It’s easy to want wealth. It’s also easy to believe it’s unattainable. However, this is not necessarily true. Believing you can achieve wealth is half the battle. The other half is making intelligent decisions. Here is some advice if you want to join the millionaire club!
Alaska USA recommends…
1. Actively manage your money.
A study by the Center for Retirement Research at Boston College found that households in which someone thought “a lot” about retirement had twice as much wealth heading into retirement as households with little or no planning.
Similarly, research for “The Millionaire Next Door” revealed that more high-wealth accumulators say they spend “a lot” of time planning their financial future, and place the management of their assets before other activities. In this case, “a lot” means 8.4 hours per month, or just about two hours a week.
Income differences alone have little to do with disparities in wealth.
“You shouldn’t spend your time checking stock prices constantly. That’s just not productive,” says Tyson, who observes that the tendency to incessantly track portfolio performance is more common in our 24/7 news coverage atmosphere. Instead, he suggests spending your hours researching and learning how to invest, even if you hire a financial adviser.
“How are you going to make good choices about hiring a professional if you don’t educate yourself [about what to look for and how to judge performance]?” asks Tyson.
Investors also will need to spend some time monitoring the performance of their investments and reallocating their portfolio if necessary.
Tyson also says it’s good to try to learn to do your own taxes, even if you have a tax preparer do the work, because “it helps you learn about the system and take advantage of incentives and tax breaks.”
If you haven’t done so already, spend a few of your first money management hours calculating your net worth. Your net worth is the value of all your assets minus all your liabilities. It’s the best snapshot of your wealth-building progress. Your net worth work sheet is something you’ll update annually.
Some other basic tasks to start with include tracking expenses for one to three months, designing a spending plan (also known as a budget), and writing down your short-, medium-, and long-term financial goals.
2. Think like an investor, not just a saver.
Nobody ever accumulated wealth just by saving. To build the kind of wealth that gives you independence and security, you have to be an investor. Putting your savings into things that become more valuable over time, such as securities (stocks and bonds) and real estate has, historically, been the best way to build wealth over the long run.
Your net worth is the best snapshot of your wealth-building progress.
If you equate investing with insider tips and day-trading (the hyperactive buying and selling of stocks), you might be surprised to learn that investing success is within reach of even newcomers to the market.
“Many people have the attitude that only the insiders get wealthy,” says Tyson. While he acknowledges that experience can help, Tyson explains that the people who make money in the stock market buy and hold a diversified portfolio. You can easily achieve that with a good mutual fund having minimal expenses.
An advocate of keeping it simple, Tyson cites index funds as good options for investors looking for stock market returns with lower investment expenses and risk relative to individual stocks or specialized mutual funds. Index funds are mutual funds whose investment objective is to achieve the same return as a particular market index, primarily by investing in the stocks of companies that are included in that index.
For example, says Tyson, Vanguard, a large mutual fund company, offers index funds that track the entire U.S. stock market—they hold shares of thousands of stocks—that have returned 9% to 10% a year over the long term.
Regardless of where you put your savings, your long-term investment strategy should be to achieve adequate growth so that, ultimately, you can live on the income your fortune produces and never have to dip into the principal.
That kind of financial security is totally within your grasp if you adopt the strategies of those who have achieved wealth by way of work and wise money management. By shifting your thinking and behavior to that of a wealth-builder, you’ll never again have to trust your fortune to fate. That’s a good thing because, as the research shows, most millionaires rarely, if ever, buy lottery tickets.
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