One millionaire’s advice on attaining wealth

These are quotes from an individual who did not make a lot of money, yet understood the basic principles of attaining wealth. Wealth is not accumulated by what you do, but it is accumulated by what you are. It is a state of mind where the natural consequence tends to be wealth as you define it. This is different for each individual, therefore I will not provide a static definition. Therefore, if you have goals to achieve a desired level of wealth, then the simple solution is to be that which you strive for. Once you become that, then you will ultimately bring all that you want into your life. Opportunities will begin to present themselves to you, you will come across financial information that are aligned to your goals, people will come into your life to help you…it is great how this works.

These are the quotes from one of our blogging relatives…FreeMoneyFinance

• “The real secret is to spend less than you earn. I don’t care how much you earn, you spend less than you earn. Spend less than you earn. This is true whether you’re on welfare or a millionaire.”
  The idea here is presented by most personal finance professionals; a very simple and fundamental formula. The opposite to this leads to leverage. Avoid leverage at all costs.
  
• “No smoking or alcohol consumption. This has nothing to do with morals and health – okay, maybe health – it’s all about the money.”
  This refers to expensive habits.
  
• “No-load mutual funds are the only way to go. To give anybody 3-4% of your money off the top is insane.”
  No-load mutual funds are funds where you do not have to pay the managers commission up front when purchasing. I agree, this is the way to go. There are many no-load mutual funds that are also low cost (very low expense ratio). See Vanguard to begin with.
  
• “Volunteer to help others.”
  Giving is always useful. I wrote an article a while ago on the benefits of charitable giving as it pertains to wealth. See Wealth and Charitable Giving.
  
• “I can buy whatever I want. Not need, but want. I just don’t want very much.”
  When you don’t want very much, you do not have a desire for a lot of material possessions. This allows you to retain a lot of your wealth. This is a great mindset to develop. Focus on what you need, not want. When you do so, everything becomes available to you, because you desire nothing.
  
• “Wealth is created by investing money, not by working longer and harder.”
  Invest now. There is no point to wait. Your money should be working for you; it should not only be the other way around. Each year you wait reduces the amount of money you can earn through the power of compounding over time.

Personal Finance in One Page – Part 4

Manage Your Money

When you increase your income or decrease your spending, you’ll find yourself with more cash at the end of the month. That cash is your ticket to financial freedom, and the more you can get each month, the better off you are. The trick though, is not to spend it, but to do things that will build a stable future for you.

1. Pay Off All High Interest Debt
Anything with an interest rate over 9% needs to go as soon as possible. The extra money should be used to make double or triple payments on these debts, focusing first on the one with the highest interest rate.

These steps can help you take care of your debt:
i. Make the first list – 4 columns, Name of debt you owe, the amount you still owe on that debt, the monthly payment for that debt, and most importantly, the current interest rate on debt.

ii. Order all of the debts by their current interest rate. The one with the highest interest rate, not biggest balance, should be paid off first.

iii. Look for ways to reduce the rates, focusing most strongly on the highest current one. Readjust the priority of the list to reflect to new rates.

iv. Direct all of your extra payments towards the top debt on the list. Each month, make minimum payments on all of the debts on the list except for the top one. With that top debt, throw everything you can at it. Make a double payment or a triple payment or more.

v. When a debt vanishes, cross it off the list and feel good about it.

vi. Update the list when you acquire a new debt.

vii. Update the list when one of your debts adjusts to a new rate.

2. Build an Emergency Fund
An emergency fund is an amount of money you keep in a savings account that’s intended to be used in the event of a major crisis, such as a job loss, a medical emergency, major car damage, and so on. It’s a good idea to measure your emergency fund in terms of months’ worth of living expenses – you should have a month and a half worth of living expenses for each person you claim as a dependent.

A good rule of thumb is to have 6 – 8 months worth of living expenses in your emergency fund. If this seems like a lot, set it as a long-term goal and begin putting aside a small amount each week. Right now, I have an automatic monthly deduction from my checking account to a high yield savings account at ING. Don’t wait, begin right now with as much as you can afford.

 

3. Max out Retirement
Go to one of those retirement meetings at work, ask exactly how much you should be putting away to ensure that your living expenses are well-covered in retirement, and put that much away. This varies a lot depending on how much you have in right now, how much your employer matches, and so on, so you should talk to your retirement planner at work about the specifics. It is never too early to start investing for retirement!

Save 10% of your income at the bare minimum. You should not have more than 5% of your retirement in the stock of any one company. If your company doesn’t have a retirement plan, open a Roth IRA on your own with a reputable company like Vanguard. If your company offers any matching on your retirement, contribute enough so that you can get all of it. If you don’t know what you are doing, put your money in a “target retirement” fund so that it gradually becomes less risky as you approach retirement.

 

4. College Savings
Establish a 529 college savings plan for them and start automatically putting a certain amount into this account each month. There are many different plans, just pick a good one and start investing now. I use the New York 529 Savings Plan managed by Vanguard for my lovely niece.

 

5. Pay Off All Debts
If all of these are covered and you still have cash left over, the next step is to pay off all of your debts. Get rid of car loans, student loans, and your mortgage using the debt reduction plan discussed in the previous section.

6. Invest
Now, this is a good time to start investing. Trent Hamm recommends buying low-cost broad-based index funds because they don’t have many fees and grow very nicely over long periods of time. Don’t invest in individual stocks unless you’re quite content to lose the money or want to invest many, many hours in research. Trent Hamm invest with Vanguard directly through vanguard.com – their fees are miniscule, they offer a huge array of index funds, and their customer service is stellar.

