Here is a simply wonderful article from the Washington Post. It's written by a long-time financial writer who's retiring and this piece is his last for the Post. In it, he shares "the strategies my wife and I have used, and lessons we have learned, over the years building our financial security." I think of them as strategies for creating wealth. Here are the ones I found especially useful and my corresponding comments on them:
All those books and articles you see about squeezing everyday expenses to generate savings are right. Almost everyone who has a job can manage to save a little every day. Simply substituting a Thermos of home-made coffee (tea is even cheaper) for the $3 latte could generate $500 a year, a good start on an individual retirement account.
Now you see why I like this article, don't you? ;-)
Yes, the key to becoming wealthy is to spend less than you earn. To spend less than you earn, you may need to earn more (also see the Free Money Finance Guide to Making More Money) or spend less.
But while the savings strategies work, they work best if you combine them with serious investing. My wife began putting $2,000 a year into an IRA in the late 1970s, shortly after IRAs were invented, and I began when they became deductible for everybody. We both continued, using stock mutual funds, until the early 1990s, when it became clear that IRAs, by then no longer deductible for us, had ceased to make tax sense. Today our IRAs together total about $500,000, and that's not including my 401(k) and her Thrift Savings Account.
Yes, spending less is great, but spending less and investing well is even better. I recommend you invest your savings regularly in good, solid investments. I like index funds. Do this for a long time, letting the power of time and compounding work for you.
It's fashionable these days, in an era in which many marriages break up, for couples to keep their finances separate. Two checks for the rent. Splitting the dinner tab. His and hers bank and investment accounts. My experience is that couples who act as a single economic unit do better. Ideally, young married couples should aim to live on one salary and invest the other. Not only does that seem to result in faster saving, it compels the couple to confer about their spending and investment. It's not his money, not her money -- it's our money.
Well said! Michelle Singletary and I agree with him.
If you are going to be in one place a long time, and that place's economy seems solid, then buying a house is a good long-term bet.
It's true that homeowners get rich and renters stay poor. (their net worths are higher) Just be sure to use a good formula for buying a house and decide how much to borrow yourself -- don't let a bank tell you how much to borrow.
I've written a lot on how to create wealth, but the principles (noted above) always seem to be the same. So whether you'd like to make a million dollars in ten years, learn the secrets of the wealthy, be the richest man in Babylon, simply get rich or become a millionaire, the steps are always the same -- the ones you see highlighted above.
Good stuff!
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