The road to financial freedom is a lot shorter than you may think. For those of us who did not start our lives wealthy because of our family, we only have 46 to 49 years of income producing more if you want to work into your retirement years.
During that time, we must complete our education or training, get a job or open a business, while meeting the many demands on what income we have left after
taxes.
We have to provide for food and shelter, clothes and transportation, child rearing expenses, college tuition, vacations, Christmas presents, insurance premiums and more. The list never seems to end.
How is it that some people can retire at age 50 in spite of all this while others will never retire at all. If you read the article, Get Rich Slowly – http://www.credit-yourself.com/get-rich.html – you can see how you can use the power of compound growth to amass millions if you start young. However, this is the period in
most peoples lives where the greatest demands seem to be made on their income.
First of all, youre just starting out and are nowhere near your peak earning power. You might have just married and need a home and furnishings.
You might have to buy your first suits or business dresses for your new job. And you want to enjoy life, so you vacation, buy or lease new cars frequently and just basically run up debt, many times to be piled on top of your existing student loans.
But some people manage.
First they live within their means and save as much as possible.
They take advantage of all the tax shelters the government allows and if possible, save even more.
They invest in or start a part time business, rental properties or learn to increase their returns by smart investing.
They insure against potential risks that could ruin them financially.
They use debt wisely. They dont necessarily shun debt, but use it as a tool to grow wealth. For example, they can leverage one 20% down payment into a string of
houses using mortgages. They can use margin debt to double the amount of their investment funds.
They can take advantage of tax credits, government guaranteed loans or grants offered to small businessmen or to certain minorities to fund multiple streams of income.
But they dont use debt to fill the house with things. They pay cash for their new TVs and stereos.
They take taxes into account when planning their lifestyle and investments and use all the tricks the IRS lets them get away with.
For a little over $3.00 a day, starting at age 22, you can amass over $850,000 in an IRA.
The difference between the financially independent and most of the rest of us is that they can find that $100 a month and dont consider it some kind of sacrifice to invest it rather than spend it.
Most people will complain they have no money left over and that they live from paycheck to paycheck. But in almost all cases this is a lifestyle choice.
There are many stories of very low income people managing to put multiple children not only through college, but also graduate school or leaving millions to a favorite
charity.
These people are special in the sense that they had a goal and stuck to it no matter what. They worked hard, saved their money and achieved what they wanted to achieve.
Everyone can do this. You just have to ignore the siren song of commercialism, and decide whether a secure future for yourself, a college education for your children or a large bequest to your favorite charity is worth skipping the daily double latte at Starbucks.
That about all it takes to get you well down the road to financial freedom.
The road to financial freedom is literally paved with gold, yours for the taking.
Many successful people have mentors to guide them in learning the skills that lead to achievement, and Ill do my best to offer you some critical personal finance perspectives. They say that life is a school where you learn the lesson after the test. The same thing applies to money, but you cant go back in time to fix catastrophic financial mistakes that you have made over time. As long as you are alive, you are a player on the field of the money-game, and you need to know the basic rules before you get tagged by the experienced players.
Rule #1: To earn money from money. The only way to escape becoming a wage slave for the rest of your life is to set aside savings. The profit on your savings can be used to increase your lifestyle spending, reduce the number of years until you retire, or allow you to actually have any retirement at all. How are you doing so far toward saving and getting it to earn money for you?
Every dollar that you spend eliminates its ability to earn money for you in the future. I am not recommending that you stop eating at restaurants and going to movies, I am recommending that you use some common sense, like looking at your four biggest expenses over the last few months and aggressively finding a way to reduce them.
