You Won't Be Rich, Maybe Just Solvent
Jeanne Sahadi has a tendency to bring people back to reality, and she does so nicely with her latest commentary, the Not-a-millionaire guide to financial security.
She points out that getting rich is pretty difficult unless you’re an investment banker or venture capitalist. If you try to live like you’re rich before you are, you’ll run into problems accumulating wealth. Do you have kids? Climbing the financial ladder will be much more difficult. If you insist on living in an expensive location, you’ll have even more problems gaining an upper hand.
Even if being rich may not be a likely goal, financial security is easier to attain. Here are her tips:
* Build a cushion. I’ve said many times, building an emergency fund should be the first thing one considers. In most cases, your emergency fund should have a sizable cushion even before accelerating payments towards debt. Take a small amount from your paycheck each week to fund the account in a high-yielding account like the ones at any of these banks, and add your bonuses and gifts directly to the emergency fund goal.
* Live on less than you make. If you’re spending more money than you’re earning — like I was doing for a few years when I commuted 90 minutes each way to a non-profit organization that paid peanuts — you’re taking a step backwards each hour you work. Maximize your income and minimize your spending.
* Adopt a pay-go, pay-off strategy. I wasn’t familiar with this term, but I follow this concept. Simply pay your credit card off in full each month. Large purchases — like furniture for filling a new apartment or house when you move out on your own for the first time — can be made with the store’s 0% interest offer, but you have to be very careful. One misstep and they will charge you back interest.
* Take cover. Health insurance may be an expense, but it is necessary. Also look at short-term disability insurance. Term life insurance (7 to 10 times your annual salary) should be considered if other people rely on your income. Jeanne recommends renters’ insurance, although I admit I’ve never had it. Your car insurance should include liability coverage as well as collision.
Most of us are not going to be rich in our lifetime. Yes, with some discipline you can become a millionaire in 30 years, but I’m sorry to report that in 2036, one million dollars won’t be so impressive.