Income Planning
Income planning is the process of analyzing your income, spending habits, and needs in order to determine how much money you require monthly or yearly. The earlier you income plan in your portfolio the more you will be able to see if you are producing enough portfolio income to retire, withdraw, and if there are inefficiencies in your portfolio. Early income planning, no matter your age, could guide your spending and calibrate your financial goals. Waiting until retirement to income plan could be a lifelong mistake.
Facts About Accumulation
Everyone likes a delicious meal. The greasier the burger the better. The bigger the spread, the more colorful the dish, the better. This picture above or on the left is proof of that. Invariably, everything that is built with a plan has a 70% better chance of being a success. An income plan is no different.
Take for example, the Oracle of Omaha Warren Buffett, he receives $5.26 billion dollars in annual dividend income by investing in 35-51 stocks every year. Most of his dividend income he will never be able to use but it is there like clockwork every quarter. When you do the math on the size of his portfolio as of July 26th 2024, he is only yielding 1.31% of the total account value. Which means what the other 98.69% of the account does becomes the second or third portfolio goal but not the first. The lesson here is to buy quality, do your research, and invest in income producing assets along your financial journey.
Where can you find income?
Many times the solutions we need are hidden in a book, around a circumstance, in the middle of a conflict, or in hind sight. This is why story telling is so vital for us to learn about others and ourselves. I was born in Gary, IN. I was not born into or around wealth, as indicated in my first book, but I was raised in a time where people valued relationships, hard work, and that good ole' savings account.
Today the dynamic of where we work, how we work, the definition of work, and the family dynamics are vastly different. It is easier to make money now than ever before. The first place to find income is in a source of work or service. It doesn't have to be a corporate job. It can be cutting hair, doing nails, being a plumber, electrician, or a flight attendant. No matter what you choose, have integrity about it and do it with a high sense of accuracy. Money is a resource in exchange of a service. Serve first, be rewarded second.
The second place to find income is in reducing your debt and making sure you save money every time you receive it. Never spend every dollar you make. Third is to keep your spending low, ask yourself, "do I really need this?". Fourth is to work and invest slowly consistently. If a place has a 401k, pension, or workplace account sign up for that. Open a ROTH IRA and contribute monthly. When you hear chatter about interest rates, call your advisor and broker, buy that brokerage bond or CD. Not a bank cd (the interest is usually lower).
Income Habits
Every Saturday and at the end of the month I go through all my accounts and add up how much income my money has made. How much did I save? How much did I spend? If there is any account that did not make enough money to cover a value meal, I then look for ways or an account that will produce more income. Every account that has money parked in it must make some kind of market return or yield cash back. -KPB