The biggest obstacle for the first rule is personal debt of any kind (other than a mortgage for your home) or a lease of any kind. Every personal debt that you incur reduces your net worth which could have been working for you over your life time. Acquiring personal debt is exactly like putting a large hole in your wallet. In the money-game, a huge transfer of wealth occurs between the Haves and the Have-Nots over the words, I can afford that monthly payment. Here is a hint: the Have-Nots are the ones who make that statement. So please dont ever look at whether you can afford a monthly payment to make a purchase; pay in cash after youve saved for the item. [Everything that you buy with a 0%-interest payment plan must be over-priced. Behind the scenes, your payment contract is sold to a lender with an interest rate, and retailers dont do this without building-in an acceptable profit for themselves. Ask retailers how much the item will cost if you pay in full, and you could get a lower price.]
Rule #2 Always keep your finances under control. The first step in losing financial control and spiraling into debt and money problems is simply not dealing with personal finances. Prepare for catastrophic financial accidents with health, life, disability, and auto insurance. Plan and save before you buy something. Create a balance sheet for yourself at least once a year to see how you are progressing. Pay every bill on time, or contact the creditor to tell them what is going on and make a partial payment. If you are temporarily unable to handle any of this, ask for some help immediately and find someone trustworthy who will do this for you.
The most common source of financial trouble is a trauma in your life. This can be a health problem (large expenses or unable to work), an emotional problem (divorce or loss of loved one), or a financial problem (losing a job, cut in pay, relocation, unexpected expenses). Whichever the source may be, it leads to three emotional problems: the first is denial, the second is being overwhelmed, and the third is hopelessness. Denial causes people to not open their mail and continue spending as usual, and being overwhelmed paralyzes people from getting assistance and dealing with the situation. For example, if you just lost a loved one, balancing your checkbook and paying bills is not high in your priorities. Unfortunately, tiny amounts of debt grow with interest and penalties into seemingly insurmountable mountains of debt; leaving you with loathsome options such as bankruptcy, poor credit, declining lifestyle spending, and added stress that you bring to relationships and work.
Rule #3 Pay attention to the finances of the people with whom you spend the most time. Whether they are relatives, friends, or co-workers, these people have the most impact on your financial life. Do they consistently follow the first two rules of the money game? Do they earn about the same money as you? If the answer to either of those is no, then I recommend that you start spending a little less time with them; and this is why. If they dont consistently follow the first two rules, it is unlikely that you will either. You unconsciously model the people around you, and the more people you are exposed to that dont follow the first two rules, the more likely that you will unwittingly follow them. No one thinks they are trying to keep up with the Joneses, but we all do it to some extent, and this is the mechanism. On the other hand, if they earn a lot more money than you, you may rack up a lot of debt trying to keep up with them (meeting them at their favorite expensive restaurant, joining them for another expensive vacation, buying a new car because yours is the junker among all of your friends, etc.) On the other hand, if most of your friends earn a lot less than you, you will turn into the groups banker. For example, youll find yourself in the pattern of putting your credit card down to pay for dinner and theyll all say theyll pay you back later, but 50% of them never do; and they dont mind taking advantage of you because, after all, you earn a lot more than they do. Or, you and your friends need to pay a deposit for renting a house and they expect you to write the checks because you have the money available and they do not.
The neighborhood that you live in also creates financial pressure to violate the first two financial goals. Your neighbors are likely to become friends (and Ive already gone over this), but they also influence the size of your home, extent of your landscaping, price of furniture, and the size of your TV. So pay very close attention to the finances of your neighbors if you dont like how they are measuring up for first two rules, move somewhere more in alignment with your financial goals. If your family and friends, dont measure up financially, find some additional people to spend time with that have financial habits that youd like to emulate and learn from. I have friends with a wide range of income, but it is much more difficult to follow the first two money rules when I am with the extremes from my own income. Youll just find it easier to reach the next rule when the peer group that you hang out with aligns closer to your economic level.
Rule #4 Accelerate the other three rules:
Add to your savings by increasing your income through advancing your career. It doesnt matter whether you enjoy it; it is a means to an end with the end being progress toward the fulfillment of rule #1. Increase the amount that you save by aggressively lowering four of your highest expenses. Start spending time with people that talk about investing money and are systematically building their wealth the fastest. The combination of all four of these rules will hopefully offer a next-step for you to take today to start getting more wins in the money-game.
