How to Be Wealthy While Young!

The following is a guest post written by Paul Damazo, author of 80 Proven Ways to Become a Millionaire, All you need is two or three! He says that by following this advice you can be worth $10 million in 20 years from your wedding day. 

Before you become engaged, decide together to become financially free.

These are the easiest ways to become a multimillionaire! There is power when money makes money! Compounding is earning interest on the principal and the accumulating interest. 

Reduce the Cost of Your Wedding

Forty-five billion dollars was spent on weddings in 2004. In the United States, the average cost of a wedding on the east and west coasts is $38,000; the national average is $26,000. The bridal gown and reception generally are the most expensive items. 

After receiving my masters, my first job was the director of a college food service. During those four years, my associates and I became well-known for the gorgeous wedding receptions we would create. From all my experience, you can have an eloquent wedding for thousands less than the national average. 

If you and your fiancé have the goal to be financially free, spend less and still have an awesome wedding. Be creative! Purchase the book A Simply Beautiful Wedding by Eileen Silva Kindig. It shows how to have a magnificent wedding for much less so that you will have a sizeable nest egg to start or continue with your investment program. If you save $15,000 on your wedding and invest it, in just 30 years you would have almost $1 million! Leave it alone and in 10 more years you would have over $4 million! 

Reduce Your Taxes Legally  

Another major way to become a millionaire is to reduce your income tax and invest the tax savings yourself. The average household spends $18,750 in taxes per year. Reduce them in half and invest the $9,375.

First invest in your 401(k) and other pension plans. Then start a home business, even if it's part-time, as it will allow you to take advantage of many tax savings. 

For 25 years, I owned several farms in Vermont while I lived and worked in California. Those farms gave me excellent income-tax deductions, making it possible to legally reduce my income taxes. Instead of paying unnecessary income tax, I invested that money. Yes, and I still paid my fair share of taxes. Did you know there are 72 different taxes in a loaf of bread?    

Eliminate Paying Interest

When you pay interest on loans and credit cards others become millionaires instead of yourself. The only interest you should ever pay for is for investments-period! It is tax deductible and will save you money, so you will have more to invest. For everything else, pay cash. 

Before my dear, beautiful girlfriend and I were married, we agreed to pay interest only on money for investments. Now decades later, no interest was ever paid. You can choose to do the same whether married or not. 

The average household spends (actually wastes) $10,875 interest per year on 14.2 credit cards and loans. Keep this money and invest it for yourself. In 20 years the total invested is only $217,500 and you will have over $1 million. Continue for another 10 years and you will have over $5 million with only $326,250 invested. WOW, the power of compounding interest!   

Invest Second Salary

I strongly recommend waiting six years before having children. By doing so, both husband and wife can work full-time. Choose to live on one salary and invest the entire other salary. In six years you will have $261,737 and a couple of choices.   

You could choose to have a perpetual income of $39,261 created from the interest and dividends so you can stay home and raise your own children. What a blessing that would be for your family-and the nation!

Another choice would be to keep the interest invested and compounding and in 14 short years (20 years total), your investment from six year's salary would be worth $1.8 million. Now that's exciting!

401(k) Investment Program

The value of a 401(k) investment program is so awesome, that when you and your spouse graduate from college, I urge you to consider the following:

• Select the best job which has the best 401(k) plan and contribute 100% to your plan. Remember, 80% of all companies offer a 401(k) plan and 50% of those will contribute to your plan-free money for you.

• Live as close to your job as possible in order to reduce your commute time, automobile expenses, and the wear and tear on yourself.  Choose to be rested and to spend lots of quality time together, rather than in commuter traffic. 

Let me blow your mind! You can have $1,889,888 in 20 years with a yearly cost of only $5,700. "How's that possible?" 

First, assume you fully contribute to a 401(k) for 20 years. Remember, you are not out-of-pocket the full $15,000. Your employer contributes $5,000 per year. And, if you are in the 43% federal and state income tax bracket, the government reduces your taxes by $4,300 a year. So, instead of $15,000, you are only out of pocket $5,700 per year.   

Just think, as a payroll deduction each paycheck, in 20 years you will have invested out-of-pocket only $114,000 ($5,700 per year) while the investment increased to $1,889,888 ($15,000 invested per year).

