Seven Steps to Riches

I recently came across this list (via moneytalks) and thought I’d share it. These days I’m trying my hardest to be a “savvy saver” so I’m always on the hunt for money management tips. These steps, if practiced, are guaranteed to bring you prosperity and wealth. They require patience and consistency.

Step One: Pay yourself first.
To put it simply, save. Take out one-tenth of your monthly income and save it. You can put your savings in a money market account temporarily and later use it to invest.

There are three basic reasons to save, 1) emergency fund, 2) purchases, and 3) wealth building.

Step Two: Control your expenses.
One word: budget. Budget your expenses so you will have the means to pay for necessities first and enjoyments second. Remember that the purpose of your budget is to make saving possible. Note: Managed money goes farther.

Step Three: Make your money work.
Once you have disciplined yourself to save and manage your income, you will be able to multiply your savings. Saving is only the beginning, multiplying your savings is just as important. This can be done through real estate, stocks, or mutual funds. The key to remember here is to utilize compound interest.

Example: Did you know that the average car payment in the United States is $370.00? If you had no car payment and invested that $370 in a good growth stock mutual fund from age 20 to 65 you will have accumulated $4.4 million. That is the power of compound interest at its best!

Step Four: Protect your money.
Protecting your money or investments involves two principles: 1) security, and 2) wise counsel.

Security
Invest only when your principle is safe and can be reclaimed when needed.

Wise Counsel
Seek advice from individuals who have experience in making and managing profits, not from the poor or middle class who have debt.

Step Five: Own your home.
Be smart about the type of mortgage you take out. The most common type of mortgage in America is 30-years. The most common income group in America is the middle class.

When you own your home, your cost of living will be reduced and the ability to purchase “things” or invest increases.

Step Six: Leave a legacy.
It is of great importance for you to prepare for the future. What will you leave behind when you pass? There are two important things to remember: 1) have a will, and 2) have life insurance. Recommendation: Purchase a term-life policy that equals ten times your income.

Beware of whole/universal life policies. These benefit your financial planner and are not guaranteed to cash out when you die. Your family will be left with nothing. The allure is the “cash-savings”, but, you already have a proper investment strategy and savings so you don’t need it.

Step Seven: Better yourself.
There are four principles inherent with this last step:
1) pay your debts promptly and don’t buy things you can’t afford,
2) take care of your family,
3) leave a legacy, and
4) give to charity, organizations and churches, or volunteer.

Hope those steps help you on your path to financial freedom. And if you haven’t already, check out the book, Rich Dad, Poor Dad. I Will Teach You To Be Rich is another good source for financial advice.