Great Financial Advice from a Reader

Here is a great comment left recently on my post titled Poverty to Prosperity:

You are correct! I'll never forget my father telling me about a man that worked with him at the post office. This particular fellow never married, but he was very enthusiastic about saving and investing. He lived in a small apartment in downtown Oklahoma City. He was single, and as far as I know never married. On one occasion he asked my dad to come by his apartment after work to pick up something. What my dad saw was stacks of the Wall Street Journal. Of course, my dad being the inquisitive type asked him what all this stuff was, and he explained his interest in investing. He told my dad that every extra nickel he got he bought stocks and that at that time his net worth was approximately $600,000. A number of years later I asked my dad what happened to that fellow. Apparently, he left millions of dollars to charity upon his death.

I never forgot the story! I started saving rather late in life. I was 42 when I opened my first brokerage account, but I'll never forget the feeling I got when the first two stocks I bought for less than $2.00 per share were sold for over $20.00 a share.

Here are some simple things you can do to increase your saving. They worked for me and maybe they can work for you.

l. Pay your home off as quickly as possible. Refinance for 15, 10, or even 5 years then try to pay it off in two or three years.

2. Do not tolerate any form of debt. If you owe money get it paid off as quickly as possible. Especially credit cards.

3. Once you pay your house off, hopefully in five years, don't buy a bigger house or plan any spending for the savings instead start putting it into solid stocks. Advice: DO NOT BUY MANY OF THE MUTUAL FUNDS BEING SOLD BY INSURANCE COMPANIES.....MANY OF THESE HAVE A 4% charge. You can never make money in mutual funds paying high fees.

4, Make a list of everything that you are spending money on you don't need such as: newspaper subscription, magazine subscription, memberships, insurance policies, cable movie programs, checking fees (never pay a checking fee or an overdraft.) Promise yourself you will never again pay a late fee, checking fee or overdraft fee then keep your word. Then take this money you save and put it into your savings. Example: I was buying two or three cokes per day at Sonic. The cost as approximately $3-$4 per day. That was $1,500 I saved enough to finance an IRA or Roth. I am not suggesting you stop doing the things you enjoy simply cut back on them so when you do it you will really appreciate. Avoid restaurants with a passion! You will never have anything living in restaurants. Cook healthy food and eat at home. Going out to eat should be once a week or every two weeks. You will appreciate it more.

5. Live in a home that is at least 30% less than you can afford.

6. Take vacations that are fun but not necessarily expensive. My sister has been all over the world, but the most fun she ever had was a camping trip to Yosemite with her two kids.

These ideas along with many other things allowed me to retire at 55. They can do the same thing for you!

As I'm sure you know, I LOVE this advice. ;-)

Comments

[Shiela]

Thanks for the tips. You start investing at the age of 42 and retired at the age of 55. I am only 21 now and maybe i can retire at the age of 40 :)

[Gualberto Diaz]

Although I do understand the logic behind having no debt, I think the question is better phrased as, "What do I do with my debt?" If you have debt because of spending on things you don't need, or to finance a vacation or antyhing else that doesn't create value, I agree, you shouldn't have any debt. And more importantly, NO CREDIT CARD DEBT.

But, if you have a long term liability, like a mortgage for example, you have to look at the opportunity cost you lose by paying off that mortgage too early. First, you will no longer be able to take the deduction on your taxes, but second, and more importantly, you could invest that money in higher yielding investments. If you're paying 8% interest per year, and instead of paying off your mortgage, you can invest in an asset that gives you a return of 10% a year, then you'll be creating wealth at a faster rate.

The question then becomes, "Where can I put my money and get a better return with as least risk as possible?"

[The Financial Ladder]

Inspirational...

[EMF]

If you're planning to pay off your mortgage in 2 - 3 years, doesn't make sense to refinance, even if the interest rate is lower. The cost of the refinance is better applied to your mortgage principal, given the short time the loan would be in effect.

[Blaine Moore (First Time Homeowner)]

Going out to eat once a week? Extravagance! Heheh.