And when you are married, each of you can contribute $15,000 per year to a 401(k) so you can double the investment returns shown.

Free Money-Invest Semi-Monthly versus Annually 

Another gigantic aspect of the miracle of compound interest is the free money you can make if you invest semimonthly or monthly instead of yearly.

For example - invest your payroll deduction ($625 semimonthly)/20 years and you will have $1,889,888. Invest $15,000 once per year/20 years and you will have $1,767,152. The difference is added investment income-$122,736. Look at what consistent investing means to your wealth creation and financial freedom. Take $122,736 and divide by 20 (number of years). This gives you $6,136 extra, free money per year invested! 

This is the power of money making money! Compounding is earning interest on the principal and the accumulating interest. 

Remember that Wealth is a Matter of Choice-Yours Alone. Choose today to become a millionaire, to focus on your wealth creation, to create a life you love for you and your loved ones. 

NOTE: This article is designed to inspire you into action and to provide accurate and authoritative information in regard to the subject matter covered. Factual material has been obtained from sources believed to be reliable, and is not guaranteed. All examples are for illustrative purposes only and are not to be construed as recommendations, advice, or tax counsel. The author is not engaged in rendering legal, accounting, or other professional service. If legal or other expert assistance is required, the author strongly recommends that the reader should contact his own professional advisors.  Past performance should not be taken as being representative of future results. Anything tax-related should be discussed with your accountant before it is used for tax purposes. All information provided in this article is for informational purposes only.

Comments

[beastlike]

Good post!

[kitty]

" strongly recommend waiting six years before having children."
Why are you completely ignoring the health aspect as if health of mother/child is less important than money? If a woman marries at 24, waiting six years after that brings her to 30 where many risks start to increase slightly. Just because you were lucky and still managed to have a healthy child after 30 doesn't mean your readers would be. Your advice can cause heartbreak for those who find themselves unable to have children, have a child with Dawn or miscarriage. Learn about health aspects of waiting. Look up fertility charts for women by age, risk of miscarriage and risk of having a baby with Dawn. Then talk. Oh, and while you are at that look up future breast cancer risk based on the age at which a woman had her first baby:(http://www.cancer.gov/cancertopics/factsheet/estimating-breast-cancer-risk).

This is assuming one gets married after college. What if someone gets married at 29. Then waiting 6 years would bring one to 35, when fertility starts falling very quickly, and risk of Dawn grows up exponentially.

Waiting can work for some. For others - it can bring a lifetime of regret.

[pjwellin]

I liked the general information, but I think some of the interest rate assumptions are unrealistic.

And I struggle mightily to take advice from someone who doesn't know the difference between "eloquent" and "elegant."

[Dan]

I'm actually curious about the invest semi-monthly / monthly portion of this post. The author completely ignores the transaction costs that are incumbent with frequent investment contributions.

FMF, have you run any posts that discuss the advantages of investing frequently vs investing once or twice annually? On the face of it frequent small contributions makes sense, but do the transaction costs eat away at this advantage?

[Heidi]

Nice thoughts, and fair advice tradionalists who want to marry, start a family, and work for an employer that offers a 401(k). Just remember that not everyone chooses to have children (and there are couples in this country that cannot legally wed - think of all the money they are saving!).

And I also question some of your return assumptions.

[FMF]

Dan --

As an index fund investor, I don't see transaction costs varying based on size/frequency of investment. Am I missing something?

[planner]

How can I get a perpetual $40k interest and dividends from a $261k lump sum?

[Dan]

Maybe I'm using the wrong terminology, but I'm talking about the cost per trade. My impression is that even if you're buying index funds, you still need to pay the online broker a fixed amount for each purchase. If you contribute twice a month, you're paying that trade cost 2x a month. Am I just horribly misinformed?

[Kevin]

Dan - most index funds let you invest periodically with no cost.

Other than that, some good advice but some of his numbers are pretty wacky.

Cut your taxes in half! - that sounds like a line from a late-night infomercial.

[Kevin]

Dan - why would you buy index funds from a broker when you can invest directly - (usually through their website)?

