How to Become Independently Wealthy

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How to Become Independently Wealthy

Becoming wealthy is a goal many of us hope to achieve in our lifetime.  Whether you want to be wealthy so you can have unbelievable lifelong experiences or to validate your success, the goal is often dreamed of but rarely achieved.  Ken Fisher, the author of The Ten Roads to Riches, discusses the many ways people can achieve wealth throughout their lifetime, ten to be exact.  All of these roads have proven to make someone independently wealthy throughout their lives.  Some are more common than others.  So if the question of how to become independently wealthy has crossed your mind, I will discuss two of the ten Ken illustrates in his book.

How to Become Independently Wealthy: Save and Invest Wisely

I usually sign off my posts with a simple phrase: Budget Smart, Invest Wise.  Budgeting allows you to allocate your funds to various categories, and hopefully one of those categories is savings.  Whether your savings vehicle is an IRA, Roth IRA or other type of investment, saving money is critical to building wealth.  However, saving is only half of the battle to building wealth this way.  The other key ingredient is investing wisely.  Investing wisely means creating a smart investment plan, be it with a financial advisor or through acquired knowledge, that creates a return on one’s investment.  For example, I have found that investing on a monthly basis in a mutual fund that covers the broad range of the U.S. Stock Market to be of most benefit to me.  I recognize that this investment, although it has risk involved, prevents me from being susceptible to the failure of one company or one sector of the market.  Saving and investing wisely is the road most traveled, but it also provides the greatest chance of reward.

How to Become Independently Wealthy: Invent Income

Inventing income can cover a wide spectrum of earning additional money.  For example, if you are a song writer or musician, you can create an ongoing stream of royalties from your lyrics or music.  If you purchase a property that you decide to rent out, you could turn it into a cash flow positive stream of income.  The possibilities are endless.  Maybe you have a specific skill that people are willing to pay for you to teach them.  Perhaps your area of expertise at work can lead to consulting other companies on the side.  Do you have something you’re passionate about that you can create into a blog or website and charge for ad revenue?  Many of us have the tools, knowledge and capabilities to put our talents towards creating additional income.

Becoming independently wealthy or successful all boils down to one’s level of commitment.  If you are committed to becoming independently wealthy, then most likely you can find a way.  Some individuals, like Bill Gates or Mark Zuckerberg, created an enormous amount of wealth.  Maybe you want billions like these company creators, or maybe you will be satisfied with millions or even a million.  Only you can determine what being wealthy is to you.

25 Ways to Improve Your 2016 Finances

new year

A new year is fast approaching.  While many are finishing up their holiday shopping and setting their New Year’s Resolutions, now is also the best time to lay out your financial framework for 2016.

As is always the case with every new year, it is time to prepare a new budget.  Getting your budget off to the right start is the best way to help your financial situation in the new year.  Go to the Monthly Budget page on my website and download an Excel version for yourself.

Create your monthly budget for the new year, using your best guess estimates for various income and expense categories.  Remember that it doesn’t have to be perfect, and you can always change it as the year goes on.

After you have set up your monthly budget, I highly suggest you check out Kimberly Palmer’s article that was shared on Yahoo Finance.  I have provided the link below:

http://finance.yahoo.com/news/25-ways-improve-finances-2016-154142827.html#

Look at some of the suggestions outlined and see where you can tailor your budget to focus on paying down high interest debt, or finding spare money to invest for your future.  You might not be able to relate to or benefit from all 25, but find at least three that you can implement into your 2016 budget.

 

Budget Smart, Invest Wise

 

What Is Retirement?

The other night I was pondering what actually classified as retirement.  We all think of retirement as falling towards the end of one’s life.  You work for a while, save up enough money, then use those savings to enjoy the latter part of your life.

Image result for retirement

But what if you don’t want to wait until you are 65 or older to retire?  Say you want to save up money for 15 years, take 5 years off and then re-enter the workforce.  Is this retirement?

