Getting a Millionaire's Mindset
by Glenn Curtis
Tuesday, August 26, 2008
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provided by
Let's
face it; we all don't make millions of dollars a year, and the odds are
that most of us won't receive a large windfall inheritance either.
However, that doesn't mean that we can't build sizeable wealth — it'll
just take some time. If you're young, time is on your side and retiring
a millionaire is achievable. Read on for some tips on how to increase
your savings and work toward this goal.
Stop Senseless Spending Unfortunately,
people have a habit of spending their hard-earned cash on goods and
services that they don't need. Even relatively small expenses, such as
indulging in a gourmet coffee from a premium coffee shop every morning,
can really add up — and decrease the amount of money you can save.
Larger expenses on luxury items also prevent many people from putting
money into savings each month.
That said, it's important to realize that
it's usually not just one item or one habit that must be cut out in
order to accumulate sizable wealth (although it may be). Usually, in
order to become wealthy one must adopt a disciplined lifestyle and
budget. This means that people who are looking to build their nest eggs
need to make sacrifices somewhere — this may mean eating out less
frequently, using public transportation to get to work and/or cutting
back on extra, unnecessary expenses.This doesn't mean that you
shouldn't go out and have fun, but you should try to do things in
moderation — and set a budget if you hope to save money. Fortunately,
particularly if you start saving young, saving up a sizeable nest egg
only requires a few minor (and relatively painless) adjustments to your
spending habits.Fund Retirement Plans ASAPWhen
individuals earn money, their first responsibility is to pay current
expenses such as the rent or mortgage expenses, food and other
necessities. Once these expenses have been covered, the next step
should be to fund a retirement plan or some other tax-advantaged
vehicle.Unfortunately, retirement planning is an afterthought for many young
people. Here's why it shouldn't be: funding a 401(k)
and/or a IRA early on in life means you can contribute less money
overall and actually end up with significantly more in the end than
someone who put in much more money but started later.How much difference will
funding a vehicle such as a Roth IRA early on in life make?If you're 23 years
old and deposit $3,000 per year (that's only $250 each month!) in a Roth IRA
earning an 8% average annual return,
you will have saved $985,749 by the time you are 65 years old due to
the power of compounding. If you make a few extra contributions, it's
clear that a $1 million goal is well within reach. Also keep in mind
that this is mostly interest — your $3,000 contributions only add up to
$126,000.Now, suppose that you wait an additional 10 years to
start contributing. You have a better job and you know you've lost some
time, so you contribute $5,000 per year. You get the same 8% return and
you aim to retire at 65. When you reach age 65, you will have saved
$724,753. That's still a sizeable fund, but you had to contribute
$160,000 just to get there — and it's nowhere near the $985,749 you
could've had for paying much less.Improve Tax AwarenessSometimes,
individuals think that doing their own taxes will save them money. In
some cases, they might be right. However, in other cases it may
actually end up costing them money because they fail to take advantage
of the many deductions available to them.Try to become more
educated as far as what types of items are deductible. You should also
understand when it makes sense to move away from the standard deduction and
start itemizing your return.However,
if you're not willing or able to become very well educated filing your
own income tax, it may actually pay to hire some help, particularly if
you are self employed, own a business or have other circumstances that
complicate your tax return.Renting Versus BuyingAt
some point in our lives, many of us rent a home or an apartment because
we cannot afford to purchase a home, or because we aren't sure where we
want to live for the longer term. And that's fine. However, renting is
often not a good long-term investment because buying a home is a good
way to build equity.Unless you intend to move in a short period
of time, it generally makes sense to consider putting a down payment on
a home. (At least you would likely build up some equity over time and
the foundation for a nest egg.)Buying Expensive CarsThere's nothing wrong with
purchasing a luxury vehicle.
However, individuals who spend an inordinate amount of their incomes on
a vehicle are doing themselves a disservice — especially since this
asset depreciates in value so rapidly.How rapidly does a car depreciate?
Obviously, this depends on the make, model,
year and demand for the vehicle, but a general rule is that a new car
loses 15-20% of its value per year. So, a two-year old car will be
worth 80-85% of its purchase price; a three-year old car will be worth
80-85% of its two-year-old value.In short, especially when you
are young, consider buying something practical and dependable that has
low monthly payments — or that you can pay for in cash. In the long
run, this will mean you'll have more money to put toward your savings —
an asset that will appreciate, rather than depreciate like your car.Don't Sell
Yourself ShortSome
individuals are extremely loyal to their employers and will stay with
them for years without seeing their incomes take a jump. This can be a
mistake, as increasing your income is an excellent way to boost your
rate of saving.Always keep your eye out for other opportunities
and try not to sell yourself short. Work hard and find an employer who
will compensate you for your work ethic, skills and experience.Bottom LineYou
don't have to win the lottery to see seven figures in your bank
account. For most people, the only way to achieve this is to save it.
You don't have to live like a pauper to build an adequate nest egg and
retire comfortably. If you start early, spend wisely and save
diligently, your million-dollar dreams are well within reach
