Steps to Building Wealth

Building wealth – it’s a topic that sparks heated debate, promotes quirky “get rich quick” schemes and drives people to pursue transactions they might otherwise never consider. “Three Simple Steps To Building Wealth” may seem like a misleading title, but it isn’t. While these steps are simple to understand, they’re not easy to follow.

The Steps
Basically, building wealth boils down to this: To accumulate wealth over time, you need to do three things:

1. You need to make it. This means that before you can begin to save or invest, you need to have a long-term source of income that’s sufficient enough to have some left over after you’ve covered your necessities.
2. You need to save it. Once you have an income that’s enough to cover your basics, you need to develop a proactive savings plan.
3. You need to invest it. Once you’ve set aside a monthly savings goal, you need to invest it prudently.

Getting on Track
Step1: Making Enough Money
This step may seem elementary, but for those who are just starting out, or are in transition, this is the most fundamental step. Most of us have seen tables showing that a small amount regularly saved and compounded over time can eventually add up to substantial wealth. But those tables never cover the other sides of the story – that is, are you making enough to save in the first place? And are you good enough at what you do and do you enjoy it enough that you can do it for 40 or 50 years in order to save that money? (For related reading, see Understanding The Time Value Of Money and Delay In Savings Raises Payments Later On.)

To begin, there are two types of income – earned and passive. Earned income comes from what you “do for a living,” while passive income is derived from investments. This section deals with earned income.

Those beginning their careers or in the midst of a career change can think about the following four considerations to decide how to derive their “earned income”:

1. Consider what you enjoy. You will perform better and be more likely to succeed financially doing something you enjoy.
2. Consider what you’re good at. Look at what you do well and how you can use those talents to earn a living.
3. Consider what will pay well. Look at careers using what you enjoy and do well that will meet your financial expectations.
4. Consider how to get there (educational requirements, etc.). Determine the education requirements, if any, needed to pursue your options.

Taking these considerations into account will put you on the right path. The key is to be open-minded and proactive. You should also evaluate your income situation annually.

Step 2: Saving Enough of It
You make enough money, you live pretty well, but you’re not saving enough. What’s wrong? There’s only one reason why this occurs: your wants exceed your budget. To develop a budget or to get your existing budget on track, try these steps:

1. Track your spending for at least a month. You may want to use a financial software package to help you do this. If not, your checkbook is the best place to start. Either way, make sure you categorize your expenditures. Sometimes just being aware of how much you are spending will help you control your spending habits. (For more insight, see The Beauty Of Budgeting and The Indiana Jones Guide To Getting Ahead.)

2. Trim the fat. Break down your wants and needs. The need for food, shelter and clothing are obvious, but you also need to address less obvious needs. For instance, you may realize you’re eating lunch at a restaurant every day. Bringing your own lunch to work two or more days a week will help you save money.

3. Adjust according to your changing needs. As you go along, you probably will find that you’ve over- or under-budgeted a particular item and need to adjust your budget accordingly.

4. Build your cushion – you never really know what’s around the corner. You should aim to save around three to six months’ worth of living expenses. This savings prepares you for financial setbacks, such as job loss or health problems. If saving this cushion seems daunting, start small. (Learn how to save for the unexpected. Read Build Yourself An Emergency Fund.)

5. Get matched! Contribute to your employer’s 401(k) or 403(b) and try to get the maximum your employer is matching. Some employers match 100% of the participant’s contribution, and this can be a big incentive to add even a few dollars each paycheck. (To learn more, read Making Salary Deferral Contributions – Part 1 and Part 2.)

The most important step is to distinguish between what you really need and what you merely want. Finding simple ways to save a few extra bucks here there could include programming your thermostat to turn itself down when you’re not at home, using plain unleaded gasoline instead of premium, keeping your tires fully inflated, buying furniture from a quality thrift shop and learning how to cook. This doesn’t mean that you have to be thrifty all the time: if you’re meeting savings goals, you should be willing to reward yourself and splurge (an appropriate amount) once in a while! You’ll feel better and be motivated to make more money.

Step 3: Investing It Appropriately
You’re making enough money and you’re saving enough, but you’re putting it all in conservative investments. That’s fine, right? Wrong! If you want to build a sizable portfolio, you have to take on risk, which means you’ll have to invest in equities. So how do you determine what’s the right exposure for you? (Confused about risk? Read Determining Risk And The Risk Pyramid.)