Many successful people have mentors to guide them in learning the skills that lead to achievement, and Ill do my best to offer you some critical personal finance perspectives. They say that life is a school where you learn the lesson after the test. The same thing applies to money, but you cant go back in time to fix catastrophic financial mistakes that you have made over time. As long as you are alive, you are a player on the field of the money-game, and you need to know the basic rules before you get tagged by the experienced players.
Rule #1: To earn money from money. The only way to escape becoming a wage slave for the rest of your life is to set aside savings. The profit on your savings can be used to increase your lifestyle spending, reduce the number of years until you retire, or allow you to actually have any retirement at all. How are you doing so far toward saving and getting it to earn money for you?
Every dollar that you spend eliminates its ability to earn money for you in the future. I am not recommending that you stop eating at restaurants and going to movies, I am recommending that you use some common sense, like looking at your four biggest expenses over the last few months and aggressively finding a way to reduce them.
The biggest obstacle for the first rule is personal debt of any kind (other than a mortgage for your home) or a lease of any kind. Every personal debt that you incur reduces your net worth which could have been working for you over your life time. Acquiring personal debt is exactly like putting a large hole in your wallet. In the money-game, a huge transfer of wealth occurs between the Haves and the Have-Nots over the words, I can afford that monthly payment. Here is a hint: the Have-Nots are the ones who make that statement. So please dont ever look at whether you can afford a monthly payment to make a purchase; pay in cash after youve saved for the item. [Everything that you buy with a 0%-interest payment plan must be over-priced. Behind the scenes, your payment contract is sold to a lender with an interest rate, and retailers dont do this without building-in an acceptable profit for themselves. Ask retailers how much the item will cost if you pay in full, and you could get a lower price.]
Rule #2 Always keep your finances under control. The first step in losing financial control and spiraling into debt and money problems is simply not dealing with personal finances. Prepare for catastrophic financial accidents with health, life, disability, and auto insurance. Plan and save before you buy something. Create a balance sheet for yourself at least once a year to see how you are progressing. Pay every bill on time, or contact the creditor to tell them what is going on and make a partial payment. If you are temporarily unable to handle any of this, ask for some help immediately and find someone trustworthy who will do this for you.
The most common source of financial trouble is a trauma in your life. This can be a health problem (large expenses or unable to work), an emotional problem (divorce or loss of loved one), or a financial problem (losing a job, cut in pay, relocation, unexpected expenses). Whichever the source may be, it leads to three emotional problems: the first is denial, the second is being overwhelmed, and the third is hopelessness. Denial causes people to not open their mail and continue spending as usual, and being overwhelmed paralyzes people from getting assistance and dealing with the situation. For example, if you just lost a loved one, balancing your checkbook and paying bills is not high in your priorities. Unfortunately, tiny amounts of debt grow with interest and penalties into seemingly insurmountable mountains of debt; leaving you with loathsome options such as bankruptcy, poor credit, declining lifestyle spending, and added stress that you bring to relationships and work.
Rule #3 Pay attention to the finances of the people with whom you spend the most time. Whether they are relatives, friends, or co-workers, these people have the most impact on your financial life. Do they consistently follow the first two rules of the money game? Do they earn about the same money as you? If the answer to either of those is no, then I recommend that you start spending a little less time with them; and this is why. If they dont consistently follow the first two rules, it is unlikely that you will either. You unconsciously model the people around you, and the more people you are exposed to that dont follow the first two rules, the more likely that you will unwittingly follow them. No one thinks they are trying to keep up with the Joneses, but we all do it to some extent, and this is the mechanism. On the other hand, if they earn a lot more money than you, you may rack up a lot of debt trying to keep up with them (meeting them at their favorite expensive restaurant, joining them for another expensive vacation, buying a new car because yours is the junker among all of your friends, etc.) On the other hand, if most of your friends earn a lot less than you, you will turn into the groups banker. For example, youll find yourself in the pattern of putting your credit card down to pay for dinner and theyll all say theyll pay you back later, but 50% of them never do; and they dont mind taking advantage of you because, after all, you earn a lot more than they do. Or, you and your friends need to pay a deposit for renting a house and they expect you to write the checks because you have the money available and they do not.
