Why does society begrudge those that are successful and wealthy? After all, the majority of the wealthy are first-generation rich. In other words, they did not inherit their money, they earned it. You might also be surprised to learn that the wealthy are often compulsive savers and investors. They did not just wake up rich one day, the majority sacrificed for years to accumulate their wealth. The truth is, anyone with a steady income and a little luck can become wealthy one day. It is not complicated. In fact, it is very simple. Here are three basic steps that will set you on the path to financial freedom.
Spend less than you earn
Above all else, you must adhere to this one. It will be impossible to accumulate wealth if you are spending more than you bring home each month. The only way to spend more than you earn is to borrow money. If you have ever listened to Dave Ramsey or been in significant debt, then you know the dangers associated with borrowing.
Invest 15% of your income for retirement
There is no better time to begin investing than today. The more time you have on your side, the greater effect compound interest will have on your savings. Be sure to take advantage of any retirement vehicles and matches that might be offered by your employer. You should also check out a recent post by G.E. Miller at twentysomethingfinance.com to brush up on a change about to take place regarding your 401(k).
Save 10% of your income in an "I made it big fund"
As long as you are spending less than you earn and saving 15% of your income for retirement, you should strive to invest another 10% of your income into an "I made it big fund." I first read about this concept in a great book entitled, "The Wealthy Barber." This is the fund that you are supposed to tap to buy your dream home by the lake or vacation property in the mountains. Make sure you invest this money for the long term by placing it in a mutual fund or possibly even real estate. The main point is this, by taking 10% off the top of your income now, you should have a nice fat sum at your disposal one day, hopefully well before you are ready to retire.
Of course, you will need to make sure you are following a written budget in order to figure out where your money is going. But once you have control of your spending and income, it really is quite simple to build wealth. There are two well written books that cover this topic in detail. I reviewed the first book, "The Millionaire Next Door" by Thomas J. Stanley and William D. Danko, as part of my book review series. The second is "The Wealthy Barber" by David Chilton. I'm looking forward to reviewing this book in January so please be sure to return soon!
