. The more I had in the bank, the more comfortable I felt taking risks with my income. Some say save six months of living expenses before investing.

With that, my strategy is this: use half of your money for your living expenses and bills and save and invest the other half. With the second half, put a third in savings; a third in your stock portfolio (this does not include your employer retirement plan but does include your Individual Roth Account and brokerage account); and a third in your crypto portfolio every month.

Stow and grow.

I hope this was helpful. Though I am knowledgeable and presented accurate content, I am not experienced in writing on this topic, so forgive me if it was a bit hard to follow.

I probably threw a lot at you, but I hope it was categorized and presented in a digestible manner. Often, articles, interviews, or lectures on topics like this — from anyone -- require more than one read/listen. You will reread it multiple times and gain something new. Oh, which reminds me: read “Rich Dad, Poor Dad” and “Think and Grow Rich.” These books are not just about becoming rich monetarily but rich in your mindset to become whoever you want to be.

“Mindset shift comes before income shift.”

(I don’t remember who said that, but I got that from a lecturer I am studying.)

Please help me recharge by buying me a coffee! This was an impromptu article that was sparked by another article I read and commented on. This was exhausting to write on a Saturday morning, but I had to get it out, and I’m so glad I did.

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