 

Thank you for Trent of the Simple Dollar for allowing the free distribution of this e-book. For the entire e-book, click on link below. 

Everything you ever really needed to know about personal finance in one page, by Trent Hamm.

 

RELATED LINKS:

Personal Finance in One Page: Part 1
Personal Finance in One Page: Part 2
Personal Finance in One Page: Part 3
Personal Finance in One Page: Part 4
Personal Finance in One Page: Part 5

The 12 Secrets of Wealth

This article discusses some simple yet, great ideas on achieving financial independence. These could be considered secrets, but they aren’t really. Most of these points we all know of.

Here are a dozen of the non-secret "secrets".

1. Pay off your credit cards.

With credit card rates at 15% to 20% (or even more), there's just no risk-free investment that can provide you with as good a guaranteed return as you'll get by paying off your high-interest credit cards. (If you have multiple credit cards, pay off the one with the highest rate first.) Once you've paid off your credit cards, only charge what you can afford to pay off in full each month.

2. Live below your means.

Try to save at least 10% of your income. (20% would obviously be even better.) Regardless of how much money you make, if you don't live below your means, you'll never achieve financial independence (unless, that is, you hit the lottery or get a large inheritance, and I wouldn't recommend planning your financial well-being around either of these options).

3. Differentiate between needs and wants.

Fund your needs and try to minimize your spending on the "wants". (You'll want to discuss your goals, and how you plan to achieve them, with your spouse or partner. It's so much easier when you're both on the same page, working as a team to achieve your financial goals.)

4. Start to save and invest early.

Pay yourself first. The earlier you start, the more time you'll have to let the power of compounding go to work for you.

5. Establish an asset allocation plan that's appropriate for you.

Determine the percentage of your portfolio that you want in equities and the percentage you want in bonds, based on your needs and your risk tolerance. (In your planning, remember that over your investing career, you'll inevitably experience at least one bear market (perhaps more), during which you should be prepared to lose as much as 50% of your equity holdings. So, a portfolio that's 80% equities and 20% bonds could lose ~40% in a bear market. You need to set your asset allocation according to the amount of risk you're willing to take so that you don't panic and sell at the bottom of a bear market, after the damage has already been done.)

6. Invest in a diversified portfolio of low-cost mutual funds.

Choose the low cost funds needed to flesh out your asset allocation plan. (I'd recommend Vanguard, the low-cost leader.)

7. Contribute to your company retirement plan

(at least enough to get the company match). If your company doesn't have a match, and has poor investment choices with high costs, consider other available options.

8. Contribute additional money if you can.

If you qualify, fund a Roth or Traditional IRA.Then fund your taxable account.

9. Minimize taxes.

When you invest in a taxable account, place your tax-inefficient holdings (like bonds) in your tax-deferred accounts and tax-efficient funds (like Vanguard's Total Stock Market Index Fund) in your taxable account.

10. Save part of every raise.

When you get a raise, invest at least half of it. (Even being able to spend the other half of your raise is an increase in your spending, so you can certainly do it!)

11. Rebalance.

When you rebalance back to your desired asset allocation, you're controlling risk. (You're selling high and buying low, and that's the "secret" to successful investing.)

12. Stick to your plan

and watch your financial garden grow. (You do have a plan, don't you? See #5.)

ARTICLE CREDIT: Morningstar.com

http://news.morningstar.com/articlenet/article.aspx?postId=2660897

Morningstar | Seven Ways to Simplify Your Investment Life

Investing can be overwhelming. Once you get to the point where you invest through many different products and vehicles; 401ks, IRAs, Roth IRAs, 529 plans, CDs, taxable accounts etc, it can seem to be a daunting task to manage them all. These are a few guidelines provided by Christine Benz of Morningstar to create a minimalist portfolio; one she says you can depend on.

1. Stick with the Basics: Ignore the crowd and the everyday noise of the market. Stick with low-cost, broadly diversified mutual funds with veteran management teams and great long-term reward/risk profiles.

2. Investigate One-Stop Funds: Consider Target-Date funds. These are ideal for people who do not have the time to research or monitor companies on their own. Target-Date funds are funds which grow more conservative as your goal draws near. That is, it automatically adjusts your risk profile (percentage of stocks to bonds on portfolio) as you age or go closer to retirement.

3. Index: With indexing, you accept the market’s return rather than trying to beat it. Warren Buffett recommends this to any investor who does not have the time to study companies; buy low-cost index funds and hold for the long term. You would perform well over time this way.

4. Take the Best and Leave the Rest: Pay specific attention to your asset allocation over all your investment portfolios.

5. Jot Down Why You Own Each Investment: This is a very important step. Warren Buffett says that you should be able to explain why you own any company in a simple paragraph. Christine says “By writing down why you made an investment in the first place, you’re more likely to make sure that the investment meets its original goal.If it isn’t doing what you expected by sticking with a specific investment style and producing competitive long-term returns, you’ll be ready to cut it loose.”

6. Consolidate Your Investments with a Single Firm or Supermarket: This eliminates excess complexity and paperwork.

7. Put Your Investments on Autopilot: Dollar Cost Averaging is a great strategy with long-term benefits.

Read the full details here >>>

General Investing Questions Answered

This site by Dan Solin answers some very basic investing questions people have, and he does it "very candidly" as he put it. Don't take offense to any thing, just open up your mind to the ideas. They are actually some very good comments. Enjoy!!

Read more here...