The neighborhood that you live in also creates financial pressure to violate the first two financial goals. Your neighbors are likely to become friends (and Ive already gone over this), but they also influence the size of your home, extent of your landscaping, price of furniture, and the size of your TV. So pay very close attention to the finances of your neighbors if you dont like how they are measuring up for first two rules, move somewhere more in alignment with your financial goals. If your family and friends, dont measure up financially, find some additional people to spend time with that have financial habits that youd like to emulate and learn from. I have friends with a wide range of income, but it is much more difficult to follow the first two money rules when I am with the extremes from my own income. Youll just find it easier to reach the next rule when the peer group that you hang out with aligns closer to your economic level.
Rule #4 Accelerate the other three rules:
Add to your savings by increasing your income through advancing your career. It doesnt matter whether you enjoy it; it is a means to an end with the end being progress toward the fulfillment of rule #1. Increase the amount that you save by aggressively lowering four of your highest expenses. Start spending time with people that talk about investing money and are systematically building their wealth the fastest. The combination of all four of these rules will hopefully offer a next-step for you to take today to start getting more wins in the money-game.
We all know that we should save money. But something so easy to say can be quite difficult to actually do.
Saving money is the basis of building your financial future. However, many consumers are putting it off one more day. Those days turn quickly into years of lost money. Without savings, the chances of meeting long-term financial goals and achieving financial security are quite miniscule.
In order to save money, you have to control your finances. Saving has nothing to do with how much you make. It has everything to do with how you control your money. If you have lots of credit card debt and live paycheck to paycheck, you are not in control of your money. And you aren’t saving for the future either.
You have to spend less and save more. The two are tied together. In order to save, you have to start spending less.
And it all really isn’t that difficult if you just start doing it.
First, sit down and write down your financial goals. Just ask yourself what you want from your money. Perhaps you would like to have a downpayment for your first home. Maybe you need a new car. Make long-term goals, such as retirement, and short-term goals, such as new living room furniture.
Give each goal a dollar amount and a time frame. In order to save, you have to know what you are saving for. You have to have a reason to put your money aside.
You will need to set up a seperate savings account. You probably know that leaving the money in your checking simply won’t work — you will spend it. Have a savings account that you can easily deposit or transfer money into. Many banks will set up an automatic withdrawal to your savings each month. This is a easy way to set it and forget it. It is paid just like any other bill.
Over time, you will see your money start to grow. This is rewarding and exciting. Most people become motivated to save even more. Saving and investing can become addicting in a good way.
You will find that a written budget is almost essential for saving money. You need to know where your money is going in order to make changes to the way you spend. A budget not only tells you where you are spending, but it can help you plan how you spend. Include into your budget a debt reduction plan, and your budget will make the most of your dollars. Budgeting is simple and doesn’t require you to sacrifice your entire lifestyle. It is just a plan to get where you are going.
If you do have a lot of credit card debt, you should focus spending your saving money on eliminating that debt. It would be wise to put a small amount aside for emergencies, but the vast majority of the money you are saving right now needs to be going to your debt. The reason why is simple. Why pay 20% interest on a credit card debt when your savings are earning 2% to 10% in interest. You are spending more than necessary. Wipe out that credit card debt first. It will save you more in the long run.
A lot of people really boost their savings by putting their unexpected money into their savings accounts. Your bonuses, raises, tax refunds and overtime can really pump up your savings. You aren’t having to spend even less or cut back more, but you are seeing your account balance rise.
There is no real secret to saving money. You simply have to start doing it. That is often the hardest thing — the first step. But once you see your finances begin to change and the interest start working for you, you will be hooked on saving for your future.
