Transcription
Welcome back everybody. Uh, today's video is going to be an inter an educational one. Kind of just showing people. A lot of people are kind of really seem to be curious about living out of the brokerage account and kind of how I automated it. I will say it was I'm the only person I've ever seen even talk about this topic. So there's not a whole lot out there on this and how you would set it up. And I'm going to show you why M1 Finance is so much better than Erade, Robin Hood, and all those other wannabe apps that aren't M1. M1 is completely automated. You literally do not have to think about it. Once you set this up, you pretty much just walk away and go to work and then it does it all for you in the background.
So, uh, before we even get into it, the last month I am up $25,000 on my portfolio. Uh, and the crazy thing is is my margin balance has barely moved. So that is mainly just market growth. Uh, now the tides could turn. It could go completely backward backwards. And that is the beauties of being on margin is when times are good, you're really good. When times are bad, um, you better lock your windows cuz you might want to jump out face first.
So let's go over the strategy. So before we get started, you need to kind of choose a strategy. And it seems like dividends on margin is kind of what's really resonating with people. It's not what I personally do, but I'm just showing you how you can do it on M1 Finance and how you can set it up. Uh, so it's completely automated. Now, this strategy was the original strategy I did before I realized that uh, it was not the best way to go about investing. Um, but I'm going to show you how to do it either way.
So, first off, you need a strategy. So, choose your strategy. I just created this so people could have something in their head. Uh, this would be like an anchor and then you have two income funds that would be helping pay down your margin. That seems like what really people want to do is as soon as they take margin they want to pay it off as fast as possible. Uh, so what would you do? Uh, let's go to my investment account. Uh, you would basically need three bank accounts. That's the very first step of this whole thing is you need to create three accounts. And why depends on the strategy you want to do, but this strategy I'm showing you is basically income flowing in into your portfolio and dividends paying down your margin and cycle just keeps repeating itself. And so a lot of people are kind of wondering how you would set this up. And so you need three accounts. Let's go to the reoccurring investments so I can show you. There are three accounts. Do not follow these. This is I'm not, like I said, I'm not doing dividends on margin. So this has don't follow these rules but you need an an an account the first account needs to be income coming in essentially you can I like to name my accounts and I wish I for this purpose I shouldn't renamed it but call your account income or paycheck or whatever income coming in and that's all it is and just so you know and so basically what I'm showing you is that um when this is my income account when cash you need to set a rule rule on this. You once you've done your direct deposit, when cash in joint savings or for you it would be in income account or whatever you want to call it is over $0, you are going to set up a rule and have it say, I want you to move my money to the investment portfolio. So then that rule as soon as that money hits your account and one's going to take it takes about five minutes and one will move that money over into your investment account and now you're going to go to your investment account and turn on auto invest. Now that you have your ratio set, you have auto invest on, money flows in, your cash goes in, fully invests all of it. So it's completely automated. You do not even have to think about it. And then that would be the first step. So money goes in, money, your your rule is going to send it over to your brokerage account. Your broker is then going to automatically fill the buckets for you because all your percentages are set. It's going to keep it at a constant percentage and it's going to always keep investing it for you.
Now, I will say before we get into this, another a big flaw I saw, especially when you're using is Ulti is nav decaying 24/7 and never goes up. So basically all of your money is going to only invest in Ulti if you do it this way. It is one of the biggest draw downs I saw and that's uh one of the reasons I also don't do the income investing outside of it obviously just being an inferior strategy and very tax inefficient. But money flows in you're going to have it invest and that takes us to step two. You're going to create a step two which is where do the dividends go now? Now you have all these income funds. Where where do the dividends go? So, you're not going to send them back to to your income account cuz the rule has been set that when income comes in, the money is going to pay down the debt or not pay down that you're the money is going to go into investments. So, basically, you would have just created a circle. It would just be going back into itself and reinvesting. So, we're not going to do that. You're going to create a second account and we call it I called mine margin payoff. So, you're going to create an account called margin payoff. Now, again, you're going to set it a rule. When margin payoff is over $0, I want that money to pay down the margin on the account. And that is a smart transfer you set. And it'll automatically, as soon as those dividends flow out, it'll send it over to that account. Uh, well, actually, before I send it over to that account, I got to show you how to send it over to that account. You need to go back to your investments again, and you need to set up dividend handling, and you need to set to sweep to margin payoff. And so you're going to have it sweep to margin payoff. And so what that is going to do for you is when dividends come in, it's going to send it to that margin payoff account where you have that rule that says anytime the account's over $0, I want it to then pay down the margin. And so now you have money going in going into investments dividend paying uh, down the debt.