Begin with an assessment of your situation. The CFA Institute advises investors to build an Investment Policy Statement. To begin, determine your return and risk objectives. Quantify all of the elements affecting your financial life including household income, your time horizon, tax considerations, cash flow/liquidity needs and any other factors that are unique to you.

Next, determine the appropriate asset allocation for you. Most likely, you will need to meet with a financial advisor unless you know enough to do this on your own. This allocation will be based on the Investment Policy Statement you have devised. Your allocation will most likely include a mixture of cash, fixed income, equities and alternative investments.

Risk averse investors should keep in mind that portfolios need at least some equity exposure to protect against inflation. Also, younger investors can afford to allocate more of their portfolios to equities than older investors, as they have time on their side. (To read more, check out Asset Allocation Strategies, Five Things To Know About Asset Allocation and Achieving Optimal Asset Allocation.)

Finally, diversify. Invest your equity and fixed income exposures over a range of classes and styles. Do not try to time the market. When one style (e.g., large cap growth) is underperforming the S&P 500, it is quite possible that another is outperforming. Diversification takes the timing element out of the game. A qualified investment advisor can help you develop a prudent diversification strategy. (For more insight, see Benchmark Your Return With Indexes.)

Conclusion
Building wealth over time depends on the successful execution of three steps: 1) having enough income, 2) saving an adequate portion of that income and 3) investing what you save prudently. Getting on the path that leads to wealth begins with a thoughtfully constructed plan and diligent execution of that plan. An investor who stays on that course should in time find that he or she is successfully building wealth.

by William Artzberger

When can I take money out of my 401k?

A person’s 401k becomes available early in the events of termination, disability, or death. In the event of termination whether you’re downsized or decide one morning you’ve had enough and walk out you can play with your nest egg early. Be aware though that sometimes your 401k is transferable to your next job and plan wisely. Disability access lets you use this money to adjust your life around your new disability, while in the event of death your 401k is eligible to your heirs.

There are other options though than just those three; otherwise, what use or appeal would having a 401k offer. You can often use a small portion of your 401k money if you are experiencing a serious hardship. Many plans have loopholes in them that will permit you to withdraw a portion of your 401k money under special circumstances. These opportunities for early access are reserved for emergencies; you’ve developed a sudden medical bill or your home risks foreclosure. If you can’t produce proof of a serious emergency, do not expect to get your money out early. You probably aren’t going to be able to get more than a small percentage of the total funds in the account even if you do succeed in getting our hands on them.

Your employer sets up your 401k policies when they hire you or you suddenly qualify for that benefit. This means while the money is yours you can’t have it any time you want even if that luxury expense like a TV or new car is looking awfully tempting. Obviously the 401k is reserved for wen you retire so you have a long way to go before you can access it. If you wait for retirement you pay the standard income tax rate for it and there’s not much paperwork. However most people want access to their money immediately that’s where the special circumstances in your company’s 401k policy comes in.

Though it is extremely ill advised if you still want at your nest egg you can secure a loan against your 401k. You will be required to pay interest on this loan and, heaven forbid, should you lose your job suddenly, the total sum of your loan will come due. In my opinion, it’s best to let it wait for that rainy day than risk the fees.

How To Save Money

With the current economic situation having an effect through out the world people all over are becoming more focused on saving money. There are several small changes a person can make in their daily lives to save money weekly and over the course of a few years the amount saved begins to add up. Here are a few money saving techniques that can come in handy when attempting to free up some money.
1. Before going shopping it is better to make a list in order to have an idea of exactly what it is that you need as opposed to going to a store and seeing all of the sales and advertisements that can pull your attention and money in different directions.
2. Instead of purchasing snacks from the vending machine it is smarter and more economical to buy large boxes of your favorite snack from a super market instead of spending a dollar each visit to the machine.
3. When washing clothes use smaller amounts of detergent in order to make the container last longer and decrease the number of times you will need to purchase more.
4. Have a yard sale to get rid of some of the things around the house that are no longer needed and it will clear up space around your home as well as put money in your pocket.
5. When out shopping don’t be afraid to negotiate for better prices. Many times stores will come down on prices in an effort to move a product and make some profit.
6. Remove some channels from your cable plan. Many people have the premium bundle and sports package and either don’t watch television or only watch a few channels. It can save you a couple hundred dollars a month.
7. When making purchases look at websites such as ebay or craiglist to possibly find the product you need for a fraction of the store price.
8. If you are a smoker quit smoking! The price of cigarettes is high and some people go through multiple packs a day and the money spent on that habit could go towards something that could help you.
9. If possible walk to a store or ride a bike instead of driving every time.
10. Pennies make dollars! Save the loose coins that you receive as change throughout the day in a jug and after a year or more cash it out, you will be surprised at how much money you will have saved.

