People don’t become rich through luck. Becoming wealthy requires time, hard work, and temporary sacrifice. Virtually everyone has the capability of becoming rich, just as virtually everyone has the capability to be thin or be in great shape. The difference between those who do become wealthy and those who don’t is personal choice.
For most people (set aside those with inactive thyroids or other conditions) a healthy weight can be maintained if their calorie intake is limited and they perform a reasonable amount of physical activity per week. This isn’t to say that it is easy. There are certainly lots of temptations and holding a healthy weight is no longer the norm. There are plenty of excuses for over eating – I’m tired. I’m sad. It’s the holidays. Friends are over. It’s my birthday. It tastes good.
Most people can also become wealthy, at least relative to their income level from their occupations. Those making $30,000 per year can retire with more than $1 million in the bank. Those making $80,000 can retire with more than $10 million. Those making $250,000 per year can easily retire with more than $50 million.
Again there are always excuses to overspend. It’s the holidays. I’m sad. I’m bored. I’m lonely. I need a vacation. I want to go to a fancy college. I want a nice car. I need nice clothes for my work.
People who become wealthy find a way to save and invest despite these excuses. They know that by making a sacrifice initially relative to everyone around them they will later be able to have everything everyone else has and then some. In their case, however, everything will be really their’s – bought and paid for. They will also have spent a lot less on these things than everyone else because they will have bought them for cash, avoiding interest. Because of this they will have both the items and the cash that would have gone to interest.
This year, start your way to financial freedom. Here are six steps:
1. Pay off your credit cards and close the accounts. You can never become wealthy when paying 25% interest and buying things you can’t afford. A debit card can do everything a credit card can do except put you into debt.
2. Create an emergency fund. This is a pile of cash equal to 3-6 month’s worth of expenses that is kept in a simple money market account or maybe spread between a money market and a short-term CD. This is the cash that you use when the car breaks down or the air conditioner quits rather than going into debt. It is also what will tide you over should you lose your job. Whenever you spend some of this money you should work religiously to replace it.
3. Create a budget each month and stick to it. Wishing will not work. If you spend less than you make, you will gain wealth. You will not if you spend more than you make. Put it down on paper and agree with your spouse each month before the month starts. The put cash into envelopes or otherwise track the money. More than helping you grow wealthy, this will foster communications on what you each consider important. You will also find that you have more money than you think when you prevent money from being wasted on frivolous expenses.
4. Plan for the big expenses and put money aside for them. You will need another car eventually. You will need to replace your roof. Your children will need to go to college or a trade school. You will want to go on vacations. Include money each month for these expenses and store the money in savings accounts (mutual funds for expenses more than five years out) until it is needed. If you have enough invested in stocks to still pay for things despite the fluctuations, the amount of cash you keep can be decreased.
5. Stop paying a lot for things that decay in value. Buy your car two to four years old. Buy used boats or just rent one when you need one. Don’t spend a lot of money on clothes that will bring a few dollars at a yard sale. Look at the pawn shop for tools, jewelry, and audio equipment rather than the pricey stors at the mall. Don’t spend $10,000 on couches – instead buy less expensive couches and buy nice wood furniture from estate sales. The couch will decay to nothing but good wood furniture will keep its value. If you don’t overpay – you can resale later for at least what you paid for it when it is no longer needed.
6. Start building your pipelines. Put $300 per month in your budget for investments. Open up an account with Vanguard and start sending in checks on a regular basis to purchases shares of a mutual fund. If you don’t have the discipline to send the checks, see about direct deposit. As your funds build, diversify into real estate and individual stocks. Also, siphon off a little of the earnings to enhance your income each year once the accounts start to build up. This will allow you to increase your lifestyle without requiring debt and provide the rewards to allow you to maintain your focus. (Note the people who before laughed at you for not following the crowd will start to ask how they can follow in your footsteps at this time.) Let the rest of the earnings get reinvested to make your pipelines even bigger.
With planning and committment, anyone can become wealthy. Get started in 2012.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.