I didn’t know the answer, so I did what everyone does now-a-days to find such an answer.  I Googled it.  Webster’s Dictionary defines retirement as the following:

The act of ending your working or professional career; the period after you have permanently stopped your job or profession.

So if you did decide to take 5 years off during the middle of your working career I guess it would be classified as a hiatus.  Regardless of when you decide to retire, there are a few things I believe retirement truly is.

  • When one’s passive income is greater than one’s expenses.

Your investments, rental properties, royalties or whatever revenue generating sources you have other than trading your time for money are greater than your expenses.

  • Finding ways to spend your time with people you love and doing things you love.

You can have all the money in the world, but if you don’t have ways to enjoy it or enjoy your time then it has no purpose.

  • Creating your very own legacy.

Volunteering, raising money for a worthy cause, instilling wisdom in the minds of younger generations.  Creating a legacy to be remembered by is the ultimate goal of success.

 

Budget Smart, Invest Wise

 

 

How to Double your Retirement Income

bankingsense.com
bankingsense.com

You get a job with a company that offers a 401k with a match.  What do you do?  You do what you’ve been told to do.  You contribute what you need to get the max contribution from the employer.  For me, I contribute 6% and get a 3.5% match, totaling to 9.5%.  I am nearly saving 10% of my salary in my early 20’s.  I’m doing a good job of preparing for retirement right?…  Well yes and no.  ALWAYS, I repeat ALWAYS, contribute what you need to your 401k to get your company match.  It’s FREE MONEY.

This is where I will tell you about the easiest way one can double his or her retirement income.  It is through a Roth IRA.  You see a 401k is pre-tax money, so you will pay taxes on your withdrawals in retirement along with whatever social security you are receiving at the time.  Combine social security and your 401k and you will have only 75% (assumming a 25% income tax bracket) of the income you receive during retirement.  A Roth IRA allows you to pay taxes on the money now, so regardless of what tax bracket you are placed in the future you can keep all of the income you withdraw!

Check out the spreadsheet I have attached to truly see how a Roth IRA can double your retirement income.  Keep in mind also with a Roth you never owe taxes and with your 401k you will.

Actionable step for the day, set up a Roth IRA!

To project your retirement income with a 401k and a Roth IRA, simply enter your salary into the cell along with your contribution and your employer match and watch the pie chart on the left shift!  Consider increasing your 401k contribution at work for more income in retirement.

Retirement Calculations

Who is your best friend when it comes to investing?

You might say it’s your financial advisor, your parent, a relative or maybe even a mentor who has had great financial success.

Think again…

Your best friend when it comes to investing is: Compound Interest

People who are new to investing often wonder what is compound interest, or why is compound interest important.  I’ve touched briefly on the subject of compound interest in a past post but I feel it is so vital to creating long term wealth that I am circling back to it again.

Money can be made and lost.  However, time cannot.  Each of us has only a finite amount of time here on Earth to build up a financial wealth.  Mr. Time is your next best friend.

Check out the following article which shows a visual representation of how Compound Interest and Mr. Time can work together to create a substantial amount of financial wealth for oneself.

http://finance.yahoo.com/news/every-25-old-america-see-200000319.html

Why Payday is… Just another day

This post is occurring on the 15th of the month.  For those who are employed and get paid on a bi-monthly basis, today is most likely a payday for you.  Congrats!  Your first half of the month has been rewarded with a monetary settlement.

For me, today isn’t payday… It’s “Cash flow” day!

Many people look at payday as an opportunity to “go out for drinks with friends” or “buy that new sweater you have been wanting”.  They made money, so now they spend it.  Since I monitor my spending using a budgeting worksheet, I already know how much I can spend on things such as a new sweater, or drinks with friends in a given month.

Instead, view today as a day of positive cash flow.  You got paid, probably in a bank account, so it is in essence liquid cash.  This positive cash should first be used to pay expenses.  It’s the middle of the month, so maybe you have a cable bill or a car payment.  Focus on paying your necessary debts first before splurging on other activities.

Additionally, with my job, pre-taxed money is automatically put into my 401k, so I never even put this into the budget equation.  My philosophy is, “If you don’t see it, you can’t spend it.”

