Just recently, at our house, we were able to reunite as a family. My oldest daughter is living with us while she gets her nursing degree, my son was back from his sophomore year at Mississippi State, and my youngest daughter was home from completing her freshman year at Ole Miss.
After dinner one night, the kids decided to pull out old video tapes that chronicled the early years of their lives. They were laughing and carrying on, so the wife and I decided to sit in and reminisce with them. It was so much fun. The tapes brought back memories of our early years as a family and led to us sitting around and telling stories about things we remembered.
It was funny, because some of the stories that were told, I had no memory of, but one story, in particular, was one that all five of us remembered. It's was the story about "the money tree."
Anyone who has kids knows that raising them can leave you at a place where there's more month left over at the end of the money. Our family was not immune from that circumstance.
Things for us financially had really ratcheted out of control. So one day, after sitting in the office and paying off all the bills that had stacked up on my desk and sending off the minimum payments to keep the creditors off our backs, I became quite distraught. I walked into the kitchen and stood in front of the big window and was staring off into the back yard.
My wife said, "David. What are you doing?" I didn't look at her, but just kept staring out into the yard. "It's gone, Tam," I said. "What's gone?" She asked. "The money tree. It's not in the back yard anymore. Someone must have cut it down."
The kids, who were listening couldn't wait to go to school the next day and tell everyone how we had been robbed, because "Someone stole Daddy's money tree right out of the back yard!"
What I Know:
This incident was a life-changing event for our family. For the first time, my wife and I began to discuss our finances. In the early years, I felt that it was my job to be the bread-winner and the keeper of the money tree, but I had not been a very good gardener.
We began to look at our finances as a business. My wife and I both worked and we were generating a nice income, but we spent it as fast as we made it. We had no financial plan of any kind. We were basically running our "business" into the ground, because we were mismanaging it. If we were really a business, we should have been fired.
What We Started To Do:
Our business was heavily in debt. We decided to attack the expense side of our business by prioritizing that debt and getting it paid off. In order to do that, we needed more revenue. I took a second job on the weekends at Home Depot and my wife began tutoring kids in math. The income from those jobs was applied 100% to our debt load. One by one, we paid off the credit cards and started a program of "cash only for new purchases." When the car loans were paid off, we kept driving the owned cars instead of replacing them with new ones. With increased cash flows, we began a savings program.
Little by little, we were able to see a light at the end of the tunnel. Once we arrived at the position of having more cash flow than expenses, we began saving. We both started funding our 401k and 403b plans at work. We took the extra money and started to fund IRA plans. We also established savings plans to eventually pay for the kids college educations.
How We Invested:
We "rediscovered" Dividend Growth investing. While I had been buying dividend paying stocks in the past, as a single guy and now as a married guy, I never really understood what I was doing. I mean, I'd buy what I thought were great companies, but I didn't really know that my style of investing was "Dividend Growth" investing.
As time progressed, I noticed that my Schwab account was growing in the amount of cash that was being generated by my stock holdings. One day, I visited my local Schwab office as they were having a seminar in regard to income investing. That was an eye opener for me. The guy giving the seminar had found a "money tree." I couldn't wait to come home and tell my wife, "You won't believe this-but I found us a money tree!"
What Happened Next:
From that seminar, we decided to convert our mutual fund investments to individual stocks. Dividend paying stocks. We had Schwab reinvest those dividends into more shares of stock as the dividends were paid to us.
Our investment vehicle of choice became the IRA. We would have no tax issues with dividends paid, dividends reinvested, or stock positions sold with capital gains. One day, we would draw money out of the IRA and pay taxes as ordinary income-but that day was a long way off.
We learned that we were responsible for managing our money. We began to operate our lives as a business. We planned out a budget with revenue, expenses, capital improvements, and arrived at an "operating income" line. For the last 20 years, through job changes, various medical issues, market ups and downs, boom and bust financial cycles, and even surviving the impact of Hurricane Katrina, we have been able to move upward and onward towards the goal of financial freedom-provided though our money tree.