After you pay down your debts it’s time to start saving money and investing in the future. That’s how people become wealthy: one dollar at a time. The key is to stop wasting and start making money • then you can start and fuel the engine that will power you to financial independence.
Last week we introduced you to Robert Kiyosaki’s The Cashflow Quadrant (Click), a simple way of looking at where our money is coming from and how to get on the road to financial independence. People who work for and spend their money, whether as employees or as self-employed, may never break free of the rat race. People who save and invest their money in businesses and other instruments, tangible or intangible, may gain the financial freedom to design the life of their dreams.
For most people, business ownership and other investments are a long way off. But they will never come at all unless we begin now to save for the future. Thomas Stanley and William Danko in their book The Millionaire Next Door (Click) make it clear that most millionaires know the value of money and live accordingly. They avoid over consumption and practice conservation. Savings and investments are their pride and joy, enabling them to do for themselves and for others the things that are truly important.
Stories abound of people who build significant assets on very modest incomes. On occasion they make the news, such as when the janitor leaves a six or seven figure gift to his or her favorite charity. But most of the time, wealthy people go about their business anonymously • quietly shifting their cash flow from the left to the right side of the quadrant — all the while driving 4-year old cars, eating in more than they eat out, and rarely purchasing designer clothes.
When asked to name the eighth wonder of the world, Albert Einstein reportedly replied “compound interest.” The best savings opportunity comes when we’re young. Set aside $2,000 per year for nine years before the age of 30 • a total of $18,000 • and never add to it or touch it again. Get a 9% return and you’ll have almost $600,000 by the time you’re 65. The earlier you begin the easier it is to build real wealth. But it’s never too late to start. Saving and investing money for the future is the most important thing you can do for your own and your children’s long-term financial well-being.
If you have to choose, for example, between going into debt for your child’s college education and saving money for your future — choose saving money for your future. Your child will figure out how to work and borrow the money to get through college • with a lifetime of earning potential ahead of them. You, on the other hand, may have limited years to secure the future and avoid becoming a burden on your children or on society.
In his book The Complete Idiot’s Guide to Getting Rich (Click), Larry Waschka presents two top 20 lists that will assist anyone to stop wasting and start making money. Next week we’ll talk about what to do with all that excess money in order to shift your cash flow to the right side of the quadrant and build a wonderful life.
Larry Waschka’s Top 20 Biggest Wastes of Money
- Buying lottery tickets and entering sweepstakes
- Purchasing a new car every two years
- Investing in whole life insurance, commodities, options, land in Transylvania, or anything else you are clueless about
- Buying credit life insurance
- Purchasing extended warranties on appliances and electronics
- Taking action on a “hot” stock tip
- Lending money to friends
- Shopping on QVC or the Home Shopping Channel
- Claiming the wrong amount of deductions on your W-4s
- Getting suckered into “get rich quick” opportunities
- Paying fees on your checking account
- Using credit cards like a regular bank loan
- Buying name brands on a regular basis
- Keeping money in low-interest savings accounts
- Buying anything at convenience stores
- The car dealer extras
- Shopping at ritzy clothes and grocery stores
- Paying an annual fee on a credit card
- Eating at upscale restaurants
- Buying food and drinks at the movies or ball games
Larry Washcka’s Top 20 Best Money Moves
- Saving a set amount of money month after month
- Avoiding illness by eating right and exercising regularly
- Shopping at warehouse clubs
- Buying term life insurance instead of whole life insurance
- Taking a Saturday morning and going to a few neighborhood garage sales
- Doing your taxes yourself
- Investing through mutual funds
- Buying generic and store brands at the grocery store
- Double-checking the word of a commissioned salesperson
- Buying clothes at thrift stores
- Getting wired to the Internet to find the best deals on everything
- Investing in income-producing real estate
- Being your own travel agent
- Finding out the dealer cost of a car before you start negotiations
- Being debt-free and buying most everything with cash
- Educating yourself about investing and being your own adviser
- Finding a no-fee checking account
- Shopping at outlet stores
- Eating meals at home rather than out
- Making “extra principal” payments on your mortgage