Jun 14, 2006

Slow But Steady

Here I go again, I sound like a boken record. When I started blogging I thought I knew something about personal finance. I mean, I've been reasonably successful in life, even though I have never earned big money and never owned investment real estate. I haven't done anything exotic financially, I've just plodded along, spending less than I make. And yet I expect to have $2m by age 62. It is a fool-proof, albeit boring, system. It turns out that being a Personal Finance Blogger means different things to different folks. The more prominent Personal Finance bloggers certainly wouldn't count me among their number, based on the advice I see them publish. The problem with some of that advice is that it comes from people who have little or no real world experience. In my humble opinion, your basic Personal Finance blogger tries to do too much, too quickly, risks way too much and has accomplished relatively little financially thus far. Like most activities, wealth accumulation requires having a plan and the perserverance to see it through. Financial Success isn't about surfing your credit cards from one zero percent offer to the next. It isn't cash back credit cards or airline mile. It isn't about making savvy investments while knee-deep in debt. It isn't figuring out the best way to borrow money for a new car or the shrewdest home mortgage scheme. It is about getting out of debt as quickly as possible, staying out of debt and making wise decisions about spending and saving. Many bad golfer think the path to scrath golfing lies in gimmicks like magic clubs or balls that only fly straight. Scratch golfers know that the answer lies in dedication and repetition of sound fundamentals. There are no magic clubs in wealth accumulation either. I may not be a financial hipster by the standards of the Personal Finance community, but I have a reasonable track record. Here are some of my ideas for success. 1. Live on less that you make. 2. Pay yourself first. Set a savings goal, fund it before anything else and stick to it. 3. Understand where you spend you money. Make a budget. 4. Never lease a car, don't buy a new car unless you have a million bucks or more. 5. Save up before you buy stuff. Borrow as little as possible for cars and major purchases. If you must borrow force yourself to use the shortest term you can. 6. Never, never, never carry a credit card balance. 7. Don't make one of those idiotic peer-to-peer loans that are on the web. 8. Don't leverage investment real estate. 9. Invest in the total market by using mutual funds. Don't buy individual stocks. 10. Don't buy too much of your company stock through your 401K. The guys running your company may be liars or crooks. 11. Get a 15 year fixed-rate mortgage only. Not an ARM, or Interest-only. 12. Stay away from subprime lending, payday loans and rent-to-own. 13. Don't borrow from your 401K. It only seems smart until you lose your job. 14. Pay off your house early. People who tell you to keep a mortgage and invest the money you would have spent to reduce your principal are idiots. Don't listen to them. Dr. Tom Stanley, who wrote the Millionaire Next Door and The Millionaire Mind, uses a formula for what a persons net worth is expected to be at a given age. Using his formula (Yearly Income x age / 10) the lovely Mrs. Sneed and I should have a net worth of $700,000. As you can see from the chart on my blog, ours is twice that amount. We don't live in California where we have a big chunk of equity in our house. It is mostly from following our own advice and saying no to the glamorous life. Just some thoughts from an unsophisticated old guy. Tag: Tag:

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