7 ways to become rich and change your life forever

Most all financial books have common themes. The themes repeat themselves because they are formulas to building wealth. No matter the situation these principles work. In essence, becoming rich requires a break from “traditional thinking”. These seven points are what make wealthy people different than everyone else. Do you have any additional points that have helped you financially?

Pay yourself first

If we treated ourselves like the bills we get in the mail we would be much happier financially. For those with a 401K paying yourself first is easy because it comes out of your paycheck automatically. For others without a 401K other options are available. Opening a Roth IRA, online savings account, or broker account to trade stocks and mutual funds work.

Automatically paying yourself is a way to build wealth on auto pilot. Automatic withdrawals eliminate the hassle, self control, and temptations associated with any other method of saving. Because online broker accounts and savings accounts both “piggyback” your regular checking account setting up auto-withdrawals is easy. They give you complete flexibility and control with your money. You will be surprised on how quickly you can save your money using this method.


Invest instead of saving

Saving will never create the same returns as investing in the long run. Compound interest is most powerful with more time and higher yield percentages. Most savings accounts are good for emergency cash reserves. The yields on these accounts are generally barely above inflation. Inflation in the U.S.A. is currently 3-4% a year and online savings accounts are about the same. In short, after you have your cash reserve you should put your cash to work in more lucrative investment vehicles.

Avoid paying interest at all costs (i.e. debt is bad)
Take some time and add up all the interest you’re paying every month. For most people interest and taxes are their #1 and #2 expenses. Interest costs are avoidable and therefore a waste of money. If you’re going to go into debt the asset you buy should appreciate more than the cost of interest. Things like your home and education are justified because they increase in value overtime. They also out pace the cost of the debt (i.e. interest payments). On the other hand electronics, cars, and eating out depreciate to worthless junk very quickly.

For those who have bought the idea that debt is good, consider a few facts. Debt = Risk. The more debt you have the more risk you have. Companies that are burdened with excess debt are riskier investments. Their stocks are undervalued and their bonds are rated as junk bonds. If debt can destroy businesses it will wreck havoc in your life.

Stay off the “bleeding edge” of technology
The “bleeding edge” refers to the sharpest part of the “cutting edge” of technology. It is the newest of the new technologies. Those consumers who buy the newest technology fund its development until it becomes cheaper. They are paying a high price to be the first to have the newest toy. Let other people pay the premium and get the same thing in a year for a third the price.

Try to avoid advertising and marketing. They are designed to persuade you that your old technology is useless and make a “want” a “need”. Companies pay a lot of money to convince you to make the switch. Take the initiative and avoid their marketing messages.

Financial education is worth the time and money
Everyone isn’t born with Warren Buffett as their father teaching them how to invest. Like most people, your childhood is probably riddled with neglect in many areas. So we have to work extra hard and learn all the stuff Warren would have taught us if we were his kids.

Audio books, podcasts, blogs, books, and magazines are great ways to build your knowledge base. Read everything you can. Talk with people who really know what they’re doing. Copy the experts. Most importantly, experience is the best teacher. You’ll learn more in a week by actually trading stocks than reading for a month.

Open an online broker account and learn the lingo, make some trades, run some screens, and find some deals. You’ll become financially literate and develop a style you’re comfortable with. Once you know how to read financial data you’ll be able to spot a deal across the room and make the returns you’ve always wanted.

Upset the Joneses by opting out of the rat race
Living a lifestyle that is not earned is stealing. Going into mass debt to LOOK rich isn’t the same as BEING rich. This fraudulent behavior catches up to all those chasing the Joneses. But the irony is that the Joneses are chasing someone else. There is no end to the cycle. So you need to opt out. Unsubscribe.

Opting out of the rat race makes everyone still in the race uncomfortable. They’ll think you’re crazy, stupid, and out of touch. But that really is the point isn’t it? Moving in a different direction from the mindless herd confuses them. And if they can keep you in the trap, they feel better.

Rinse and Repeat
Most of the financial secrets out there are done over and over for a long time. Repeating a simple step for a long time will have staggering results. Compound interest needs time to truly expand your wealth. A little discipline and a lifetime of good habits will leave you retiring in style.

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CheckboxWrite or update your last will and testament
If you have children or other dependent making a last will and testament is a must. Without a will the courts have the power to decide how your assets and children will be taken care of after you die. Your will is one of the most important documents you’ll every sign.

