An often asked question is “How can I get rich?”
If you’re talking about yachts, butlers, and ten villas around the world, you have four options:
1) Inherit a bunch of money.
2) Marry into a bunch of money.
3) Build a very successful company (like Microsoft).
4) Win a huge lottery, bet a fortune on a long shot and win – in other words – get lucky!
If you’re talking about financial security, that’s a different matter.
Let’s start with the basics. If you always want more than what you have, you will never be rich. Think about it. If you spend more than what you make, you won’t save money and you’ll end up in debt. You’ll never be able to retire (unless one of the options above apply) and you won’t be rich! On the other hand, if you can be satisfied with an affordable lifestyle, you have a shot at becoming “rich.”
My definition of “rich” is having the financial ability to live your lifestyle as you desire without having to work.
In order to reach this goal, you must be able to save money. In order to save money, you must spend less than what you earn while you are working. So, if you can be satisfied with a lifestyle that costs less than what you can afford, at some point, you should be able to save enough to support that lifestyle in retirement. This doesn’t mean you can’t be “rich” until you retire, it means you are rich when you are able to retire. Even if you’re rich, you don’t have to give up working.
If you want to accelerate your path to getting rich, here are some ideas:
• Take advantage of your 401(k) plan, self-employed retirement plan or IRA. The tax deferral can help you reach your goal faster.
• Don’t get into debt. It’s ok to take out a mortgage to buy a house, but don’t build up consumer loans or credit card debt. The non-deductible, high interest rates will set you back.
• Invest wisely. Be sure to invest in a diversified portfolio of stocks, bonds, and real estate. Don’t try to pick the hot funds and don’t try to time the market. Seek the guidance of an independent, fee-only investment advisor (like Rowling & Associates!).
• Protect yourself and your family. Be sure to have adequate insurance coverage (medical, property, auto, life and disability) and make sure you have an up-to-date estate plan (wills and living trusts).
• Hire a good CPA. The more you spend on taxes, the less goes into your savings. Since tax laws are complex and ever changing, a knowledgeable CPA will save you much more than his or her cost.
If you are looking to retire, remember a few basic rules:
1) The longer you work, the less money you’ll need for retirement. That’s because you’ll have more years to save for less years in retirement.
2) If you reduce your lifestyle expenses, you can retire sooner. That’s because you’ll save more and your savings will last longer with a lower cost lifestyle.
3) If you can consult or work part-time in retirement, you can retire sooner. That’s because you’ll need less money in retirement and might even be able to save money in the early “semi” retirement years.