Here are my own personal 10-points to build lasting wealth not only for myself, but for my future kids.
- Spend less than what you earn (and save the rest)
- Save at least 10% of your gross income each year
- Have an emergency fund of some sort
- Clear your debt before you invest in anything (including a home or retirement plans)
- Buy outright in cash or don’t buy it at all (cars especially!)
- Buy and hold your investments (this includes stocks and homes)
- Save for your own retirement before you pay for your kids’ tuitions and homes
- Take more risks with your money the younger you are
- Don’t rely on government assistance for retirement — consider it a bonus instead
- Pass on your financial knowledge
1. Spend less than what you earn (and save the rest)
This is really the #1 golden rule I follow. She who saves consistently, has nothing to fear.
2. Save at least 10% of your gross income each year
I say ‘gross’ not ‘net’ so that the goal is higher. If you earn $10,000 gross but only take home $8000, you should aim to save $1000, not $800.
That way, if you miss the goal and save only $900, you’re still $100 ahead in savings.
3. Have an emergency fund of some sort
There’s a lot of debate going around about saving 3-month’s worth or 6-month’s worth.. and I am here to tell you: forget all that, just save.
You’ll know when you feel like you have enough in emergency savings. Trust me.
As a side note, I save at least a year’s worth because I’m uber paranoid, but I think any savings is the right step.
4. Clear your debt before you invest in anything (including a home or retirement plants)
Debt has an interest rate, sometimes in the double-digits, like 19.99%.
If you save for a home or retirement, but you aren’t going to get a return higher than 20%, you’re losing money each year. Make your dollar work intelligently.
5. Buy outright in cash or don’t buy it at all (cars especially!)
Simply put, don’t buy things like cars if you don’t have the cash to put down all at once.
In fact, if you do manage to save up $50,000 for that dream car you’ve wanted, at the end of it all, you might decide in the end to go for a $25,000 car and bank the rest in savings.
Don’t give in to instant gratification and sign away your name on a car loan that will haunt you for years to come.
Same goes for any consumer good — is that item going to be around as long as that debt will be on your credit card?
6. Buy and hold your investments (this includes stocks and homes)
Don’t become a day trader and try to buy low and sell high, unless you really know what you’re doing and have the money to burn.
The easiest and unsexiest strategy is just to buy something (no matter the price) and hold it.
7. Save for your own retirement before you pay for your kids’ tuitions and homes
I knew a lady who paid for her two daughter’s tuitions, the down payment and the monthly mortgage payments for their homes ALL ON CREDIT.
Now she’s nearing retirement, her daughters can’t really carry the mortgage without Mommy’s help, and she’s royally screwed for retirement.
She wanted to give them a great start in life, but now that she’s screwed, she can’t rely on her kids to help her out.
She’s been babying them financially and things can only go downhill from here.
8. Take more risks with your money the younger you are
If you are nearing retirement, don’t invest in sexy stocks or emerging markets unless you can afford to lose the money.
When you’re younger, there’s time to wait for the stock market to turn around and to make more money. When you’re older, your working days are limited.
Alternatively, don’t invest only in bonds or money market funds when you’re in your 20s. Take some risk!
9. Don’t rely on government assistance for your retirement — consider it a bonus instead
I really believe in this. I don’t expect anything from anyone or any country.
I am saving to make sure that I have the money for my retirement, and whatever else comes my way, is a welcome bonus.
10. Pass on your financial knowledge
Once you get your money life in order (or if you’re currently trying), don’t forget to teach your kids (or any others) along the way.
Pass on that great knowledge so that they can be a step farther ahead by knowing what a budget is, how to spend and how to save.