[Ken Adams]

Good Post, but I would agree that the numbers seem out of whack. The thing I don't like about skewed numbers is that it takes credibility from the article. 39K on 216k ,that 15% return. Seems realistic in a fantasy world. I do agree with the wedding point. My wife and I had a very nice wedding with 100 guests and it wasn't anywhere near those costs. 40k on a wedding is crazy in my humble opinion.

[Helen]

Some good ideas in this article, but questionable numbers in the examples detract from the message. What investment gives a "perpetual" 15% return from interest and dividends? As for the $5,700/year 401k - assuming a standard 50%-of-first-6% employer match, you'd have to make over $166k to get a $5000 employer match; the vast majority of folks would need to contribute well over $5700/year to max their 401k.

[FMF]

Dan --

As others have said, no-load index funds don't charge a per purchase fee.

[Evan]

These comments are exactly why I love this website (and others like it)! 92% of all people would take it at face value (if he can make up numbers, why can't i?).

The comments show the analytical nature of FMF readers, it is great!

[Andy]

Great post. I definitely don't see the point of spending so much on a wedding. I was thinking about just having a big barbecue for the reception when I get married.

[Kurt]

"First, assume you fully contribute to a 401(k)... Remember, you are not out-of-pocket the full $15,000. Your employer contributes $5,000 per year. And, if you are in the 43% federal and state income tax bracket, the government reduces your taxes by $4,300 a year. So, instead of $15,000, you are only out of pocket $5,700 per year. "
Actually, that isn't true. To fully contribute to a 401(k), you are out of pocket the full 15k, less the tax deduction. The employer match is on top of that. You can get to $15k between you and your employer, but you wouldn't be fully contributing. Please fix to make sure people aren't misinformed. Thanks.
Also, I think there is something funky going on with the state and federal income tax rate. Remember, you get a federal income tax deduction for state income taxes paid. So if you're in the 35% marginal federal rate, an incremental 8% at the state level only actually costs you 5.2%. I guess the AMT would throw a monkey wrench in all this, but the AMT rate is lower, so I don't think the impact would be all that big.

"The comments show the analytical nature of FMF readers, it is great!"
I'm actually somewhat concerned that there are so many comments to be made. I would like it to be right the first time around.

[No Debt Plan]

We had 75-100 people at our wedding. My wife got a dress at David's Bridal on the cheap... I think total cost was somewhere in the $8,000 range. It can definitely be done...

[Matt]

I think the point of "wait six years for children" was to demonstrate how much money you can save by minimizing family expenses and investing a second salary for the first several years of marriage. I don't think it was a dictum that everyone wait six years or any set amount of time. Women's health and the richness of family life should be considered.

Advice should always be considered in light of your circumstances, just as if a blogger told you to max out your 401(k) and Roth IRA, that's good advice, but not if you've got $20,000 in credit card debt.

Personally, I plan to live on my own for a few years, investing as much as possible and paying down debt. If and when marriage happens, I'll have a sizable nest egg and emergency fund built and will be teaming up with someone who's equally responsible with their finances.

[FMF]

So, Kurt, you're saying you're not going to be buying the book? ;-)

As the many comments have stated, some of the numbers (as well as the assumptions) are to be questioned. But the underlying conclusions are valid:

1. If you spend less on your wedding, take the difference and invest it, you'll have a lot of extra money as a result when you retire.

2. You should do all you can to reduce your taxes. This not only includes personal income taxes, but taxes associated with investments (another reason to like index funds), businesses you may own, etc.

3. I don't think anyone thinks credit card and other consumer debt is a good idea.

4. If you can invest a second salary for a good period of time, you can make tremendous financial progress. We did this (in effect) by using much of my wife's salary to pay off our house.

5. There's no doubt that a 401k with an employer match is a great deal.

6. The concept of investing sooner rather than later is a good one as it gives your money more time to compound.

There. Can we all at least generally agree on these?

[Kevin]

I agree about weddings. They are generally too expensive for what you get...usually crappy food, a bad DJ and terrible mixed drinks.

My wife and I spent a couple thousand and got a great location...a historic little church that was moved to Daniel Boone's former homestead here in Missouri, a great reception at a place overlooking a lake, wonderful food and an awesome band that even learned the song we danced to...Elton John's "Your Song" even though they are more of a rock band.