How to Reduce Credit Card Debt

The average credit card debt for card holders in the United States is roughly five thousand dollars; in these hard economic times, as they attempt to make ends meet, some people may have found that debt soaring even higher.  For many, there has never been as urgent a need to reduce that credit card debt than today.  If financial matters have always been tough or unpleasant for you to deal with, it’s especially important to make sure you develop a strategy with which to work with this debt.  Here are a few tips on how one might begin to accomplish that task, reducing the stress one feels over such a burden at the same time.

If possible, you’ll want to be sure to exceed the minimum payment on the cards each month.  New laws regarding credit cards will make companies tell you how long it will take to repay a debt by using the minimum payment — and it can be shocking, taking years and even decades.  While paying the minimum payments may keep you from defaulting on the cards, it’s only advisable for the short-term; it’s won’t be a long-term solution.  Be sure to pay on time each month as well, and never assume that the due date will remain the same.  In some cases, the due dates aren’t fixed and will float.  Making a late payment will incur new fees and may increase the finance charges, creating even larger debt.  If you must pay a minimum payment, make it a priority to pay it on time.  In order to do all this, develop a system to reduce the debt by keeping track of these payments and their due dates.  Remember, too, that it’s possible to negotiate with credit card companies.  In many instances, a collection department will work with you.  You may have to tell them that you’re having financial problems and need the interest rates lowered.  Their response often will be to ask what you can do.  This may result in the lowering of the rate as well as cutting down or eliminating finance charges in the future.  Sometimes card companies will offer better deals if you switch to their account.  Talk to your own company and tell them about these deals and see if they can do better, then choose the company providing the lowest rate.

If you can’t pay at all, write to the creditors and explain the situation.  Suggest when you may start to repay them.  Usually, creditors will appreciate the candor and they’ll attempt to work with you.  At any rate, dealing directly with a problem, instead of ignoring it, will also reduce your own stress in the situation.  You know you’re doing what you can.  Try to arrange payments to your creditors in a proportion to the amount that you owe them.  If you have two hundred dollars to pay out to five creditors each month, then provide a percentage to each creditor, according to the percentage of the total debt they represent.

What is the Best Money Investment

In times of economic crisis and recessions such as the one that is being experienced throughout the United States, people are increasingly concerned about not only their day to day living expenses but also their investment securities and money and many of these people are unsure where they should turn. This is a very sensible concern and everyone is wise to be cautious not only of an unstable investment scene but also the numerous scams and frauds that suddenly pop up whenever financial trouble strikes.

So, where do people put their money at times like these, and what is the best way to invest one’s money? Well, fortunately, even though the economy is not good, not a lot has changed in the best ways to invest your money and plan for you and your family’s future. Stocks, securities and bonds are still a recommended investment perspective though of course proper guidance or a thorough knowledge of the system and the way it works is necessary. One thing that is consistent about the stock market is that you can make money on it regardless of almost any situation that it is currently in. However, this is related more to career investors and sometimes day traders and may not be as relevant to individuals who are looking to put their money somewhere safe and leave it alone.

However, this is still a good option for you, if you fit that model. And as was previously mentioned, guidance and informed decisions are the key to your success. One of the standard recommendations for long term stock market investors is to distribute your money across the board. Do not put it all into one corporation, but break it up and invest in various types of stocks. You will want to put some money on slow moving stable companies while you will also want to put a little bit on riskier stocks with a higher payout opportunity. This balance between the types and quantities of stocks will help to keep you stable no matter what the market is doing. However, it is always recommended to consult with a qualified broker before making any major investment.

What are the Types of Investment in Economic?

Many people who are looking to make investments, know that making investments can provide greater financial security in the future, but they may not know where to begin.  Knowing how much you want to invest is important as well as understanding the terms and the risks of the different kinds of investments that are out there.  There are types of investments that are easy to understand and that are a great way to start having your money earn more money.

