Armchair Millionaire Community Bulletin: You Don't Have to Be Rich to Live Rich
When it comes to making yourself financially secure, the decisions you make about what you do with what you earn matter more than how much you earn. Don't assume that a small amount of money won't do it. With patience and a clear plan, small amounts can achieve big goals.
New York, NY September 21, 2004 -- Interesting work by Richard Easterlin, an economic historian at UCLA, found that even though the gross domestic product per capita in the U.S. has more than doubled in the last 50 years, there has been virtually no change in the percentage of people who call themselves happy. In other words, a lot more wealth hasn't given us any more happiness.
I'd also assert that more income won't necessarily provide you with financial security, either. Whether they are conscious about it or not, many people adjust their spending upward with their income, ending up with the same net worth earning $100,000 a year that they had when they earned $40,000 a year.
When we asked members of the Armchair Millionaire community to weigh in on this topic, we found that many have found ways to achieve financial security without a high income. Here are two such comments:
"I make $50,000 a year--peanuts in Chicago--but I manage to save and invest over $15,000 a year. I contribute 25 percent of my pay to my 401(k), max my IRA and I still run a positive cash flow of about $200 a month. How? No cable TV, no car payment, and I live in a modest condo in suburban Chicago." --Greg
"Like Greg, I also will earn about $50,000 this year (peanuts in San Jose, California), but will save about $20,000. I max out my 457 plan and Roth IRA and share a house to save money on rent in my high-cost area. I drive a decent used economy car and I have no car payments." --mysticaltyger
The good news is that you don't have to make a boatload of money to be financially secure. It's all a matter of deliberately making the right choices. My guide tells you how.
The Armchair Millionaire's Guide to Achieving Financial Security on a Budget
Do not even think about the Joneses. In our consumer society in which the goodies get fancier and more expensive every year, trying to keep up is a losing game. Not only will you never have the latest and best stuff, you could bankrupt yourself trying to. The cost? Absolutely nothing.
Secure your retirement. Investing in your employer's 401(k) plan, where the money comes directly out of your paycheck, is the most painless way around to ensure that you won't have to scrape through your retirement years. The cost? There's no minimum initial investment and depending on your plan's rules, you can contribute just a few bucks out of each paycheck.
Build a stock portfolio. Join an investment club--they're a great way to learn common sense investing techniques while establishing a solid core holding of stocks. The cost? Most clubs require minimum monthly contributions of just $20 to $50.
Build a funds portfolio. If you don't want to go the investment club route, you can build your own diverse holding of stocks by buying a stock index fund. The cost? Many funds have minimum initial investments of $500 to $2,000 (but lower if you're investing through an IRA). Then you can sign up for automatic contributions of as little as $50 a month.
Get term life insurance. A simple $250,000 term life insurance policy can make all the difference in assuring the financial security of your loved ones should you pass away. The cost? Depending on your age, gender and health, as little as $15 per month.
THE BOTTOM LINE: When it comes to making yourself financially secure, the decisions you make about what you do with what you earn matter more than how much you earn. Don't assume that a small amount of money won't do it. With patience and a clear plan, small amounts can achieve big goals.
THE ARMCHAIR MILLIONAIRE WEEKLY SURVEY: Do you have life insurance? Log on to www.armchairmillionaire.com and let us know.
Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at www.armchairmillionaire.com.
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