Budgeting after college is essential to get on the right financial track for life.  I have attached a free budget spreadsheet at the bottom of this post.  Use it, make changes to it to fit your needs.

Today might be a literal payday for you, but it is both literally and figuratively a “Cash flow” day as well.

Budget Smart, Invest Wise!

Monthly Budget Example

1 A Week in 2015

2015 is slowly creeping up on all of us.  Yahoo finance has released a list of 50 things one can do to improve your financial situation in the coming year:

My recommendation… Try and implement 1 of these things a week, and by the end of the year compare your finances at the end of 2015 with how they started at the beginning.

Start with the top of the list… Here you go:

http://finance.yahoo.com/news/50-ways-improve-finances-2015-193044136.html

How the Rich get Rich

I can’t locate exactly where I’ve heard this before, but I’ve been told/ read/ listened to the following advice multiple times:

“The biggest killers of investment returns are taxes and fees”

The taxes, well that should be obvious.  It’s the amount you pay to the government.  Income taxes, capital gains taxes, if you don’t plan well you could have to deal with both.  This is why I always talk about retirement plans, and the benefits they offer in reducing one’s tax burden.

Fees, I’m talking about investment fees paid to advisors.  When I first graduated and had money to invest, I thought I was doing a good job of putting money with an advisor.  However, I quickly realized that every “recommendation” they gave resulted in a fee earned by them on the selling of one position and the buying of another.  I eventually took out less money with my advisor than I initially invested and missed about an 18% gain in the stock market during this period.  Lesson learned!  This is why I also recommend Vanguard and their low-cost index funds.

So this leads me to the title of this post… How the Rich get Rich.  Well they look into reducing their biggest killers for investment returns.  Don’t believe me, check out the following article and see for yourself.

http://finance.yahoo.com/news/6-things-rich-advantage-151628504.html

New Year, New Budget

With the end of the 2014 calendar year upon us, it is time for many of us to make our New Year’s Resolutions.  A New Year’s Resolution for one’s financial life is a critical one to consider.

As the new year draws close, I have already begun preparing my 2015 Financial Spreadsheet, aka budget.  You can get an example budget, one similar to what I use on one of my previous posts (Budget Spreadsheet for Starters).  Two critical things I considered when making my financial goals for the 2015 year were as follows:

1) Pay off the remainder of my student loans.

2) Continue to contribute to a Roth IRA on a monthly basis reaching the max $5,500 contribution level for the year.

I view these two goals as a MUST for the 2015 year.  Setting a clear picture of how I can tackle both of these from a financial achievements while also enjoying travel, entertainment among other things is the foundation of my budget.

So as 2015 draws near, create a budget and PAY YOURSELF FIRST (To me this means paying down debt and saving for the future).  Nobody can be entirely certain of what the stock market does in the upcoming year, but you and only you can control the budgeting aspects of your finances.

Budget Smart, Invest Wise

The Magic of Compounding Interest

Why do I invest in Vanguard Mutual funds?

1)  The low cost allows me to gain broad access to the entire stock market (I’m young so my investments are strictly in domestic stock and I have the mental capacity to accept volatility).

2)  I can seamlessly add money to my accounts (yes accounts plural… Brokerage, Roth IRA, and 401k) on a monthly or bi-weekly basis without even seeing it in some cases.

3)  MOST IMPORTANTLY I let the dividends I make on my investments reinvest in the funds which ultimately takes advantage of the Magic of Compound Interest.

The point of this post is to help you realize the benefits and exponential growth one’s portfolio can have if you take advantage of compound interest.  Mutual funds make it super easy to reinvest the returns you make and by contributing on a regular cycle you take advantage of market highs and lows.

The following link is to an article which emphasizes how compound interest can impact your retirement.  The more you save and the earlier you save, the more time you have for the interest to continually compound.  Please leave a comment if you have any further questions.

http://www.dailyfinance.com/2014/12/03/401k-catchup-might-cost-1million/

Budget smart, invest wise!