The three basic kinds are Cash Equivalent, Stocks, and Bonds.  These can be invested in individually or you can invest in all three combined by purchasing mutual funds.  Cash Equivalent kind of investment include money market funds or passbook savings accounts.  These are the kind of investments that will not put your original investment at risk.  The money in your savings account will always be available to you to withdraw, and will always be there when you need it.  This is a stable investment however it may not provide that kind of return you are looking for, as when the returns are taxed, the money you pay in taxes may be greater than the amount of money you make.

Stocks and bonds involve a bit more of a risk, however the returns can be substantially more.  Stocks are the ways in which you invest in a company.  The return will have a great deal to do with the success of that company.  Just as those who invested in Apple were very lucky, many people have made investments in companies that do not fair so well.  A bond is when you basically loan your money to the government.  Bonds provide a steady source of income and are seen as less risky than stocks.  However they are subject to risks in interest rates, repayment and credit.  Choosing to invest money is a wise choice, and it is just recommended that you make yourself wise to the different options that are available to you.

What Is the Best Investment for My Money?

Instead, the focus should be on investing very conservatively.  It makes much more sense to do this, unless you happen to be in a position to invest a very hefty sum.  If it’s more than 6 figures, then it does certainly make sense to diversify, and have some money in high-risk, and some in low-risk funds, and of course some with a medium risk.  If the investment has to do with retirement, however, then being careful is the best way to make your investment pay off, and to use all the common sense at your disposal.  Index funds or high yield dividend funds are famous for a slow but steady increase, and these are usually some of the safest bets.

There are always going to be options to buy stock in companies, and some of these offers are very tempting.  The most recent example that has some people feeling like they’ve won the lottery is google, who’s stock has famously spiked since 2004.  However, this is really the anomaly here, and in fact, it is very much like the lottery.  It doesn’t seem to involve much vision or perceptiveness of trends, and there’s always going to be new things that seem just as hopeful.  The best bet for any investor is common sense and caution.  Taking care of your own resources by figuring out new ways to save money, to cut percentages off your spending each month so that you have more to set aside, will be the most valuable efforts for building a healthy financial future.

How to Build Wealth

Economics runs in patterns and waves that are often very similar to patterns that are found in nature.  Nature like diversity, and this is a very good principle to tie to personal wealth.  In nature, diversity means excitement, rejuvenation of the species, and the invention of innovations that help us to survive, and even thrive.  When investing, as a general rule, diversify.  This does not mean throwing your money in the strangest places to see what happens, but is rather more like putting eggs in different baskets.  The eggs are still very fragile.

One of the most common pieces of advice on this, and again, there is a counterpart in nature, is to start early.  The early bird gets the worm, and those who start a brood early will have a larger family when they are older, and this is also true for money.  It makes mathematical sense as well, where the percentage of your investments that earns does grow over time, so investing very early makes excellent financial sense.  It also helps in building up a nest egg, so that you have a little cushioning if things get tight later on.

The last piece of advice is to use common sense.  Again, those who can do this in the natural world are likely to stay alive longer.  Don’t take unnecessary risks.  Don’t drag along debt that you can’t afford to carry.  And don’t be afraid to appear overly cautious.  In this particular game, there are those who can afford to play recklessly, but it’s not worth the risk.

How Kids Can Make Money

There are plenty of ways for kids to make money in this day and age.  It’s very important to remember that it’s necessary now to take more precautions.  Kids need to check with their parents before beginning any venture, and particularly when money is involved.  And parents, likewise, need to be able to have enough free time themselves to supervise, especially when there might be any contact with strangers.  In this regard, then, the old fashioned notion of a corner lemonade stand is still a great way to earn some extra change, learn how to run a business, and to get some fresh air, too.  You don’t have to limit it to lemonade, although that’s certainly a way to get that curb appeal for people who might be driving by.  Hot cocoa on a cold day, fresh fruit drinks, or any number of refreshing foods and beverages can be sold.

The other ways to make money that are tried and true have to do with the neighborhood community, and this is a great way to begin to learn networking skills.  Lawns always need mowing, and gardens need tending.  Likewise, lots of grownups are too busy to walk their dogs these days, and this is something kids can learn how to do.  There are also babysitting jobs, and little chores for around the house.  The options here are wide open, and depend on the creativity of the kid.  Again, with these, it’s important for parents to know what’s going on, and to also accompany the children if they’re knocking on doors.  Don’t forget, too, that a paper route is always something that teaches responsibility, independence, and is a reliable source of steady income, and can help pave the way for a responsible future.

How Kids Make Money