The median American household will earn roughly $2.5 million during their working life. Married households will earn roughly $3.8 million. Most people make more or less. Others work longer or retire sooner. The point is, Americans earn millions during their lifetimes and never become millionaires.
Don’t let that happen to you.
Source: US Census Bureau
Income is your Biggest Asset
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Most Americans believe their house is their biggest asset, but it’s not. Their biggest asset is their income. A person’s income is usually at least 10 times larger than the value of their house, if they even own a house. The problem is that income comes in small periodic paychecks, instead of in one large sum. So, workers see it in terms of hundreds or thousands of dollars, instead of millions.
Most people believe it’s virtually impossible to become a millionaire, but it’s really not that difficult. Anyone who saves and invests at least 10% of their net income stands a really good chance. Currently, 5.23 million Americans (1.67%) are millionaires and most earned and saved it themselves. If 5 million Americans can become millionaires, you can too.
Step 1. Work to increase your income.
Converting Income to Wealth
In its most basic form, accumulating wealth is as simple as saving money from your paycheck. In fact, it’s so embarrassingly easy; I have no idea why more people won’t do it. In the wealthiest nation that has ever existed on the face of planet Earth, the overwhelming majority of people won’t save even a small part of their very large paychecks. They buy cigarettes, booze, shoes, clothes, jewelry, cars, houses, vacations and $5 coffee. But, they never save a dime for themselves. It’s incredibly sad for people to work so hard their entire lives and wind up broke.
Saving money is very easy, especially if you do it automatically. Enroll in the 401K plan at work. If you don’t have one, start an IRA. Open a mutual fund account and setup the automatic monthly investment. You can sign up online in minutes. You don’t have to have a lot of money to start investing and you don’t have to be an expert. Anyone can pick a good no-load index fund. Investing doesn’t take much time and it’s fun to watch grow. There really aren’t many valid excuses. If you aren’t saving and investing, you are squandering your future.
Step 2. Save money from every paycheck. Continue reading You are Wealthier than you Think
One of the harsh realities of the new millennium is a dearth of good-paying jobs, even for college grads. It’s obvious middle-class jobs are quickly disappearing and being replaced by low-paying retail and service jobs. Wage erosion is only going to get worse in the future. Here is how to survive and get paid a living wage.
Career Tips for Millennials
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Have a Plan - The best advice I can give anyone who is starting out in life is to have a career plan. Drifting through work life, changing jobs frequently or shifting careers aimlessly will almost certainly ensure you will underperform and be underpaid. Choosing a sound career path, working towards the requirements for that career and demonstrating employment stability will almost certainly ensure you will have above average pay and opportunity. It all starts with a plan and the follow through that meets your career goals.
Appear Employable – Nothing shouts minimum wage potential like visible tattoos and piercings. I know they are becoming more acceptable to some people in society, but those people usually aren’t hiring managers. In a professional environment, they aren’t very professional. The same can be said for extreme clothing, hair, makeup or appearance. Employers usually have a choice of many candidates and they often choose the ones who will fit in and work well with others. Avoid any visual clues that can be used to disqualify you, before you even get your foot in the door. If you have to be a rebel, keep the tats hidden.
Get Promoted – For many years I was a lowly Systems Analyst, while I dreamed of being an IT Manager. I was certainly qualified for the job, but no one was going to hire me, because I didn’t have the title. So, I got myself promoted, which changed everything. Soon, employers and headhunters were calling me with offers for jobs I was previously considered unsuitable. The truth is, only my title was unqualified. I was more than ready and performed well in those jobs.
Upward Mobility – This ties into another critical factor in your career, working for companies with upward mobility. It’s nearly impossible to get promoted from a dead end job at a stagnant company. If you want to get ahead, you need to make sure you choose an employer that can provide career opportunities for you.
I read a really sad story this week about Kevyn Ogawa, a young grocery store clerk who won the lottery in 2009. He is now suing his financial advisors for selling him $100 million in life insurance policies, despite having no spouse, no children, no siblings and no clear need for the death benefit. To make things even worse, the policies were placed in a trust and he wasn’t even the beneficiary. So, the policies were essentially worthless to him. Kevyn claimed these advisors, who were also attorneys and insurance agents, were paid $1 million in commissions, while he had to surrender the policies after paying almost $2 million in premiums.
Really bad financial advice is all too common.
Choose Financial Advisors Wisely
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Novice investors often have no idea how financial advisors get paid and how it affects the investments the advisor recommends. Financial advice isn’t free and investors have to pay for that advice, usually in the form of higher fees.
Most financial advisors are honest, hard-working professionals. But, they are incentivized to sell investment products that have higher fees, because they pay higher commissions. If your boss came to you an asked if you would rather make $30K or $100K, which would you choose? It’s no different for financial advisors. They have to make a living from providing financial advice and also bring in revenue for the company. Their goals, and the goals of their firm, are often in direct conflict with the best interests of the investor.
If you were choosing your own investments, you would most likely choose the ones with the lowest fees and best performance. It’s not that hard to pick a good no-load mutual fund and skip the advisor fees. The same thing can happen when you hire a fee-only advisor to pick your investments. You pay them directly, instead of the companies selling the investments. They are incentivized to pick the best performing investments for their customers, so they can get more appointments and referrals.
The advice you receive is often influenced by the size of the commission.
