How to Build Wealth for the Average Man
How to Build Wealth for the Average Man
By Stephen Corey
During tough times, penny pinching comes back in style. Although living cheap is no fun, the discipline can pay off over time. Sometimes people may think that a better idea would be to just simply earn more, but I have a question for those people: What good is it to earn more if you spend more? What good is your higher income if the percentage you spend, relative to your income is the same in proportion when your income was lower? In this post, I will give compelling reasons to save, why debt does matter, why keeping more income is always better than spending more, and knowing how to spend in order to build wealth for any income level.
1: It’s not about how much you earn; it’s about how much you keep relative to what you earn.
Have you ever noticed that Bill Gates, Carlos Slim, Warren Buffett, Donald Trump, etc, are all famous for being frugal, even cheap? In fact, Donald Trump in his book “How to think Like a Billionaire” has a chapter all about the importance of pinching pennies. Warren Buffett is also famous for being cheap, especially when buying investments, and he is not a big spender on luxuries, despite his huge net worth. Even if he does own some luxuries, the amount he spends is microscopic compared to his income from his investments. This is the key!
The other day I read an article with terrible advice. This article was saying that instead of saving more, try earning more. The problem with this is let’s say I earn $60,000 per year, and I decide to get a job that pays $80,000 per year. First of all, taxes will take a large chunk of this income without significant write offs. Next, if you are like most Americans and you save less than 5% of your income, how is increasing your pay and your expenses going to make you better off? If you are now earning $80,000 instead of $60,000, but you spend 95% of your higher pay, as you did when you were making $60k, what good is this? Common Sense!
If you want to keep more money, you need to prioritize where your money goes. Rich people PAY THEMSELVES FIRST! This means before you pay any of your bills, you pay yourself. This is your profit that you earned from your hard work. Try to keep it! If you want to spend it, then treat yourself to buying some assets that can make you wealthier.
Being that I lived in Asia for several years, I have learned how to be a disciplined saver. In Asia, people are disciplined about their finances, and the American rule of thumb for saving 10% for retirement, and 3 months of emergency incomes doesn’t cut it. People in Asia ferociously cut costs and try to save around 25% of their income. The reality is that you can lose your job or source of income any time! For this reason I would recommend a more conservative number. Save one year worth of income, and try to invest more than 10% for your retirement, and minimize risks. After you have saved a year worth of income, start diversifying your savings in to inflation resistant money. By this I mean gold and silver!
For short term liquidity, paying off debts, and times of deflation, cash is king; however, with low interest rates; thereby, losing your savings to inflation, gold and silver offer protection against this. Like central banks and governments of prominent nations, I recommend keeping gold and silver reserves to protect savings from inflation, and to protect against any collapse in fiat currency, political unrest, or war. All of these can destroy the value of fiat money.
2: Debt destroys financial freedom, takes away flexibility, and eats up income.
Sure, one may argue that some debts such as a mortgage are not necessarily bad. Considering the tax write offs, there is some truth to this, but it is imperative to make sure the mortgage does not occupy too much of your income. The tax write off may be nice, but life will be rough if you are spending half of your monthly income on your mortgage. This is money you could pay yourself! Therefore, if you are going to buy a home, STAY within or BELOW your budget. The realtor is paid in commission and has an incentive to sell you the higher priced home. I don’t care how bad you want it. Stay disciplined! Do you want to get rich or not?
Now if you have a mortgage, at least you are in debt for a home. This is far better than debt for an overpriced car, gambling, or a credit card. This is the good news! The bad news is that if you have credit card debt, student loans, or even worse, let’s say gambling debt (this is really stupid), you seriously need to pay this off immediately. If you can’t, then consider settling these debts or even filing bankruptcy if you have no other choice. Keeping your debt levels low is imperative since we live in an uncertain world where you can lose your source of income at any time. Not to mention, when you pay interest on most consumer debt, you get nothing in return. At least with a mortgage or student loans, you can get a tax write off, but from credit cards or other consumer debt, you get nothing in return. Your money is being thrown away and you are missing investing opportunities.
One of the biggest scams in my opinion is student loans. We are often taught that this is “good debt” like a mortgage. In a worst case scenario, you can at least sell a home to try and pay off the debt to the bank, and the debt is secured by the value of the home. This reduces the risk for both you and the bank. On the other hand, student loans, aside from offering a tax write off, have no other benefits. If you run in to trouble paying these, there is NO way out of this debt and it can compound to NO end. Student loan debt is dangerous, and in my opinion, even worse than credit card debt. You can discharge credit card debt in bankruptcy court, but student loans are unforgivable. If you have student loans, pay these off as fast as you can. Of course, be sure to still pay yourself first, and save and invest as much as you can. Building your asset base is still your first priority over paying off debts because you need emergency savings.
3: Knowing how to spend money is even more important than knowing how to save.
