The road to wealth is not paved with infomercials. Thosewee-hour TV staples would have you believe that you'll become "FantasyIsland" rich by placing tiny ads in the classifieds, or by buying up --for no money down -- distressed property and selling it for millions.
Unfortunately, the only thing you're likely to get fromwatching those infomercials is dark circles under your eyes from lackof sleep. If you actually go to the seminar or buy the tapes, you'llprobably just have more debt.
The truth is, unless you're lucky enough to receive a sizeableinheritance, you'll need to navigate your own route to prosperity. Butwhile Bill Gates-style megawealth may be elusive, becoming amillionaire is definitely within reach of those who start young anddevelop the right habits. And anyone, at any age, can develop the traitsthat increase wealth and decrease debt.
"You can have money or you can have stuff, but seldom do youhave both early in life," says Jason Flurry, certified financialplanner with Planmark Capital Management LLC, in Alpharetta, Ga.
"Part of our culture is, 'Fake it until you make it.' Debtholds people back. They buy liabilities and they make those paymentsforever. Spend less than you make, live a modest lifestyle and don'tlive up to every raise. Some people have spent their prosperity for thenext 10 years and they've done it on credit."
It's a matter of choicesFlurry isn't suggesting you decorate your home in plastic lawnfurniture, forego cable TV and dine on macaroni and cheese every night.But do you really need to buy a car that's so expensive that you muststretch the payments out five or more years? Do you have to have that50-inch widescreen HD-ready TV right now? Many people who choose wealth over "stuff" wouldn't considerspending money on the "latest and greatest" because they know theirmoney can be put to better use elsewhere. Buying a "liability" wouldprobably cause them stress because they'd rather buy an asset --something that will appreciate over time and give them a return ontheir investment.Flurry says he has a hard time getting some of his olderclients to spend their money."They've been savers all their lives and the thought ofspending $5,000 or $10,000 on a vacation is ridiculous; it doesn'tmatter that they're worth $3 million. They're really the lastDepression generation and it's burned in their memory that they need tosquirrel away money."Seven steps to wealthParing it all down, we've come up with seven steps to becomingwealthy. Remember, wealth is relative, it doesn't necessarily mean"millionaire." The goal for many people is financial independence, saysStewart Welch of The Welch Group in Birmingham, Ala.
"That's the point in time when your cash flow from investmentsis equal to or greater than your income from work. Look at thestatistics: 95 percent of the population never achieves financialindependence. For 65 percent of retirees, Social Security is theirlargest source of retirement income."The No. 1 reason people don't achieve financial independence,says Welch, is they don't have a written financial plan. So, that isour No. 1 rule for becoming wealthy.1. Develop a written financial planSaying you want to be wealthy isn't good enough. You need to come upwith a workable plan and put it on paper."The written plan forces you to do something," Welch says."Calculate what you need to earn and how to invest. The plan isn't justthe goal, it's the whole thing -- the dream, the goals, the options.The options are scenario planning -- all the ways you can accomplishthat goal -- open a Roth IRA, contribute to a 401(k)."2. Save, save, saveThe end result of your financial plan should be systematic investment.Get in the habit of saving money. Build an emergency fund in a moneymarket account so you don't have to raid the rest of your savings andinvestments when there's an unexpected major expense. Make it a pointto save at least half of every pay raise.
3. Live below your meansDon't be a walking billboard for overpriced designer clothes, shoes,sunglasses or jewelry. Don't allow your house or car payments to bebudget-busters. 4. Lay off the creditSome people say that if you can eat it or wear it, don't put it on yourcredit card. That's good advice, but take it further. Try not puttinganything on your cards that you can't pay off in two or three months.You need only one or two credit cards. If you have a fistful, pay themoff and cancel them. Remember, debt holds you back."It reduces cash flow for other things, including investing,"says Welch. "If no one gave you money to borrow, you'd be better offand the economy would be smaller. If they only let you borrow 75percent of the value of your home, you'd be a heck of a lot better off."5. Make your money work for youIt takes money to make money, but that doesn't mean you need a lot toinvest. Open an account with a mutual fund company that has no-loadfunds and low expense ratios. Build a diverse portfolio and you canreasonably expect to earn 8 percent to 10 percent annually on yourinvestments over the long haul. 6. Start your own businessIn the 1996 book TheMillionaire Next Door: The Surprising Secrets of America's Wealthy(Simon & Schuster, 1998), the authors state that two-thirds ofthe millionaires are self-employed, with 75 percent of thementrepreneurs, and the remainder professionals such as doctors andaccountants.
"The idea that most people inherit wealth is outdated. A lotis built through businesses. Business creation is the No. 1 driver ofwealth in this country," says Zultowski.7. Get professional adviceA good financial planner can help you fill your portfolio with theright investments and dump the wrong ones. You don't need to relinquishcontrol, but you do need to form a good working relationship withsomeone who has expertise in this complicated area."About 76 percent of those surveyed are actively involved inthe day-to-day management of their financial affairs," notes Zultowski."They get involved; they learn about finances, but they're not daytraders. They work with advisers but ultimately make their owndecisions."If you can't afford to have a financial planner manage yourmoney, many of them will review your portfolio and make recommendationsfor a one-time fee. Bankrate.comis the Web's leading aggregator of information on financial productsincluding mortgages, credit cards, new and used automobile loans, moneymarket accounts, certificates of deposit, checking and ATM fees, homeequity loans and online banking fees. Visit Bankrate.comto get the tools and information that can help you make the bestfinancial decisions.
Source: Money & Work