Be Wary of Financial Firms
Financial firms provide many valuable services, such as creating mutual funds, providing brokerage accounts, underwriting IPOs and managing wealth. They employ thousands of professionals to provide guidance, analysis and advice to customers. Just remember they have a vested interest in capturing the maximum amount of revenue for the firm and most of that revenue comes directly from their customers. It’s a conflict of interest that is difficult to ignore.
Some of the most prestigious firms and investment banks have recently gotten into a lot of trouble for some of their shenanigans. One bank was caught comingling billions of dollars from their customer accounts with their own. Another bank was caught advising customers to take a position on a trade and then took the opposing position to profit. They often take unreasonable risks with leveraged trades and one bank recently lost billions on a single massive position. A major derivatives broker used customer funds to cover their own losses then went bankrupt, losing the customers deposits. Financial firms can provide a full array of valuable services. But, these services can come at a steep cost to their customers.
Consider investing with a discount brokerage and no-load mutual funds.
Continue reading How to Avoid Bad Financial Advice
I have always been sunny and optimistic. But, I have been to a lot of funerals lately and it’s got me feeling down. Last week, a good friend of mine lost his 28 year old son. It was completely unexpected and it hit everyone hard. To make things even worse, the family wasn’t prepared financially for all of the expenses. The rainy days will certainly come and usually at the worst possible time.
Accidents & Emergencies
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If you are doing something you know is risky and the worst happens, is that an accident?
If you are unprepared for something you know is likely to happen, is that an emergency?
My point is that most accidents and emergencies can be avoided or at least mitigated, with just a little foresight. Layoffs, illness and unexpected expenses are a normal part of life. They aren’t accidents and they shouldn’t become an emergency. Just a small amount of money put into an emergency fund could help you at the worst possible moment of their life. A couple thousand dollars put away could save you from becoming homeless during a layoff. It’s not that hard to put some money away, yet many people won’t do it. Don’t be that guy.
Why suffer an emergency that can be avoided with an emergency fund?
The Bottom Line
The bottom line is that rain can be quite pleasant, when you live your life under an umbrella. Instead of shivering while you are soaked to the bone, you can listen to the music of the falling rain. Money helps a lot if you have it when you need it.
“The average man is a conformist, accepting miseries and disasters with the stoicism of a cow standing in the rain.”
Money Counselor - To Save Enough Start Early
Squirrelers - Managing Cash Flow
Invest it Wisely – Basic Rules to Make Savings with Little Effort
I got a Facebook message from a friend of mine who was feeling down. His truck was broken and he didn’t have the money to fix it. He told me that he was just tired of being broke and he couldn’t get motivated to work, even though he really needed the money. I remember that feeling very well. I also remember when I finally discovered how to stop being broke. It was surprisingly easy.
Image by Arturo Avila
Vicious Cycle – The problem with being broke is that it becomes a vicious cycle. The collection calls, late fees and penalties just pile onto the already difficult job of paying the bills. Loans, payments and items purchased on credit siphon away your paycheck, which makes it hard to afford basics like food, rent and utilities. The debt begins to grow and you can never get ahead.
Scarcity Mindset - The only thing worse than actually being broke is worrying about being broke. The more you think about bills and payments, the less energy you spend on increasing your income. How hard would it be to pay your bills if you made twice as much money? It’s often easier to increase your income than it is to reduce expenses.
Loss of Motivation – Being broke kind of wears on people. It undermines their confidence and distracts them from the critical job of earning income. When all of your income goes to bills and you are still broke, it’s hard to get motivated. Yet, that is exactly what you need to do in order to break the cycle and get ahead.
1. Manage Income – One common trait among people with financial problems is they rarely balance their bank accounts. They often have no idea how much money is in their checking account, until they get hit with an avalanche of overdrafts. The first step in getting ahead is managing what you have. With bill pay and online banking, there is no excuse for frequently paying bills late or overdrawing your account. If you don’t wake up in the morning and know approximately how much money is in your bank account, you aren’t paying attention to your finances.
2. Learn to Save - The second step is a critical one. If you don’t save some portion of your paycheck, you will always be broke. You will never get ahead and have financial security. The saddest thing I see are good people who have worked hard their entire lives and have nothing to show for it. They may have earned millions of dollars in their careers and let it all slip through their fingers. Learning to save is the best thing you can possibly do for yourself and your family. Having money saved brings security, opportunity and peace of mind. Living paycheck-to-paycheck brings stress, risk and worries.
Check Out: Pay Yourself First
3. Make a Budget- Another common trait among people with financial problems is they rarely budget. I’m not saying you have to add up receipts or put money in envelopes, but you will need a basic budget for how much money gets spent on rent, utilities, food and entertainment. Otherwise, it’s like playing whack-a-mole with your paycheck and the important things may not get paid. Managing your spending is just as important as managing your income.
4. Have a Plan - Once you start to put some money away, you will need to know what to do with it. Creating a financial plan is probably the easiest of these four steps. For now, all you have to do is pick a good investment and start putting money in. Later, you will need to come up with a plan that makes sense for you.
Check Out: Three-Step Financial Plan
The Bottom Line
The bottom line is that it’s much easier to balance your accounts and manage your money than it is to deal with all of the headaches from being broke. There is no shortcut to sound finances and no income is big enough to spend foolishly. You must take control of your finances or your finances will control you.
“Being broke is a temporary situation. Being poor is a state of mind.”
Mike Todd – American Film Producer
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