Here's an excerpt from the book The Frugal Millionaires: 70 millionaires anonymously share their ideas about money to help each other and you. Today we're seeing what the millionaires have to say about investing and mortgages. There's lots of good advice here -- as you would expect. After all, these people are doing pretty well financially.
FYI, these are some representative tips from The Frugal Millionaires. There are over 800 tips in the book. The frugal millionaires are only referenced by their initials. The author signed a confidentiality agreement that the millionaires' identities would never be disclosed in exchange for them saying whatever they wanted. If they chose not to have their initials used they were given the initials AFM which is an acronym for Anonymous Frugal Millionaire.
SLL – Rules of investing in stocks:
Rule #1: Don’t invest in anything you don’t understand. You are buying a piece of a business, not “betting” on price movement. Read books on investing.
Rule #2: Assess your risk tolerance. What’s more important, the safety of what you have or growth? Pick the longest time horizon. Longer is better.
Rule #3: Have a good reason to purchase, like good management or if the stock is undervalued.
Rule #4: Diversify. Buy funds until you know enough to buy individual stocks. Look for low expense ratios.
JTA – The best advice I can give you is to invest your money or go into a business that pays you when you are awake, sleeping, eating and/or on vacation. Otherwise, start investing early and be patient. Be weary of get rich quick schemes. When everyone was at the water cooler talking about stocks or became a day trader in the late 1990’s it should have been a sign to get out of the market. When everyone was a part time speculative home builder in the early 2000’s it should have been a sign to get out of that market.
B&GH – I never wake up in the middle of the night screaming, “Oh God, I have too much of my money in cash!” Hope for the best but plan for the worst. When your stocks are up 10%, take that money off the table and move it into safer things. Decide how much you are willing to lose and put the rest in safe places. Don’t confuse amusements with investments. Cars, boats and planes are amusements.
DMG – Constantly look for ways to increase your rate of return by 1%. It will make a difference.
AFM – Don’t be a slave to your mortgage. Don’t believe real estate agents, loan officers and seemingly “rich” people when they say that you should “stretch and buy big.” Your home and mortgage should reflect what your goals are. My goals involve family and freedom. That means that I wanted a house that was nice, big enough for a family, etc.…but not so expensive that both my wife and I would have to work –or– that I would have to work in such a time-suck job that I’d never be home. Where’s the freedom in that scenario? The result: my wife has never had to work, we’ve never been late on a payment or had to dip into investments. Why? Because we were never over-extended in the first place. That has kept our wealth growing and our sanity and freedom intact.
S&AW – Don’t buy the biggest house you can “afford.” Buy a house that won’t be viewed as a financial burden. Nothing makes you less mobile than a mortgage you can’t fund.
AFM – Stick with a 15 or 30 year conventional loan. Don’t go for the tricky ARMs (Adjustable Rate Mortgages) or interest only deals…you won’t like it when they adjust or if/when the real estate market goes down.
AFM – You can only afford a house when your income, after taxes and expenses, allows you to: 1) Save for your children’s education, 2) Save for your future, and 3) save for short term needs.