The 40% Rule

As many of you know I am a fan of Grant Cardone with a lot of his stuff and one of the key takeaways I look forward to applying to my life is the 40% rule. The 40% rule was documented in the Great Depression where the wealthy were saving 40% of their income, and its just that simple.  The 40% rule is saving 40% of your income before taxes, so if you make $10,000 a month that would require you to save $4,000 a month. If you start looking at the math you’ll realize after taxes and expenses that it is very difficult to achieve the 40% rule, and it is. Income is a priority for the 40% rule, you can’t save what you don’t make, and you must pay yourself first. I will show you a real example using my actual projected salary for my full-time job starting in June.

For my full-time job I have a $57,600 salary ($4800 monthly), a $5,000 signing bonus paid in first month, and a $500-month stipend for the first 18 months. It is a salary and commission pay plan however I will only account for the salary part since I don’t know how much I will sell yet.

Because I start mid-June, I calculated my gross income as half of my monthly salary ($2,400) + $5,000 bonus + $500 stipend = $7,900

June July August September October November December Total
4800 $7,900 $5,300 $5,300 $5,300 $5,300 $5,300 $5,300 $39,700
save 40% $3,160 $2,120 $2,120 $2,120 $2,120 $2,120 $2,120 $15,880
tax $1,738 $1,166 $1,166 $1,166 $1,166 $1,166 $1,166 $8,734
budget $3,002 $2,014 $2,014 $2,014 $2,014 $2,014 $2,014 $15,086

Looking at the table you can see my budget is around $2,000 and it will be less than that when you consider my 401k will also be pulled out of my income. I did assign a tax rate of 22% which is the bracket you would be in for this income however your marginal tax rate is less than that, either way I prefer to be conservative with my estimates. (I calculated my marginal tax rate to be 11.5% which would add $570 to my budget every month or $570 more to invest every month) For reference, I take data on my spending habits every summer when I am on internship or co-op. This summer I had no living stipend and was completely on my own, my monthly spending came out right at $2,000, though that includes some extraneous cost that most likely will not happen in the first 6-months of my full-time job. I also will be living at home or my girlfriend’s house during the first 6 months of my full-time job as I will be traveling 90% of the time during training.

Realistically looking at the first 6-months I will have extremely low expenses and may be able to save even more aggressively than what I have shown. Any extra income I can save will be put into my other investing accounts (Robinhood, Lending Club, and Stash). Ideally, I would like to save around $20,000 from my full-time job in 2019, which will help me achieve my $75,000 net worth goal. I would also like to try and purchase a 4-plex or duplex at the end of 2019 assuming all goes according to plan.

Looking at 2020, the saving and income numbers look the same as the later half of 2018. Commission will be included assuming I make sales and as my commissions come in, I plan to add those additional funds to my investment accounts as stated above. Looking at 2019 and 2020 I plan to save $40,000 with the 40% rule and invest additional income in my investing accounts. I plan to save in my Discover Savings account which earns 2.10% APY, which will add to my saving goals as well.

2020 will be difficult to keep in budget, I will then be paying rent and will be living full time in St. Louis. The $2,000 I lived on during internship was living like a poor college student for the most part, as I enter the real world, I expect my standard of living from the food I eat to the activities I participate in to be more expensive as well. However, I at least have an idea of what I spend monthly in preparation, I suggest to everyone to start documenting your spending to get an idea of your habits. If you need help or would like to look at how I do it, I cover it in THIS article.

As I mentioned earlier in the article, income is critical to achieving this aggressive saving plan, for your convenience I will run an example with a salary of $40,000, and I will use a marginal tax rate to ensure accuracy. I included above my actual budget above when marginal tax rate is considered ($2570/month).

June July August September October November December Total
$40,000 $3,333 $3,333 $3,333 $3,333 $3,333 $3,333 $3,333 $23,331
save 40% $1,333 $1,333 $1,333 $1,333 $1,333 $1,333 $1,333 $9,332
tax $283.31 $283.31 $283.31 $283.31 $283.31 $283.31 $283.31 $1,983
budget $1,716 $1,716 $1,716 $1,716 $1,716 $1,716 $1,716 $12,015

As you can see with $850 less a month in your budget that makes things considerably more difficult depending on your life style and where you live.

I hope you learned some valuable information about budgeting and saving money, I’d love to hear about how you save and what your targets are!

Thanks, B^2

Dividend Update 3/5/19

Hey, it’s B^2 coming back with a dividend update, if this is your first time checking this out welcome and feel free to look around! To date I have 73 blog posts covering a multitude of topics so hopefully you can find a topic you would like to hear more about or just use that infinite scroll on the home page and see where that gets you. I realize a lot of my posts are just me blabbing on about where I’m at and where I’m trying to go and I want to change that. I want to add more value for my readers so if there’s something you want to learn more about please feel free to drop a dm to me on Instagram or comment on this blog or on Instagram.

Continuing, I last left you guys on November 2, 2018 which seems like forever ago, and I had just recently raised my portfolio up to $11,500 with the forward dividend table below.

Ticker cost avg percent yield dividend/share share # year equivalent
CEFL $16.55 15.65% $2.59 20 $51.80
LB $32.00 7.50% $2.40 11 $26.40
T $31.89 6.27% $2.00 10 $20.00
STAG $25.85 5.49% $1.42 20 $28.40
F $10.52 5.70% $0.60 115 $69.00
CAT $113.68 3.03% $3.44 2 $6.88
O $55.78 4.75% $2.65 27 $71.55
PG $74.40 3.86% $2.87 2 $5.74
AAPL $157.51 1.85% $2.92 1 $2.92
CBL $4.09 7.33% $0.30 40 $12.00
Total forward dividend $294.69
Yield on portfolio 2.56%

 

To be honest this was my highest total dividend ever. It has dropped a bit since then for a few reasons.

