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Following Simple Advice to Become a Multi-Millionaire
No One Gets Rich Quick - Personal Financial Planning Requires Time, Patience, and Persistence
The lottery is a tax on hope. People with hope pay money for a wild, wild off-chance at getting millions of dollars. They do not win. Hardly anyone wins. It is a waste. The lottery is a disaster that should be illegal, because it taxes hope. A much more effective method - perhaps the single, proven, reliable method that anyone can implement - is to save more than you make, and to set aside enough money in investments of different sorts that time builds your portfolio up to millions. It isn't an easy path. But, it is the proven path, with numerous examples. Live frugally, and invest the savings at compounding interest rates, yadda-yadda-yadda... You've heard this before, right? Well, let's talk about one ridiculously simple strategy that can help you keep your goals in mind, and help you plan without the aid of an expensive financial planner. Ready?
Here it is:
Have a plan with a spreadsheet that you update quarterly.
Spreadsheets Aren't Just For Work
People work all day long, developing these amazing skills and organizational techniques and then they go home and leave all those skills at work. I don't understand it. When you build a budget at work, there is inevitably some sort of spreadsheet, right? There's a clear, organized sheet that reveals the numbers behind the budget. Why should the home be any different? Get thee a spreadsheet! Certainly, a budget spreadsheet is valuable, but you should have a separate sheet with a list of your goals out to ten, twenty, or a hundred years. (My goals include what my daughters will be able to do with my current savings, because it keeps me thinking of an appropriate horizon when I am saving. Every penny I save today can be a penny that builds the nest eggs for my grandchildren and beyond.)
Mine is pretty simple. I list out our current investment totals by account (mutual fund, CDs, equities), along with an estimate of the interest we should be generating with each investment. Under that? A grand total of our investments, as a bottom line.
Off to the side, I have dates listed out by year, with target amounts that are pretty aggressive. I'm on track, barely. It's difficult. I have a date, with a target amount by year that's aggressive. I can pull it up and see how close or far I am with my goal. I can show it to the missus, and we can complain about it. But, we make it happen.
We make it happen by getting our investment percentages up, or by getting our savings up. Particularly, the best thing I've found is to move savings into higher interest investments as I add them to get closer to the annual goals.
Sometimes we find we are more than on-track. In this case, we do not move funds over to the higher-interest investments. You see, high-interest investments are riskier investments. when we're on-track, we move the new savings into lower-interest, more secure investments.
In fact, moving our savings regularly into a basket of different investments is the basic way we proceed. Only when the high-risk investments turn down do we need to get more aggressive. There is a plan. There is a plan we implement every month based on a simple spreadsheet. When we have a little extra in our day-to-day life, we move it into the spreadsheet's columns.
Beyond just the spreadsheet!
Your spreadsheet can be a powerful tool. I strongly urge you to keep the first page very simple, so you can just look at it and see where you are. Updating the spreadsheet once a month is a simple way to find out if you're on track. You can even get fancy and create formulas that automatically update to tell you how you are doing. But, these aren't actually necessary.
In fact, the only thing you need is a simple worksheet. From there, you need to look at how to make your plan.
Let's say you're 18 years old and starting out with no savings. What should your goal be in year 1?
As few 18-year-olds make very much, and I'd say a very aggressive goal is one or two thousand dollars, depending on your own budget. The important thing, early on, is to do something. The first magic number to work towards is a big, meaningful goal, that feels like an accomplishment when you hit it. I like 100,000. It's not actually that much money once you reach that milestone, but it feels insurmountable working up to it. When you hit it, you really feel like you reached something big. You get a strong sense of the path.
How quickly can you get to 100,000? Check your budget, get aggressive, live frugally, and stay out of debt. Build a spreadsheet and use it to stay on target. GO!
Once you reach that milestone, the fun really begins. How quickly can you get up to 500000? What investment strategy will you use to get there? How quickly can you get up to 5000000? What investment strategy, with what percentages and reinvestments will methodically push you to the top of that goal? The first 1000 is the hardest. The first 10000 is the hardest. The first 100000 is the hardest. The first 500000 is the hardest. Once you get to that first large hill through careful, methodical investment and saving and work, after years of striving, the next large hills look to be in reach.
I promise you that right now, with even ten years of working life ahead of you, in any capacity, a 500,000 dollar nest egg is within reach. Figure your interest rates, and your investment strategy accordingly, and see what you can accomplish with a simple, basic spreadsheet and the methodical, business-like acumen and willpower that drives successful industry all over the world.
All the investment advice you read out there - diversifying, managing risk, reinvesting dividends, and all of that good stuff - is pretty clear and consistent. What isn't always clear is the sense of accomplishment you will get when you set your big, nearly impossible goal, and it's a difficult goal, and you can see the path to take to reach that goal. Then, you hit it. Then, you hit the next one. Then, the next one.
Investing isn't about picking this or that stock. It isn't about choosing the right financial adviser. Investing is about you and your household managing your household budget like a business, and working hard to achieve quarterly and annual goals that build to a larger picture. Take your work home with you. Apply what you learn on the job with what you do in the house.
Where is your budget? What are your quarterly financial goals? Are you on track? These are questions we answer at work everyday. We should also answer them at home.