Reposted from www.msn.com
Money Talks News
Stacy Johnson 9 hrs ago
I’ve been offering financial advice professionally for nearly 40 years. I’m also a millionaire several times over.
During my decades in the trenches, I’ve heard every conceivable piece of financial advice, acted on many and offered some of my own. Here are the best of the best, a few simple sentences you can follow that will absolutely, positively make you richer.
- Never spend more than you make, ever.
When I was 10, I started cutting grass to earn money beyond my meager allowance. Minutes after earning my first buck, mom was stuffing me in the car for a trip to the bank to open my first passbook savings account.
Fifty years later, priority one is still to put something aside from every paycheck and send out less than I bring in. Of course, life being what it is, it hasn’t always worked out that way. But in general, getting richer every month is as simple as spending less than you make and getting poorer is as simple as spending more than you make.
- Avoid debt like the plague.
Most people treat debt as if it’s a normal part of life. They divide it into categories like “good debt” and “bad debt.” They discuss it endlessly, as if it’s some mathematical mystery.
Debt’s not complicated. Paying money to temporarily use other people’s makes you poorer. Charging money to temporarily let other people use yours makes you richer.
Since paying interest makes you poorer, you only do it two situations: first, when you have to in order to survive; second, when you’ll earn more on what you’re financing than what you’ll pay to finance it.
Unless borrowing is ultimately going to make you richer, don’t do it.
- Buy when everyone is freaking out and sell when everyone thinks they can’t lose.
Rich people ring the register when the economy is booming, but that’s not when they created their wealth. You get richer by investing when nobody else will: when unemployment is high, the market is tanking, everybody’s freaking out, and there’s nothing but fear and misery on the horizon.
The cyclical nature of our economy all but ensures bad times will periodically occur, and human nature all but ensures that when bad times happen, most people will freeze like a deer in the headlights. But it’s downturns that are the time you’ve been saving for.
If you think the world is truly ending, buy canned food and a shotgun. If not, step up. As billionaire investor Warren Buffett famously advised, “Be fearful when others are greedy and greedy when others are fearful.”
- You can either look rich or be rich, but you probably won’t live long enough to accomplish both.
When I worked as a Wall Street investment adviser, I quickly learned that people who have tons of money most often don’t look like it. They don’t have to. So who are the big shots wearing the fancy suits and driving the Porsches? Often it’s the people who make a living selling stuff to the rich people.
I can’t remember the last time I wore a fancy suit. I’ve never owned a new car, and I live in a house that’s worth about a third of what I could afford.
Diverting your investable cash into things like cars, clothing, vacations and houses you can’t afford will make you look rich now, but prevent you from actually becoming rich later.
- Live like you’ll die tomorrow, but invest like you’ll live forever.
You should always strive to get as much out of life as you can each and every day. After all, you could die tomorrow.
But here’s the thing: You probably won’t. Put something aside so you can continue soaking up what life has to offer for as long as possible.
- There are only six ways to get rich.
The only ways to get rich:
- Marry money
- Inherit money
- Exploit a unique talent
- Get exceedingly lucky
- Either own or lead a successful business
- Spend less than you make and invest your savings wisely over long periods of time.
Even as you’re aiming for any of the first five, practice the last one and you’re guaranteed to be rich eventually.
- The riskiest thing you can do is take no risk.
Whether it’s money, love or just life in general, if you want rewards, you have to take risks.
When it comes to money, taking risks means investing in things that can go down in value, like stocks, real estate or your own business. Can you get through life without taking risks? Sure, but as my dad was fond of saying, you’ll never get a hit from the dugout.
Invest $200 a month at 2 percent for 30 years, and you’ll end up with a little less than $100,000. Earn 12 percent on the same investment, and you’ll end up with nearly $900,000. Taking a measured amount of risk is the difference between getting rich and getting by.
That being said, making risky bets is simply gambling. Take measured risks. Minimize risk by knowing as much as possible before investing, not putting all your eggs in one basket and learning from your mistakes. Or better yet, learn from someone else’s.
- Never make your well-being someone else’s responsibility.
If you need surgery you have little choice but to trust your fate to a professional. But when it comes to your money, don’t ever turn over complete control to anyone.
Seeking advice is always a good idea. But no matter who that adviser is or how smart they are, your money is more important to you than it is to them. So if you’re not doing everything yourself, at least understand exactly what’s going on.
