There
is no job security. You can’t rely on staying with the same company through
retirement. Pension plans, when available, are woefully inadequate. Social
security benefits won’t come close to covering your living expenses in
retirement.
The
only way to reach financial security is to plan for it now, regardless of your
age. You have to define financial security in your own terms. Have you defined
the amount of assets that you need for financial independence?
Financial
security is that amount of assets that will give you a specific income, after
taxes, to live like you want to, without having to depend on day-to-day
employment.
What
is that amount for you? I believe it is more than you think. And, I feel that
if you define it, you can reach it in ten years or less. Do you have a
financial plan and the assistance of a financial planner? You need both.
Always retain a financial planner on a fee-for-service basis. Don’t mix
financial planning with an investment broker or insurance agent. What are your financial
goals and what is your time line? Because I started late in my quest for
financial independence, I have a maximum five-year period remaining for capital
accumulation.
Action
Idea: Wealth is not only based on income, but also on expenditures. Are you spending
or investing? Are your purchases goal-achieving or tension-relieving? How
do you use credit cards? Use your credit cards for services or purchases that
retain their value or that build your business. Don’t use credit cards for
vacations and personal entertainment, unless you plan to pay the entire balance
in one or two months. Try to pay all your balances in full monthly. In this
way, you avoid the ridiculously high interest payments. Realize that paying
minimum balances, at high interest rates, means that you are paying two or
three times what the original purchase was worth.
Most
importantly, save at least 6 to 10 percent of your take-home pay each month, by
writing a check into a savings account or mutual fund for that amount, as if it
were a utility bill or house payment. The secret of most self-made
multi-millionaires is compound interest. If parents saved one dollar each day
for their newborn infant, by going without a cup of Starbuck’s coffee, or a Big
Mac, or a soft drink for that day, by the time the child reached age forty, he
or she would have a million dollars cash. No lottery windfall. No brilliant
investment strategy. Just compound interest, which Baron von Rothchild labeled
“The Eighth Wonder of the World.”