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How to Build Your WealthPosted by Roth-IRA-401k on: 2006-01-03 09:55:07 in category:
Retirement Planning News [ Print | Permalink / 0 Comment(s) ] How to Build Your Wealth The year 2005 was so-so for most investors. The Dow Jones stock index was down .61 percent, the S&P 500 was up a paltry 3 percent. However you could have done much better depending in which market sector you invested your money in. According to mutual fund tracker Morningstar the average Natural Resource (energy and metals), Real Estate and Utility funds were up over 38, 11and13 percent respectively. Many foreign stock markets did even better. The Latin American and Japanese market jumped 53 and 32 percent. Even Europe increased a bit over 15 percent. Remember the '90s, the decade investors dreamed of striking it rich and retiring at 30? This article is about how to build personal wealth. However, if you're expecting hot stock tips or a nifty new way to use the Internet to invest your money, you've come to the wrong place. In fact, I confess to being somewhat deceptive with the title. There are no "new" secrets for building wealth. They're really the same old secrets smart people used for the last 1,000 years to build their wealth. 1. Have a goal. "I want to build wealth" and "I want to retire rich" aren't goals. They're dreams, and vague ones at that. To build wealth, you first need to determine what you want that wealth for. Do you need the money to buy your own business or retire in a certain place by a certain time? Then you can decide how much money you actually need to accomplish those goals. Instead of thinking about becoming "wealthy," a better concept might be to become "financially independent." That suggests enough money to allow you to make the choices you want and live the lifestyle you desire. Perhaps you want to have enough money to quit the job you're in so you can pursue another career that you love more but that doesn't pay as well. You may not need a lot of "wealth" to accomplish that goal. 2. Spend less than you earn. There isn't a millionaire on the planet that got that way by spending all the money he or she made. That means living below your means. It doesn't have to be far below your means, but it does mean not spending every penny you earn. Take housing, for example. People often buy the maximum amount of home they can afford. Yet for every dollar they don't spend on a house, they save approximately $2.40 over the life of a 30-year mortgage. That can add up to tens of thousands of dollars over the course of time. One trick is to design and follow a spending plan, or budget, so your money goes exactly where you want it. Another key is to spend wisely. Research has found that Americans "waste" 20 to 30 percent of their money by not getting the most for their dollars through such simple steps as comparison shopping and clipping coupons for the best buys from food to auto insurance, and a zillion other money-saving tricks. 3. Minimize your debt. This is a big one, but it's difficult - and not always wise - to avoid debt entirely. Yet too many Americans saddle themselves with needless debts. Its little wonder bankruptcies are at a high level, despite an improving economy. Too many consumers can't wait to spend. One key is to avoid consumer debt that pays nothing in return (unlike mortgage or college debt), provides no tax breaks and is often high priced. This particularly applies to credit card debt. 4. Invest early, wisely, often and as much as you can afford. "Early" is especially the key. Nothing consistently makes money like time. Investments that return even modestly over the years will usually make far more money than investments made hurriedly at the last minute. Other "old-fashioned" 20th-century secrets to investing include maximizing investments in tax-deferred accounts and investing regularly every month. And skip the day-trading and hot stock tips. A recent study of mutual fund investors by the Boston-based financial services research firm of DALBAR found investors who bought and held their stock mutual funds over the past 15 years earned 17.9 percent a year. The average investors, who switched in and out of funds every three years, earned just 7.25 percent a year. Sometimes we're our own worst enemy. 5. Protect your money. As your investment accounts grow, the last thing you want to do is lose it to an unexpected financial catastrophe. Most of us get the basic insurances -life, auto and home. But some of us skip the safety nets available to insure your investments, medical coverage and long-term care insurance, even though a serious medical illness can wipe you out financially. Many investors aren’t aware that they can insure their investments. Guarantees of income, principle, returns and even tax advantages can and probably should be used by the retirement conscious investor to safeguard their financial future. Many of us overlook disability coverage - insurance that replaces income lost because of sickness or disability. Many overlook liability insurance and the use of asset protection trusts to protect them from someone suing them for all they're worth. You don't want others becoming rich on the money you worked so hard to save. Andy Barkate CRPS, CSA is the President of California Financial Network, a local Investment and Retirement Planning firm, with offices in Bakersfield, Lancaster and Ridgecrest.. Your questions and comments are welcome at 760-371-2115, 800-914-6837 or e-mailabarkate@calfinancial.com . |
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