One of the key secrets of the rich is that they spend their lives buying assets. By the way, I am talking about average people earning average income who over time become wealthy. There was a book about this called the Millionaire Next Door.
Myth: A home is an asset.
Fact: A home is a liability because it does not produce any income, it may not go up in value as you expect, and it costs a lot of money to maintain it.
Myth: A car is an asset.
Fact: Unless you have a business that sells cars or your car is what produces your income, a car is a liability that only drains money. Not to mention, when you drive, you take a big risk, especially in liabilities. Sure, you have insurance, but this doesn’t mean the liability is gone.
After you have built your savings of one year worth of income in case you lose your job, it is now time to start your strategy to build assets. Like I said, I think 3 -6 months of income is not enough, and as 2008 and 2009 taught us, many people did not find a job within 3 – 6 months. Even one year may not be enough, but we will assume for the sake of this article that it is for most cases.
Since this is just an article and not a book, I will recommend you read and learn about these asset classes.
Before building positions in risky investments such as stocks, MLP’s, or Mutual Funds, I recommend using the formula Donald Trump recommends in his book How to Think Like a Billionaire. Trump says you take 100 and subtract your age from this. Another wards, if you are 30, then you would always keep 30% in cash or cash equivalents such as short term bonds (1-3 years), savings, CD’s, and although frowned up by the financial industry, gold and silver. However, before buying any gold and silver, be sure you have large reserves of cash and cash equivalents first. Gold and silver act as long term savings over time, and hold their value better than cash or short term bonds. Also, gold and silver are physical tangible assets with a real intrinsic value unlike cash, bonds, stocks, or other paper investments.
Learn how to invest in real estate.
I recommend you learn about how to buy an apartment building, four-plex, duplex, rental home, etc. This is very important for building wealth. Like gold and silver, real estate and raw land are real tangible assets with real intrinsic value, and best of all, these assets can give you a nice tax break when invested in properly. Remember, try not to over leverage. If you are buying rental properties or investment properties, I recommend consulting with a lawyer and discussing LLC’s or forming a Corporation. It is very important to limit liability; therefore, read up on this, or speak to a lawyer before buying investment properties.
If you want to buy stocks, then read these two books by Warren Buffett’s mentor Benjamin Graham: Securities Analysis, and the Intelligent Investor. I also recommend reading the book about Warren Buffett called the Snowball.
Stay diversified in all asset classes.
Since we live in an uncertain world where anything can happen, it’s important to never put all of your eggs in one basket. With this in mind, keep a higher position in conservative investments such as cash, short term bonds, savings, CD’s, and gold. This way you are protected from deflation by cash equivalents, and by inflation with gold. Gold holds the value cash loses over time since the supply is limited, and gold has been used as a currency or paper currency alternative for thousands of years.
Over time inflation eats up investment returns. This is where stocks, longer term bonds, and the tax efficiency of investments come in to play. Stocks offer ownership in a company, and if they pay dividends, they can also create a reliable stream of income.
Disclaimer: Before investing or following the advice of this article, I recommend you speak to a professional before considering anything mentioned in this article. All recommendations are nothing more than the author’s opinion and what the author would do. This does not mean that this will work best for you. Before investing it is imperative that you acknowledge the risk of loss, tax laws, and liability.
Article Source: http://EzineArticles.com/?expert=Stephen_Corey
How To Get Rich On Minimum Wage
How To Get Rich On Minimum Wage
By Douglas Cooper
If you have ever worked a minimum wage job you know how difficult it is to get ahead. There never seems to be enough money to pay the basic living expenses. There is another way.
It is possible to get rich working a minim wage job but it will take dedication and hard work to accomplish. If your ready to start creating wealth there are some things you can do.
1. Reduce Expenses – Since your income is already low you should focus on reducing your expenses as low as possible. That means living with roommates or renting rooms to lower your housing costs.
If you have a car payment, sell the car and buy a junker for cash. All you really need is a car that gets you where you need to go period. Better yet get rid of your car entirely and walk, take a bus, or walk.
After housing and car expenses the most expensive cost is health insurance. If your company offers insurance take it, if not try applying for government insurance.
All your other expenses should minor. Cut out everything that isn’t essential. That means dropping cable. netflix, meal out, etc.
2. Create Multiple Incomes – When your making minimum wage every dollar counts. Start several online businesses starting with taking online surveys and writing short articles for money.
After establishing these additional incomes start researching and learning how to make ebooks and websites that can generate you a decent passive income.
Once you have these additional income streams established you can continue by investing your new income.
If your looking for more information on getting rich on minimum wage go to http://www.minimumwageriches.com.
Article Source: http://EzineArticles.com/?expert=Douglas_Cooper
I am a Clinical Lab Scientist, entrepreneur, investor and trader (stocks and Forex). I enjoy writing and publishing articles online.