Found an interesting post at RichDad’s forum. It is a story of Lehayes about getting financial freedom.
Getting Started With Very Little
I have a testimony that I would like to share. It is simple and just about any one can do it. If it doesn’t work for you, let me know and I will show you an even slower but equally successful method to getting started.
I was just getting started in the world of stock investing when I came across this book Rich Dad Poor Dad. Like a hungry shark desperate to gain my financial independence, I read through it extremely fast. Then re-read it again as I didn’t want to miss the juicy clues that Robert had left for me… THANK YOU ROBERT.
We were of the typical middle class earning a around $60k on a contractual basis as I am in the software industry. My wife and I had agreed to have a couple children between us and felt that one of us should stay home and provide a solid family environment for our children. So she is a home maker for us both.
We were struggling to get back on our feet after suffering through the 2000 recession that hit hard for many people of the software industry. We had lost our home, a brand new van and was starting over. I had gone through 10 1/2 months of un-employment during this time. Got a 6 month contract and the company again downsized, edning my contract. Then I was out for another 8 1/2 months.
Finally, the money started getting better and the economy was picking up, but my wife and I were so beatn down that we could barely get bak on our feet, even with help from various directions.
Finally, I decided enough was enough, we had to get out of what I now know to be the Rat Race. At that time it was just being tired of being left out in the cold whenever the corporations I worked for decided to cut back on costs.
So, I started studying the stock market with a friend. Neither of us knew mch, but we promised each other that twice a week, we would meet and bring something to the table that we could share with each other on how to become financially free.
We began to invest in the stocks we had been studying. We built a spreadsheet that not only helped us to figure out when to get in and when to get out of the stock, we could also estimate our profits along the way. One day we went to a free seminar for something called TMTT. It was a stock investing educational company. It proved to be solid from what we already knew. They offered us a more advanced class for a fairly cheep price. Seeing what we had seen, we were willing to pay a little to learn what we didn’t know.
The education was priceless to us. It showed us that we really did know what we were doing and it showed us a few things that we didn’t know. Including the actual process of handling options. It was a very worthwhile class.
During this same time I had been reading Rich Dad Poor Dad. The concept of taking your income and generating assets before paying the bills was great. It was the whole key for me to turn my life around and it was the key to getting started. Let me show you what I did.
Roughly at about this time, I had built my investment egg up to $2800. Then I got the word that my employment contract was coming to an end. I told my wife, “Honey, I know this may sound crazy and I know you may think me a fool, but there is something that I need to do to see if I can stretch what little we have until I get another job.”
She looked at me a little worried and said, “Ok, what do you have in mind?”
I said, “I would like to take the money I have inveted in stocks and keep it in there. With the work we have done, I can generate more money in it while keeping it in there. I figure that each investment will either turn a profit in two weeks or it will go flat. If it goes flat, I will pull it in two weeks and try again in another stock. If it makes a profit, I will put it into another investment for another two weeks. The process of doing this means that we will still be able to grow our money and pay our bills on a basis of every two weeks.”
She thought about it for a while and was a little skeptical. I let her think about it for a few days and she still hadn’t come to an agreement with me. That was when I knew I had to take drastic changes. I talked to her about it again.
“Hoeny, I know we have been beating this this thing down, but I have come to the point where we are out of time to think about it. So here is what I feel must happen. In order for you to understand where I am going with this, I need you to read Rich Dad Poor Dad. I really feel strongly about you reading it so you can understand what I am trying to do.” She still seemed hesitant, so I laid out an ultimatum, “You know I love you, but if you don’t read this book, it could destroy our marriage.”
Yeah, it did hit the roof. After a little heated discussion, my wife spent the next week furiously reading the book. Half they way throught he book we spoke again. “So what do you think about the book so far”, I asked.
She replied, “Well I can see why you said what you did. You can go for it. But what if it doesn’t work or you loose all our money on the market?”
I replied, “Well, if we loose all the money in the market, then we will be as bad off as we would be if I had to spend all of it now and go without income for the next two to three months after this month. My thoughts are that I could minize the risk with setting my stops and watching it like a hawk every day to make sure that if the market goes bad, I can pull out with minimum losses.”
She said, “well, ok, go for it. By the way, did you really mean you would divorse me if I didn’t read the book?”
I siad, “No, I didn’t say I would divorce you if you didn’t read the book. I said, if you didn’t read the book, our marriage would be at risk of a divorce. Here is what I mean, if I had read the book and done just what I was telling you about, you would have thought me nuts and insisted on a divorce for throwing our money away. I needed you to know that the risk of loosing you was on the line with the new way I wanted to handle our finances.”
Just as a little note, I now show other people how to increase their assets through stock investing and I make them get their spouces involved for the same reason. I make both of them read the book before I begin teaching them how to improve their income by generating assets. I still reference the above example as to why it was so important for both of them to read the book.
So, here is what I did…
I divided our investment money into the size of our largest monthly payment. for example, rent, let’s just say it was about $600. Now I apply this value to my spreadsheet that gives me a price range to work with for stocks. For $600, you could get into stocks that range between $1.00 per share to $1.25 per share. This will give you a move of about .03 before breaking even on a stock. Granted, this is based on the costs set by the brokerage. In my case, it was $7 to buy and $7 to get out of a stock. I would then take that value to a stock screener and enter in my desired price range for stocks per share and include minimum of 100,000 in volum and minimum of 20% in ownership. That would bring me back roughly 10 to 20 stocks to work with. I would then enter these stocks into the tool that TMTT gave from the class.
Using TMTT rules, I would then determine what was a good buy and put the $600 on it when the market was right (simple buy low sell high technique). I would repeat this process until all my money was invested in a group of stocks, then I would watch them for success.
Now the real trick, using Rich Dad’s concept, I would take any money we had coming into the house hold and add it to my investments pool. Once a month when bills were due (about a week before they were due), I would pull out the amount of money needed by selling the most profitable stock in my portfolio.
The bills were always paid on time and during 3 months of un-employment, I was sitting back with all bills paid and money to spare so that my family could continue living life as if I were still working.
Recently, I tried the same thing while I was working and on a single months time, I was able to grow the account from $0 to $2000. I took ALL of our income and put it into our portoflio. So a good portion of it was attributed to income we put in. Also note that $2000 was the result after paying our bills. Normally, we would only have about $300 to spare each month. As you can see, it made a big difference.
The technique that Robert illudes to in Rich Dad Poor Dad has saved us tremdously. It has helped us to set ourselves free of the slavery of working for someone else. Granted I am still trying to break free as we keep running into set backs (I think the contractor agencies and Corps I work for are becoming aware that they are no longer a requirement, but an asset vehicle for me). It would seem that the contracts are getting smaller and the gaps still remain. BUT, my family and I no longer suffer without an income every month and we are getting closer to our freedom.