Sep 21 2007

15 Rules to Grow Rich By

Posted by bpaul in Entrepreneur, Money Management, Wealth Building
1 Comment

Over the past few years I would always be asked for advice on tough financial questions from my family and friends. For example, I would be asked should I buy or lease a car? Should I refinance my home? How much should I put away for an emergency fund? I never understood why people would come and ask me. I guess I have that certain look where people think I know what I’m doing…. I remember back in college fellow classmates would try and cheat from my test thinking that they would get a good grade on the exam. Only to have a bewildered look on their faces when they received a low grade…(Can anyone guess what I got on the exam..LOL) So I said to myself I would to love to give my friends and family an easy to read guide on what I would do in certain financial situations. So last night it hit me, I should right a post about it on my blog so all my friends and family members can stop bugging me. J Just kidding, keep the questions coming.

PLANNING

1. You should always pay yourself first and save 10% of your salary. Honestly 10% is not enough these days for retirement but it will do.

2. Keep three months of household expenses(mortgage, car, debt) in a money market or savings account. Having this account will prevent you from making any hasty decisions with situations arise.

3. Aim to achieve a credit score of 700 or higher. A high credit score will help you obtain low interest rates and zero percent credit cards.

4. When you purchase insurance, choose to pay a high deductible you can afford. This will significantly lower your premiums.

INVESTING

5. Never invest more than 10% fo your portfolio in your company stock- or any company’s stock.

6. If you don’t understand how an investment works, don’t put your hard earn money into it. Always get some professional advice before rushing into any investment.

7. invest in your company’s 401k plan only if they provide some form of matching. If not max out your ROTH IRA, and if you still have a little extra purchase a traditional IRA.

8. To figure out what percentage of your money should be in stocks, subtract you age from 120. So currently about 85% of my portfolio is in stocks.

SPENDING

9. A great way to save money is too buy a certified pre-owned car. Most of the time you are getting a fairly new and dependable car and you will not take a big hit on depreciation over the next few years.

10. Only lease a new car if you know you will keep the mileage low and you will replace it within two or three years.

11. Never buy the latest computer equipment or techie gadget when they are first released. You should wait about six months for the prices to go down drastically. Also never get lured into buying the extended warranty on electronic items. The manufactured warranty should usually cover your equipment for the first two years.

12. You should always try and buy your expensive clothes items (suits, shoes, coats) during the off season. Last year, I bought a winter jacket for $200 in April that was selling for $600 during Christmas time.

HOME

13. Never purchase a mortgage that consumes more than 25% of your net income. Paying more on your mortgage will limit you from investing and savings.

14. Only consider refinancing your home if you can cut your current interest rate by at least one point. Refinancing for anything less is usually not worth it.

15. Make at least one extra mortgage payment a year. This will take about 6 years off your mortgage on a 30 year fixed.