So you think, "All right, cool. That's it. I'm done. That was easy." No, you need one more account. Why? You Well, you have one always going towards your debt and you have one always going towards your investments. Now, you need one last account for your bills. Cuz if you have these two accounts that are always at $0, where is your rent coming from? Where are your other bills coming from? They need something to come out of. So, that creates us the third account, bills. And so bills is going to be when cash in bills, and this is totally dependent on your life. You want to make it a little bit bigger than your highest bill. My highest bill is my rent at 2975. With water and sewage, it gets down gets to about 3,100. Uh, so that's the highest bill I will ever personally um, incur. Uh, so I chose 3,200. Choose whatever you feel comfortable with. Just make sure uh, all your bills are sporadic and they're not all on the same day. I like to have all my bills. I moved all my payment dates to be separate and nothing comes out on the same day because I'm always going to be sitting at that same balance. So, if my rent and my credit cards come out, now I have a $3,000 in credit cards. Now, one of those is going to get denied. And so, you need to make sure that all these bills are not coming out on the same days. Now, with that being said, uh, you're going to set it up where cash and bills is under 3200. So, that's how you set it up. Now, it's not over, it's under. So, anytime when a bill comes out and it drops my balance in that account, what am I going to do? I want my margin to refill that bucket. So, now it's going to borrow money to refill the bucket.
So, let's recap it and see what did you just create. Well, you just create a giant automated circle. You're investing your paychecks and using your dividends to pay down your margin and then you're living outside of your margin, too. Now, it's not a strategy I use, but it seems like a strategy a lot of people like, so I'm just showing you how to do it, but so let's just go over it in a real quick uh, real quick um, synopsis. Let's do it again. Paychecks come into the joint account of $0. That money is going to go into investments where you have an automatic um, you have an automatic investment. It's going to automatically invest that cash to fill up your your investments. Then you are going to have your dividends when they get paid. They're going to automatically sweep into your margin payoff and your margin payoff is then going to pay down the margin. When you have bills coming out, your bills are going to come out of your bucket. It's going to automatically refill your bucket and then uh, your rule is going uh, yeah, your rule is going to refill your bucket and you're going to be pulling out excess equity out of your um, out of your borrow. Basically, you're going to be just living out of this giant line of credit. You're you're basically living on a line of credit at this point. Your money comes in, dividends pay down the debt, the debt um, goes down, and then you're pulling money out to pay your bills. So, it's kind of a giant circle.
And uh, so what what would you do if you were running the system? Well uh, say you have Venmo cuz I use Venmo when I pay my friends for stuff. You want to set your Venmo up to be in bills. That's why my balance right now is at 3241. There's extra money in there because I sent Venmo money over to it. Um, but why would I do that instead of having my Venmo money go and pay to invest into my um, to invest into my uh, investments? Well, because a lot of the times when you pay out of your Venmo, you need that money to come from somewhere. So, you need it to come from your bills account. So, even when you put the money back in, you need the money to come back out. Uh, so you need that revolving line of credit for your bills. Uh, and so this is the system. Uh, this is how I would personally set it up on M1 Finance. I think this app is a super app. I think it makes, uh, investing incredibly simple. And why do I think this is so much more superior than Erade and all the other brokers? Well, what people don't realize is I literally I mean, and if I can not get margin called, of course, but you if you set this up correctly, you can literally just go to work, do your job, make your money, and you never ever ever ever have to think about what your bank balance is at or what your investments are doing because it's all automated. You're always investing and you're always never have to check your bank because you're living out of the line of credit.
Now, there's no such thing as an emergency fund. If you need, oh, I, you know, just blew a tire or I my car just blew up and I need five grand. Well, that's the fun thing is instead of, oh, I only have five grand in my bank, you have this giant line of credit where you can now pull from and use to pay those big big expenses. And then again, you can pay down the debt when you need to with your dividends or even if you want to send your money in to pay down the debt, however you want to set it up. But that was just a video over the rules in based investing today on how you would set it up so that this is completely automated. It seems like when people saw that they didn't really no one's ever seen the M1 smart transfers. I'm not going to lie, I've been using this app for 4 years and I never even knew they had it. Uh, and so when I made the video, it seemed to really resonate with a lot of people and it really um, caught their attention. So, I wanted to remake a video on explaining exactly how this system works and how exactly you would set it up. Uh, if you want to see other videos on how you could set the system up but not use margin or if you want to do um, my strategy where I don't use dividends to pay down the debt, uh, if you want to see how I set up that one, um, I could make more videos on this and just show you how you would set it up for every scenario. But, I do want to say thank you for stopping by. Thanks for checking out the video. I hope you enjoyed it. I hope you learned something from it. Uh, if you have any questions, leave them in the comment below. Please like, comment, and subscribe. And uh, I will see you in the uh, next video.