Many of the brightest and hardest-working marketing and advertising people in the country are obsessed with getting you to spend money and, if necessary, to go into debt to do so. Absolutely all the media that reach you every day are designed to get you to spend money. In order to save money in this environment, you will need determination to withstand the constant pressures to spend now.
What is it that separates those who are successful from those who are not?
Successful individuals have a strong personal vision of what they want and why they want it. That vision gives them the strength to stick to their strategies even when doing so is uncomfortable. It gives them the determination to persist when they are discouraged. This is the same characteristic of women entrepreneurs and is the reason their new, small businesses are successful.
The 401k Plan
Today, the 401(k) plan has become the main investment vehicle for working women to save for retirement. But many dont take full advantage of their plan, and this could leave them with a lot less at retirement. Here are some steps we believe you can take to improve and eliminate any retirement worries about whether or not your retirement will be pleasurable or public charity; or whether you will have all the free time to spend with your family or friends.
1. Increase your contributions to the maximum that you can manage. Many women contribute just enough to take advantage of their employers matching contributions, and then they stop. By adding more to your account, beyond the matching contributions, youll end up with more in retirement.
2. Invest at the start of each year instead of taking a little bit out of each paycheck. Nothing in the law says you have to invest in a 401(k) plan a little at a time, from each paycheck. By investing early, youll put your money to work sooner for your benefit.
3. A few years ago it was reported that more than 30 percent of the money in 401(k) plans was invested in money-market funds or similar accounts. For investors nearing retirement, that may be appropriate. But most workers in their 40s and 50s need growth in their retirement investments. Put more of your investment fund in equities and less in money-market funds.
4. Research indicates that over long periods of time, small-company stocks outperform large-company stocks. Since 1926, In the equity part of your portfolio, shift some of your money into funds that invest in small companies. Dont put your entire equity portfolio in small-company stocks. But consider investing at least 25 percent of your U.S. equity investments in that fund.
5. Numerous studies have shown that value stocks outperform growth stocks. According to data going back to 1964, large U.S. value companies had a compound rate of return of 15.1 percent vs. only 11.4 percent for large U.S. growth companies. Among small U.S. companies, the difference was even more striking: a compound return of 17.4 percent for the value stocks vs. 12.1 percent for the growth stocks. Dont put your entire equity portfolio into value stocks. But if theres a value fund available to you, consider investing at least 25 percent of your U.S. equity investments in that fund.
6.Rebalance your portfolio once a year. Your asset allocation plan calls for a certain percentage to be invested in each of several kinds of assets. Rebalancing restores your asset balance and allows for the possibility that last years losers may be this years gainers. Diluting your diversification actually increases risk in your portfolio over time, which is a result thats just the opposite of what most investors want.
7.Without compromising proper asset allocation use the funds in your plan that have the lowest operating expenses. Choose funds with low turnover in their portfolios.
8. Dont borrow or make early withdrawals from your 401(k) unless that is the only way to respond to a life-threatening emergency. Furthermore, if you take an early withdrawal before you are 59.5 years old, your withdrawals will be subject to a 10 percent tax penalty (in addition to regular taxes) unless you are disabled. Just dont do it.
9. If you leave your job, youll get a chance to roll over your 401(k) into an IRA. Take that chance. In an IRA, you have the same tax deferral as a 401(k), and youll have the flexibility to invest in virtually everything you can get in a 401(k), plus much more.
10. Heres the most important thing you can do to maximize your 401(k): Keep your contributions automatically payroll deducted, and make them no matter what. Its simple, but its not easy. Half of the households in the United States have net worth of $25,000 or less. In a typical year, about two-thirds of U.S. households do not save money.
Remember, to be successful, first, imagine your early retirement; the Caribbean condo, the yacht, the new Lexus. Luxury and pleasure as far as your eyes can see. Create a strong vision, and then dont let go. The power of a clear, strong vision applies to more than just your retirement savings. Let your vision shape your life, instead of the other way around, and all of the time in the world can be yours. You wont be spending your Golden Years working at the Golden Arches.