Weekly Newsletter

What's the key to a great offense?

Do you struggle saving enough money to invest? Do you watch your bank account shrink little by little each month? We've all been there. And many of us think the easiest solution is to earn more money - to play more offense. "If only I could earn an extra $200 or $300 per month, that'd solve my problem."

Playing more offense is one approach, but it demands more time and effort. Which means less time with friends and family, and less time doing the things you love. Is working an extra 5-10 hours per week, on top of a 40 hour work week, even sustainable in the long-term? Probably not.

If you're trying to stop your financial boat from sinking, the easiest solution is to plug the hole, not find a bigger bucket. You need to play better defense. A great defense is the easiest way to increase wealth and save money.

But don't take my word for it. I encourage you to read Thomas Stanley's book, "The Millionaire Next Door: The Surprising Secrets of America's Wealthy."

Playing better defense means establishing a personal/family budget and keeping more of the money you already earn.

To establish a budget, you need to understand your expenses - your wants versus your needs. Most online banking platforms make this an easy task nowadays. But it won't make it any easier to prevent vomiting after you realize how much money you've wasted by not managing your expenses!

The formula for saving is simple:

Income - Expenses = Savings

In investing, this is called cashflow. And similar to investing, you want your household to be cashflow positive. Being cashflow negative is the quick way to the poor house. Or bankruptcy in investing.

Creating a budget is step 1, adhering to the budget is step 2. It takes discipline, commitment, and maybe a little sacrifice. But it's one of the secrets employed by America's most wealthy.

Stop trying to score so many points, and play a little defense!

Ulta Beauty Inc.

Ulta Beauty Inc. (ticker: ULTA) is a retailer of all things beauty and cosmetics. The company sells products through its retail stores and online marketplace. ULTA is a resilient business, highly profitable, and I like its prospects over the long-term. Which is why I'm a shareholder.

Here are the compounded annual growth rates (CAGR) for ULTA over the past 10 years:

• Revenue: 16.5%
• Assets: 15.5%
• Free cash flow: 36.9%
• Earnings per share: 24.5%

Enviable results by any measure. But don't take my word for it. As always, I encourage you to do your own homework.

Quote of the day

“ Do not save what is left after spending, but spend what is left after saving. — Warren Buffett

Tip of the day

Beware of adjusted EBITDA (earnings before interest, taxes, depreciation, & amortization)

The SEC requires publicly traded companies to report financials using Generally Accepted Accounting Principles (GAAP). However, many companies that are GAAP unprofitable report "adjusted" or "non-GAAP" profitability. These companies add or subtract various expenses and costs from the Income Statement, often resulting in their appearing to be highly profitable. Be sure you understand the difference between GAAP and non-GAAP and know what version of earnings your stock is reporting.

It's sort of like taking the income minus expenses example above, and your electing NOT to include car insurance or grocery bills in the expenses line. Not including these expenses falsely increases your reported savings.

Related Articles

Here are a few articles relevant to this week's newsletter. Be sure to give them a read.

1. ​How To Analyze The Cashflow Statement (For Beginners)​
2. ​How To Analyze The Income Statement (For Beginners)​
3. ​How To Analyze The Balance Sheet (For Beginners)​