Get Rich In Three Easy Steps

Despite what you hear in the media about the widening income gap and shrinking middle class, getting rich in America is easier than it’s ever been.  In decades past, the stock market was really only available to the rich or well-connected.  Buying and selling stocks was expensive, research was scarce, and mutual funds were expensive and unaccountable to investors.  Since the advent of the index fund in the mid-70′s, all that has changed.  Every American, rich and poor alike, can afford to participate in the prosperity of this nation.  T Rowe Price, for instance, will let you open an IRA account in a reasonably-priced Target Retirement Fund for as little as $50 if you promise to invest $50 per month with them.  Almost everybody could afford to cut enough extra expenses to come up with $50 each month.

Get Rich In Three Easy Steps

1. Spend less than you earn – Here’s a general rule of thumb on how much of your income to save depending on how early you start, not including your employer’s contributions: 
   • If you are 25 or younger, save 10% of your income every month  in your retirement accounts.
   • If you are between 25 and 35 years old, save 15% of your income every month.
   • If you are over 35 years old and still haven’t begun saving for retirement, you’ll need to save at least 20% of your income every month.
2.  Pay Yourself First By Investing Regularly – As you can see above, the earlier you start, the less of your income you’ll have to save.  Time is the single biggest asset of the young but unfortunately, it’s also the most wasted.  If you get into the habit of investing early and often, you may even find yourself in the enviable situation of being able to afford to cut back on your retirement contributions in your 40′s or 50′s without mortgaging your future.  The best way to pay yourself first is to sign up for your 401k plan at work and have the money deducted directly from your paycheck.  Not only will you get a tax break on your contributions, but you won’t even notice the money is gone since it’s taken out before it hits your bank account. 
3. Watch Your Expenses - Despite the common adage, you DON’T get what you pay for when it comes to investing.  Higher expenses do not translate into higher returns, nor does paying a professional money manager or financial planner.  What’s more, the power of compound interest works against with for expenses.  Every dollar taken out of your account to pay your mutual fund manager or planner is a dollar not compounding for you.  Invest your hard-earned investment dollars in low-cost Index or Target Retirement Funds in your 401k, 403b, or IRA account to minimize your expenses and get rich quicker.