  1. I am trying to reduce my portfolio size down to $10k (currently at $10,750) because I need the money and I think I can take the profits and cut the fat out of my portfolio and be alright.
  2. I sold my largest dividend producer at the time, O, Realty Income.

I sold O, because I felt there were great deals in the market at the time (I sold December 20, 2018) which was an absolute shit storm in the markets if you remember, and I needed the money to purchase those deals. O, was also at its 52 week high and I honestly didn’t know if it could sustain it, so I sold it and made a 22.5% ROI and $303 profit on the position in its entirety. Now those of you that are familiar with O might see that it has surpassed that and is currently trading at almost $70 and while if I had held that I would be up about $125 and some dividends I also ran the numbers for the purchases I made from that sale shown below.

IMG_3369

I calculated that with the purchase price on December 20th to today and I made $610 from those purchases not including potential dividends of some of those purchases.

Those wondering (CHK @ $1.92, ROKU @$28.98, ULTA @ $236.69, JD @ $19.85, F @ $8.31, FB @ $132.14, BABA @ $133.98, T @ $28.77, BPMX @ $0.1066)

$610/$125 is a 487% return due to that sale! Overall, I believe it was the right move, who knows what O or my other purchases might do in the future. I did cash in $245 in profit from Roku, which was largely due to that purchase I made in December and I believe I will make even greater returns in the future on my other positions. You will notice that I am constantly torn between value investing, dividend income, and growth stocks that make massive returns fortunately I have time on my side and the future to find out what works best for me!

Below you’ll find my current forward dividend table as of 3/5/2019.

updated: 3/5/2019
total RH account $10,750.00
Ticker cost avg percent yield dividend/share share # year equivalent
CEFL $16.55 9.24% $1.53 20 $30.60
CBL $3.12 9.62% $0.30 85 $25.50
T $30.89 6.60% $2.04 15 $30.60
F $10.00 6.00% $0.60 150 $90.00
STAG $25.85 5.53% $1.43 20 $28.60
LB $31.32 3.83% $1.20 13 $15.60
CAT $113.68 3.03% $3.44 2 $6.88
AAPL $157.51 1.85% $2.92 1 $2.92
a year in dividends $230.70
percent of total 2.15%
goal 3% +

 

As shown, I am significantly down on forward dividend and forward dividend yield. I have increased positions in Ford (F), CBL, and AT&T (T), however that has not made up for the huge lose I took selling Realty Income.

If you haven’t noticed by now, passive income is one of my top priorities and a large part of my 2019 goals. My goal of earning $2500 this year in passive income will not come easy without an extra push and the sooner the better. I have a large sale coming up assuming all goes according to plan. Ulta Beauty (ULTA) is my 2nd largest position (6 shares, $240 cost average) it is currently hovering around the $310-$315 share price. I plan to sell my entire position in it at $325/share which would bring the total sale to $1950. I would immediately pull out $750 to bring my account size and I need that money (Spring Break is expensive) and I would invest the other $1200 in dividend stocks. The plan as of now is 15 shares of AT&T (T) ($30.60 forward dividend) and 6 shares of Walt Disney (DIS) ($10.56 forward dividend) which would put me at $271.86 forward dividend on the year. I would also have some spare change left after those purchases for picking up some more CEFL or CBL to help bring that dividend up. Ideally, I would end up around 2.75% yield on the entire portfolio and look for some appreciation as well.

I choose AT&T for the high dividend yield, the Time Warner acquisition and the dismissal of the court case regarding it. I believe the market has undervalued it and investors are sleeping on the income and appreciation it could bring in the future. I choose Disney for its dividend which has plenty of room to grow as well as its streaming service to come out soon. I think Disney has been a safe and stable stock for years and with its expansion and solid fundamentals now would be a great time to lock in some shares.

Below is a table of dividends from 2018 and 2019 for comparison.

Dividend tracking 2017 2018 2019
January $0.00 $12.86 $17.66
February $0.00 $28.19 $19.42
March $0.00 $33.18 $28.78
April $0.00 $15.35
May $0.00 $17.72
June $12.54 $28.21
July $6.39 $14.32
August $5.55 $18.42
September $20.68 $35.56
October $17.86 $25.08
November $23.12 $22.27
December $28.13 $68.30
$114.27 $319.46 $65.86
Goal: $125 $500 $1,000
Total: $499.59
yearly avg $195.89 $319.46 $263.44

 

My February performance was rather weak this year in comparison to 2018. I believe the absence of Realty Income will play a strong role in the performance of my dividend’s month to month. Check out December 2018 though, holy cow those were some big numbers! These dividend figures also include interest from my savings account (2.10% APY) and my ETF dividends from Stash App. Both of those accounts pay dividends monthly and should help fill the void from O.

I do have an extremely lofty goal of reaching $1,000 in interest and dividends collected in 2019 (not including Lending Club), I plan to use Grant Cardone’s 40% rule to save over $1500 a month (at my savings account rate of 2.1%) when I begin working in June and any additional funds I can save will be contributed toward stash app, and robinhood. Assuming all goes well, and I can live frugally and generate side income as well as passive income I believe I will be able to ramp up the interest and dividends in the 2nd half of 2019 to make up the ground I am losing currently.

If this is your first time reading my blog, I hope you enjoyed, I will do my best to keep the content coming however the month of March is the busiest of my school year due to mid-terms, St. Pat’s and spring break. If there is anything you are particularly interested in or want me to write about please let me know!

B^2

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