Many consumers worry that they will never have enough money to retire comfortably or build a substantial amount of wealth. The fact is however that building wealth is really just a matter of getting into specific habits and keeping those habits going over 30 or 40 years.
If the average consumer were to simply save on a regular basis, spend relatively frugally and put as much money into retirement accounts as often (and as early) as possible, most would have a sizable amount of retirement savings by the time their “golden years” arrived.
To that end we’ve put together a list of the Top 10 Rules for Building Wealth, all of which are basically habits that, if you seriously want to become wealthy, you need to start. Enjoy.
Rule 1: Have an Emergency Savings account that holds enough money to cover at least six months’ worth of bills. If you’re self-employed or work on commission this is vital to save you from financial disaster should you suddenly be out of work. The more you can put aside the better.
Rule 2: Take your cost of living and Multiply it by 25. This is the number that you’ll need to live comfortably in retirement. If you spend $40,000 a year, in order to live comfortably when you’re not working you’ll need to have at least $1 million saved.
Rule 3: Save at least 10% of what you make. Compound interest is your best friend, and the earlier you start saving the better. Putting at least 10% of your income aside, with the help of compound interest, can earn an incredible amount of money for you with practically no effort.
Rule 4: If your company has a 401(k) Matching program, take full advantage of it. If you’re not, you’re leaving money on the table.
Rule 5: if you have children, open a college savings account for them as early as possible. They might be in diapers now but, before you know it, they’ll be needing tuition money.
Rule 6: Maximize your contributions to an individual retirement account or IRA. Roth IRAs are excellent as well.
Rule 7: Don’t spend more than 30% of what you make on your home. Here’s a fact; the average new home buyer has absolutely no idea how much maintenance costs go into owning a home, as well as insurance costs, property taxes and so forth. Keeping this in mind, purchase a home that’s comfortable but no more than what you actually need.
Rule 8: If you can erase at least 1% from your homes mortgage rate, refinance.
Rule 9: Use the “120 minus your age Rule” for stocks in your portfolio. Keep the rest in bonds.
Rule 10: If you don’t understand an investment, don’t use it. Frankly, there are enough “tried and true” methods of building wealth that you shouldn’t have to risk your money on something you don’t understand or that sounds too good to be true.
If you can make a habit out of these 10 Rules, and follow them during your entire adult life, by the time you retire you should have a sizable amount of money set aside to support yourself and live comfortably.