To get started there are three ways to write your will; generic forms, online services/software,
and working with a lawyer. Each of the alternatives have different costs. The generic forms are free, the step-by-step service is around $100, and the lawyers are much more than $100.

  • Free Generic Forms 1 , 2 , 3 , 4
  • Will Writing Service

CheckboxCreate a budget
With a simple spreadsheet you can outline a budget. If you don’t have a spreadsheet read more about getting free office software.

Once you’re ready with your spreadsheet make a list of your expenses.

  • Common expenses are:
    Home, Food, Apparel, Health Care, Transportation, Entertainment, Dependent Care, Pet Care, Education, Travel, Gifts, Personal Business, Taxes, Insurance, Savings & Investments.
  • Next, total up your net income: Salary, Wages, Self-employment income, Bonus pay, dividends, interest, alimony or child support, pension or retirement income, public assistance.
  • Subtract your expenses from your income.

If you’re spending more than you make, stop it. All joking aside, try to update your budget frequently and plan regularly. Budgets put things in perspective and improve your financial future.

CheckboxInstall Personal Finance Software
To take a more active role in managing your finances try some of these free personal finance software packages.

CheckboxCompare your insurance rates
Most insurance is vulnerable to rate creep. As time goes on insurance agencies slowly increase your rate. Automobile, home, and health insurance are likely to increase over time.

Insurance is a unique industry in that they reward the newest customers instead of their long-term customers. Competition is strong for new customers and the low rates are waiting for those who call. You could save a lot of money by switching your insurance.

InsureMe combines quotes from the major insurance providers. You can easily find quotes for auto, home, life, and health insurance.

CheckboxGet your free Credit Report
The government provides a free annual credit report from the three major credit agencies, Equifax, Experian, and TransUnion.

CheckboxMove your spare money to an online savings account
The national savings account average is 0.47%. Its an absolutely shameful return. Instead of getting a return like that try an online savings account. These accounts offer 5% (roughly) and are FDIC insured. They are intended to ‘piggyback’ on your existing checking account. They are easy to sign up for and transferring money is a breeze.

CheckboxOptimize your vehicles performance
Check your tire pressure on your car, change your oil, and get a new air filter. Not only will your car last longer but you’ll save gas money as well. With the cost of crude surging above $100 a barrel gas prices are surely going to increase. Experts predict that prices will take a big jump this spring.

CheckboxHome Energy Audit
I’ve cut my energy bill down by almost a third of what it was last year by upgrading my attic insulation, sealing windows, and adding better door seals. Not only will you be helping the planet you’ll also be saving money.

The US government offers a Do-It-Yourselft home energy audit here. They also have a printable version.

CheckboxReduce your interest expenses
Using balance transfer credit cards can save you hundreds of dollars in interest each year. I’ve avoided paying any interest on my credit cards until this year. Even though the card I’m paying interest on only has a 5.9 % interest rate it kills me to see I’ve wasted a percentage of my income each month.

My wife and I are going to apply for the credit cards and transfer our balances to these 0% balance transfer credit cards.

Calling your credit cards is another way to lower your interest rate. Call the number on the back of the card and ask them to give you the best rate they can offer. You might be surprised at how often this works.

Mortgages are another large interest expenses. With the Fed cutting the interest rate again there’s a good chance you’ll be able to refinance and get a lower rate.

CheckboxMax out or open an IRA
$5,000 is the maximum IRA contribution in 2008. That’s roughly $416 a month, or $96 a week, in contributions. For a lot of people an extra $400 a month can be difficult. If that’s beyond your reach try something more manageable; like $100 month.

Opening an IRA is easier than most people think. Banks, brokers, and other financial institutes can help. As competition has increased among discount brokers their services have improved dramatically. I’ve been happy with my discount broker for my IRA.

With no fees, no minimums, and a wide range of trading options TradeKing is a favorite of mine. Most other discount brokers offer less and charge mandatory fees. Check out Tradeking to open your Roth IRA.

Year End Finincial Checklist

  • Write or update your last will and testament
  • Create a budget
  • Install Personal Finance Software
  • Compare your insurance rates
  • Get your free Credit Report
  • Move your spare money to an online savings account
  • Optimize your vehicles performance
  • Home Energy Audit
  • Reduce your interest expenses
  • Max out or open an IRA
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