Thursday, September 30, 2010

Poverty To Riches Is Easy

One of the least understood aspect of financial planning is that almost everyone can be well off just by following simple principles of money management.

I am not talking about attaining Warren Buffett's wealth. Most people are likely to be in this situation of starting from poverty, get a good education, good career and end up financially sound. It is doable, a little bit of luck but more of being disciplined.

You must be willing to spend less than what you earn over a long period of time. It explains how a person earning more than $30,000 a year can retire comfortably while another guy earning $1 million a year can retire broke.

That's really good news for all of us because cutting expenses/living below your means is much easier and more controllable than trying to increase your income.

However, once you generate excess cash by living below your means, you need to invest that surplus wisely to maximize its growth.

You don't have to be an accountant or receive an inheritance from your rich daddy.
All you need is the willingness to begin and learn. A commitment and perseverance to regular, small investments, like $50 or $100 a month, can be the start of a million-dollar retirement account.

The earlier you start, the easier it will be and the more money you'll actually accumulate. But if you're like me and put off investing until later in life, you still have the ability to achieve your goals. The idea is to start, but start now.

Time is best friend in compounding your wealth, ie. to multiply your savings over and over again to turn the little savings into a massive portfolio.

So the path to prosperity is quite simple:

1. Spend less than you earn.

2. Invest your surplus to make your money grow.

3. Repeat steps 1 and 2 for many, many years.

Isn't the path from poverty to riches easy?


John | said...

It's true. Living below your means is the way to build wealth.