Virtually anyone can learn to navigate their finances. If you can’t be bothered to take responsibility for your own money, just keep in the bank. At least that way you won’t end up ripped off, broke and blaming someone else for your problems.
- When it comes to information, less can be more.
About 15 years ago, I put about $2,000 into Apple stock. As I write this, it’s worth about $300,000. Had I been watching financial news all day and reacting to all the pundits and market news, I’d have sold it long ago and been kicking myself today.
If you want to be rich, buy into high quality stocks and hold on to them for long periods of time. If you want to kick yourself, buy into high quality stocks, then sell them at the drop of a hat based on something or someone you saw on air or online.
- Time isn’t money; money is time.
Whoever said “Time is money” had it backwards.
Time is the one nonrenewable resource you have. Once your time is up, it’s up. So the trick is to spend as much of your limited time as possible doing stuff you want to do rather than working for other people doing stuff you have to do. Money is the resource that allows you to do this.
If you go to the mall and spend $200 on clothes, that’s $200 you could have invested. If you’d earned 12 percent on that $200, in 30 years you’d have accumulated a little more than $10,000. Ignoring inflation and assuming you could live on $5,000 a month, forgoing those clothes today means retiring two months earlier.
Of course, you must have clothes. But maybe you don’t need $200 worth, or maybe you could have gotten them for less at a consignment shop. It’s your choice: expensive stuff today or free time tomorrow. Those who choose the former often stay poor. Those who choose the latter often get rich.
Which will you choose?
Personal finance is more personal than it is finance.
Opinions expressed by Forbes Contributors are their own.
Competition for your dollars creates an inertia that always seems to lead Wall Street down the path of unhelpfully increasing the risk in your portfolio. The recent Wall Street Journal headline, “Bond Funds Turn Up Risk,” illustrates an especially alarming trend. Specifically, of increasing the risk in the part of your portfolio that should be reducing overall risk—bonds.
Bonds are supposed to be boring. The primary role they serve in our portfolios is not necessarily to make money, but to dampen the volatility that is an inevitable byproduct of the real moneymakers—stocks.
Yes, interest rates are low. Yes, it’s frustrating. Yes, it’s tempting to reach for higher yields in fixed income investments. But there is a price to be paid for that decision, as we saw last December when there was a run on high-yield “junk” bond funds.
Wall Street has capitalized on low-yield frustration by articulating the “problem” while claiming to have manufactured the “solution.” It’s Sales 101. But the potential gain in higher returns (from corporate bonds, junk bonds, international bonds and dividend-oriented stocks) isn’t worth the excess risk taken.
Here are four ways to ensure you’re not getting fooled, and to help you eke out a bit more interest without additional risk:
1) Take the Gut Check Test to better understand how much risk you’re really willing to take. Then take that level of risk where you’re better rewarded for it—in equities, not fixed income that comes with a shinier wrapper.
(The preceding test should not be considered a replacement for a deeper risk-tolerance analysis with a knowledgeable financial adviser. But you will get a better reading from it if you translate the listed percentages to the actual dollar amounts represented in your portfolio.)
2) Ensure you only have the highest-quality, lowest-credit-risk fixed income securities. Remember, bonds should be boring. Look for U.S. Treasurys and/or FDIC-insured CDs.
3) Lower expenses to the greatest degree possible. This is good advice whether you’re investing in stocks or bonds, but it’s especially important in the latter case because interest rates are currently so low. A best-case scenario is to create a ladder of individual fixed-income securities, completely eliminating mutual fund expenses. But, if you lack the knowledge or access to do so, look instead for index-oriented mutual funds, not actively managed funds (which can also increase the risk in your portfolio without your even knowing).
4) Increase interest rates by looking at CDs over Treasurys. My colleague, Larry Swedroe, noted in a recent article that “the yield on five-year Treasurys was just 1.23%. CDs of the same maturity were available with a yield of 1.85%. That’s an improvement of 0.62 percentage points. For 10-year CDs, the gap was even greater, with 10-year Treasurys yielding 1.7% and 10-year CDs available with a yield of 2.4%, or 0.7 percentage points higher.”
What is the ultimate goal of investing? Most answer, “To make money.” But I dispute that conclusion. In my view, the goal of investing is to have a better life, and that means understanding the stress that comes from unnecessary risk-taking. The goal of investing in stocks is to make money. But the goal of investing in bonds is to help us weather the inevitable periods of volatility inherent in equity investing. Don’t get fooled into believing otherwise.