Granted, we lucked into the band since my wife knew them from college and the caterer was my mom's cousin, but overall it was a great success and we heard the same from every guest we talked to.

I just couldn't fathom spending over $5k of mommy and daddy's money on one day. In fact, I would feel embarrassed to even ask them to do so.

[dogatemyfinances]

I hope by "eloquent" he meant "elegant." I'm not sure who wants an eloquent wedding.

Reducing the cost on an eloquent or elegant wedding is easier said than done. It's expensive to have a venue/food/music for several hundred people. Period. That doesn't mean everyone can afford it, of course.

[Freedombound]

Geeez! Why is everyone so negative? Seems like anytime I read an article on finances and becoming wealthy, everyone posts a million negative comments. Maybe this guy is not 100% accurate, but can you give him the benefit of the doubt, instead of ripping him to shreds. I, for one, am going to get the book and see what the man has to say. I listened to an interview with him and the book does sound very interesting. Sounds like he might have a lot of good ideas. And having good ideas, I would say, would be very a important part of becoming a millionaire.

[Toby]

@ FMF: I appreciate your analysis of Paul's points in response to Kurt, but is sensationalizing those points with outrageous returns and horrible math really necessary?

Do the ends justify the means? If one person takes this advise seriously and starts saving then it was all worth it?

I think you've insulted your reader's intelligence by allowing exaggerated junk like:

"In six years you will have $261,737 and a couple of choices. You could choose to have a perpetual income of $39,261 created from the interest and dividends..."

That's a 15% yearly return in perpetuity! How does John "Index Fund" Doe make a 15% return in perpetuity? Does the author think we're so stupid to just glaze over that? Do you?

[FMF]

Toby --

Actually, it's not necessary -- which was exactly my point in the response above. These are good ideas with out the wild claims and math.

As far as allowing this sort of post, this is a GUEST POST (not from me) and as long as guest posters aren't saying anything illegal and/or degrading other people, I usually let them have their say. I personally prefer it that way -- having a free exchange of ideas.

As for taking ANYTHING on this site at face value -- DON'T DO IT. I write posts to try and help us all better educate ourselves on personal finances, but not everything on FMF is correct, the "best" alternative, wise, or whatever someone would call it. There are mistakes here and information that's a bit on the edge one way or the other.

I advise all readers to ALWAYS check the facts that I or any other poster present. After all, it's your money and no one can care for it and manage it like you can.

[fivecentnickel.com]

Hmmm... Since there's a disclaimer saying specifically that this article is designed to "provide accurate and authoritative information in regard to the subject matter covered," I don't think it's too much to ask that it at least be accurate. That $261k = $39k in perpetuity claim is downright reckless (and laughable).

[7million7years]

I think the point is this; set your sights HIGH ... there ARE many, many safe & legitimate ways with making a TON. I am living proof of that ... 7 million in 7 years!

As I mention in my own blog, the keys are: (a) find ways to SAVE extra money (b) find way to MAKE extra money (c) don't SPEND that extra money ... INVEST it.

Time will take care of the rest!

[AJC @ 7million7years]

I bought this book and SO wanted to like it ... but, it is probably the 2nd worst book on PF that I have ever read.

Some of the individual pieces of advice are good, but the overall premise boils down to: save money and compound @ 15%.

Now, that is just NOT possible for a passive investment/savings strategy. The author claims to have averaged 15% compound for 50+ years ... well, I have compounded far higher for [only] 9 years ... but, I do not suggest that is what the average person could/should do!

Invest in factoring? I have such a business (nets me $250K+ a year 'passively'), yet my secretary left to set up her own and lost her daughter's (a paraplegic) entire insurance payout on bad debts.

Invest in mortgages? That's 'subprime' ... what happened to the banks WILL happen to you.

If you want 'above average returns' you MUST be prepared to take 'above average risks' ... there's no way around it.

[FMF]

AJC --

!5% is way too aggressive, which is strange to me. Why did he use that? After all, many (most?) of his suggestions would still have done well with 8% or 10% instead.

I wouldn't throw the baby out with the bathwater. I think there are still some good principles to use in this book.

Here's my money-saving idea: stop buying PF books. 99% of them say the same darn 10 things that you already know. You don't need the books.