Monday, November 14, 2016

How to Save $100k & Double The S&P 500's Return

Saving $1 on a box of cereal is nice, but it's not the fast track to financial independence and telling the boss to get lost for good.  I don't like to recommend clipping coupons or other half ass ways of getting rich. I'll admit to clipping coupons myself occasionally, but there are more bad-ass ways of making it to the 1% without having a name like Mark Zuckerberg. Here I try to show you how to think outside of the box when it comes to increasing income and saving money through powerful information and skills.  

Today we are going to look into one possible way you can save $100k and smash the S&P 500's historical return of approximately 7-8% after inflation. 


The Black Hole

Homes for the majority of people are their biggest "investment".  By investment I mean this is the place where interest, property taxes, and the black hole of repairs and updates reside. That black hole is what I'm referring to in this article. When you sign on the dotted line you know exactly how much your monthly mortgage payment will be, and you have a reasonable idea about property taxes for the next few years. 

You have no idea what amount you will be spending on new shingles, soffits, flooring, drywall, tile, and counter tops with the seemingly endless need to update your home. This is an area where things can blow out of control really fast. Because there is no one to stop you from upgrading to the fanciest wood floor, the sleek glass tile back-splash, or the high-tech refrigerator with a tv besides a lack of credit card or home equity funds . I haven't even begun to chip the surface with repair bills for the HVAC control board, water damage from a leaky pipe, or the neighborhood kids putting a baseball through the window. All of which can happen when you least expect it.  

The $100k

Yep your house is fraught with hidden and unexpected large bills.  For the seasoned homeowner they know all to well.  So how is it possible to save $100k in this area? Of course your dying to know, and who isn't.  Actually this number isn't very scientific.  It came from a discussion I had with a representative from one of America's leading home improvement chains.

The rep stated their company had determined each homeowner would spend on average $100k over the course of their home-ownership lives buying household items. Whether it's new faucets, brick pavers, or ceiling tiles that's what their research determined the average homeowner will spend.  

Now if some of the smartest people in the business have determined you will spend $100k on your home how the heck are you going to save $100k?  

Great question and the answer is simple.  This rep stated this is just what you will buy in material and other tangible items from a home improvement store. It did not include the labor required to install most items that come from home improvement stores. Labor costs construction can vary widely, but for many projects it's generally 40-60% of the bill depending on prices in your area. 

Let's assume you do spend the $100k mentioned above and now lets include labor. Labor might be another $100k for a 50/50 split. Labor costs in your area may vary, but I'm trying to keep it simple. Regardless you have a good chance of spending $200K or more on your house over it's lifetime.  With little of it tax advantaged spending unless you can add it to your home's basis when you sell. More on that in future articles. 

This is where it gets interesting, and of course this will require you to actually do some good old fashioned work.  You'll save $100k by learning how to do most of these repairs and installations yourself.  

"WHAT THE $*%@!?!?!? That's the answer!?"

OK calm down and take a breath. I know working around the house and getting dirty is not exactly every one's idea of a good time. But if saving boat loads of cash is then this should pique your interest. 

Learning how to do repairs around your house will obviously take some time to do. For some learning is quick, and others it takes time.  You'll need to learn the process for fixing certain items, and how everything in your house works together. It sounds daunting, but buckle down for a month or two, and you'll find it's actually all quite simple. At the end you'll have taught yourself the equivalent of another college degree with knowledge you can easily pass down to future generations. That alone is potentially worth another $100k. 


START SLOW

This does not mean you instantly tackle installing a new furnace, or replacing all the plumbing in your house. 

For simple things like shelf installations or outlet replacement DO IT YOURSELF!  It's easier than you think to find a stud, screw in a bracket, or connect a couple wires to a screw. These tasks will help you build the necessary confidence to tackle more complicated jobs. Eventually when you want new cabinets, or crown moldings on the wall you'll be able to buy the materials yourself and bring them home for your own custom DIY install.  When you provide the labor you can get as fancy or basic as you desire.  The more skilled you get the more elaborate your projects will become. 

With the plethora of DIY video's online you can find how to do almost every major, and frequent home repair. You'll need basic quality tools such as a drill, saw, measuring tape, level, ladder, and other accessories. Before you know it you'll be able to tackle most things yourself. The total cost of these tools is up to you. Buying a bunch of new high end tools from a big box home improvement store can set you back $2,000 or more.  So be careful in your selection here. Talk with pros to see what tools they use, and which brands they find value in. Of course you can always buy on the secondary market. You'll find plenty of valuable tools at a fraction of the cost. From my experience you should be able to get virtually all the tools you'll need most often for around $1k if purchased wisely.  I suggest hitting garage sales, Craigslist, and keeping an eye out for sales at big box stores.  

Construction Is Not Just For Men

Now Ladies don't get discouraged and think this can't be you. An awesome and amazingly talented friend of mine, Calli, recently re-painted her own kitchen cabinets. She did an amazing job which you can see from one of the before and after pics below. Doing this work herself easily saved hundreds of dollars, plus it gave her kitchen a contemporary look. 



Women are equally talented in this space and equally capable of handling any home repair. Plus don't be afraid of a little dirt under the nails. Smart guys will find it very attractive that you can hold your own with a dual bevel compound miter saw. There are plenty of women in the trades that can do even better work than men.



Beating The S&P 500



"OK MAD Consultant you just gave us a bunch of numbers and getting to work gibberish. How do we beat the S&P 500?"  
.
I'm glad you asked. 

Let's say over the course of your 30 year mortgage you decide to take this challenge. You spend $1,500 on start up tool costs, and tackle just about every job yourself. You can potentially save $98,500 of that $100k in labor we discussed. That's a 6,566% return over 30 years from home repair labor alone. But that number is deceiving since it's not our yearly return so I've calculated that for you and it's mind boggling what came out. 

Doing repairs yourself can essentially earn you a 15.03% yearly annualized return over 30 years. Basically double the historical return of the S&P 500 which is right around 7-8%/year. Best is you get this return without putting your money in the stock market. Although I highly advise you invest the savings so you can fast track your membership to the 1% club. 

For the average middle class person this is serious money!!!

Satisfying Rewards

The self-gratification from completing these tasks will be worth way more than the effort you put in.  There is nothing more rewarding than admiring a brilliantly completed project in your home done by YOU! The sense of pride and accomplishment will lift your spirits to new highs. Your friends and family will be impressed by all the work you've done when they come over for dinner and holidays too. Plus it's possible you can add value to your house when it comes time to sell netting you more cash.

Of course you'll be able to use all these extra savings over the years to PAY OFF YOUR HOUSE EARLY, pay for your children's college, or invest in a business. This will help you multiply your wealth.  MAD Consulting can even help you open up the retirement and investing accounts to make this happen for you! Just get in touch with us and we can get the account opening process started. 

If you were thinking this would be an easy $100k I'm sorry it's not. Nothing in life is ever easy. Especially learning skills that are valuable.  So what are you waiting for? Grab the hammer and get to it!!!

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