If you don’t have the wealth you want, look to the little things to explain why. Really.
The hardest part of building wealth is usually Step 2: Saving a Nest Egg. Most Americans have a hard time saving money. We know we should, but it’s difficult to have any left at the end of the month. That’s why we’ve heard the plan to pay yourself first. Yet how many of us do it? If you have a 401(k) or a SEP, you are paying yourself first. Your pre-tax dollars go into your account and are invested in a money engine. But what else can you do that’s easy?
David Bach, author of many books, including Start Late, Finish Rich, talks about the “Latte Factor”. The idea is to not buy so many and save money. What I find fault with is it’s not only lattes. Lattes are just one thing we throw away a healthy amount of money on. We have other “money addictions”. Mine happens to be magazines. I love to read magazines and see all the pictures of cool stuff and beautiful people. Other people buy a lot of CD’s, movies, and books. Some people eat out in expensive restaurants every night. I remember meeting someone in NYC who realized they could afford to buy a house if they cut out eating in expensive restaurants every night!
Believe it or not, it is the small purchases that do us in (although the big, impulsive purchases can do it too). Just $500 a month in restaurants, CD’s, books, movies, and lattes becomes $6,000 a year, times 20 years is $120,000, but that’s not including the interest you could have earned. Assuming a long-term return of 12% (without tax) it would grow to $1,157,548! We think it’s not a lot of money to spend on our addictions, but it does add up. So it’s not about lattes, it’s about all kinds of junk we spend money on that has no lasting value.
But how do you practically stop spending on junk so you actually save the money? Start calculating how much you spend on lattes, dinners, books, CD’s, and movies. Let’s say it’s $500. Put an auto-payment from your checking account into a savings or brokerage account. The money will automatically be transferred every month and you will save the money. Then start using the library to get your movies and books, cook at home more, and reduce your coffee intake.
Here’s a tip for you: take your tax return refund and instead of blowing it, save it and invest it in a money engine to grow your wealth.
I know saving isn’t very sexy, but it’s a key to building wealth. John D. Rockefeller made a pittance as a bookkeeper, but saved a huge amount to start his fortune.
If you don’t have the wealth you want, look to the little things.
The little things really do add up to be big wealth zappers.
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