When it comes to investing in the stock market my philosophy is: the serious money i.e. retirement, nest egg, etc. goes into index funds. Index Funds are investment vehicles that try to match the risk and return of the total market. By investing in them I don’t worry about idiosyncratic risk associated with any particular company. The return on investment is whatever the total U.S. equities market does year over year, which historically has averaged around 10%. This can add up over time.
Benefits of Index Funds are:
Ultimate in diversification
Low expense to fee ratio
Strong longterm returns
Below is an an example of how compound interest works investing $10K:
Let Your Money Work For You!
Now that we’ve got our serious money carefully invested, it’s time to see if we can beat the 10% return we’re getting on our index funds, by selecting individual stocks. When picking stocks I tend to invest in companies that I know pretty well. If I use their products daily, my philosophy is I might as well get a piece of the action, instead of being a mere customer.
Before I jump in and make a final decision on whether or not to invest, I do some research. I seek to learn how the company is being managed, are they laden with debt? What’s their profit margin? What’s the competition like? What are the products in their pipeline? These are all questions I look to understand before making the plunge (Google is my friend when it comes to research). If they check out, I head over to my favorite trading app and execute the trade. And voila!
What’s your trading philosophy? Hit me up on IG and share the wealth!
1. Pick The Right Profession – You can become a millionaire on a small salary with proper saving and spending habits but it will be a lot more challenging. Look to boost your income either by improving your skillsets through education or supplementing your income via a side hustle/second gig. Check out this list of best and worst jobs for the future.
2.The Stock Market Is Your Friend Bruh… – The stock market has it’s ups and downs but over the long term it returns approx. 7%-8% per year. If you invest $10,000 and let it sit in the market for 3 years compounding at 7% you’ll have $12,250 at the end of that period. Now let that compound for a long period of time and routinely add to the principle to accelerate the growth and you’re on your way to building considerable wealth.
How Compounding Works
Year 1 = $10,000 + ($10,000 x 7%) = $10,700
Year 2 = $10,700 + ($10,700 x 7%) = $11,449
Year 3 = $11,449 + ($11,449 x 7%) = $12,250
Albert Einstein is famously quoted as saying “compound interest is the 8th wonder of the world.”
3. Save! Save! Save! – The sooner you start saving the better. If you save/invest $671 each month at age 35 you’ll have$1 million by the time you turn 65, assuming you earn an 8% annual return. The sooner you start and the more you save, the quicker you get to $1 million just from saving!
4. Step Out Of The Matrix (Live Within Your Means) – If you don’t have it, then don’t spend it period point blank. We don’t need a fraction of the things that we think we need. The realization of this, is what I call stepping out of the matrix. Advertisers are so adept at tricking us into thinking we can’t live without their products. A little discipline and sacrifice now will go a long way toward gaining financial independence. Soon enough you’ll be able to purchase what you want with cold hard cash instead of financing it and building a mountain of debt. Debt is a form of bondage, it can be suffocating so shun it like the plague.
According to the National Foundation for Credit Counseling, one out of every three American households carries credit card debt from month to month. And the average credit-card debt is $16,061, according to the Federal Reserve.
Total owed by average U.S. household carrying this type of debt
Total debt owed by U.S. consumers
Any type of debt
Debt balances are current as of Q3 2016; figures are updated quarterly by the Federal Reserve.
5. Create a Budget – It’s important to know where your money is going. Once you’re able to track how your money is being spent it’s easier to control and make adjustments where necessary. I use both an old fashioned excel spreadsheet and also track my expenditures using Mint.
To paraphrase the late great Biggie Smalls “now you’ve got the manual, a step by step booklet for you to get your game on track…”What are some of the tools & techniques that you use for building wealth and staying debt free? Hit me on the Gram.
First let me preface this by saying I’m not rich, so take this advice with a grain of salt. I do pretty well for myself and since I’ve been following these principles I’ve established a good trajectory toward one day joining that 1% club I’ve been hearing about. In my life I’ve had the privilege of hanging around a lot of uber wealthy individuals. I’ve jotted a few notes down along the way and it’s only right that I share the wealth with my fellow Moguls on the Grind.
Keys to Building Wealth:
1: Pick a High Paying Career
Yeah I know what they say about pursuing your passion and all, but if your passion pays minimum wage maybe you should pursue your passion on the side and if you blow up from it then cool. My advice is to choose a career that pays well. It makes it that much easier to save and jump starts you on the path to generating significant wealth. Here’s a list of top paying gigs that might be worth taking a look at.
An alternative to picking a career that pays well is getting a side job to generate extra income i.e. driving for Uber/Lyft, Postmates, etc. The bottom line is take action to increase your net income.
As you advance in your career or generate more revenue be cognizant of “Lifestyle Creep,” the more you earn the greater the temptation is to increase your expenses. You’ll want to avoid this if you’re interested in getting rich.
2: Save a Minimum of 20%
A lot of financial advisors suggest saving a minimum of 10% each paycheck for retirement. I’m of the ilk that you should save as much as you can without going insane. Have fun every now and then but stack your paper. In addition to the 10% saved for retirement purposes, save an additional 10% for near term expenses/emergency funds. In other words save at least 20% of what you make (and more if you can).
3. Say No to the New Car (and other expensive wants)
You’ve got a little cash saved and you’re doing well in your career. Resist the urge to buy a new car. This is a surefire way to remain in debt and slow your wealth creation. Remember you don’t need the latest and greatest just to keep up with the Joneses. The goal is to be rich not look rich! Now let’s stay focused. Run your existing car into the ground then if you need a new car pay with cash.
Interesting story, A close friend of mine was fortunate to play a number of years in the NBA, at the height of his career while making millions, he was getting around in a Toyota Prius and his wife drove an old Mercedes Benz that used vegetable oil for fuel.
Like the rapper Nas once said “By the time you can afford it the car aint important.”
4. Make a Strategic Home Purchase.
I think owning real estate is an important vehicle for creating wealth. My wife and I currently own two properties. My philosophy on real estate is this: If you’re going to be paying someone’s mortgage why not pay your own or have someone paying the mortgage for you (a tenant in an investment property)? Of course you have to get into a position to purchase real estate, hence this is why we do steps 1, 2 and 3.
When it comes to real estate, there’s only 3 things you need to remember, location! location! location! Agents say (and history confirms), the extra money you spend purchasing in desirable neighborhoods in a good school district is money well invested (high demand equals higher returns).
5. Start a Business
The first 4 points listed above will get you to a solid foundation and generate wealth for you, but I found one thing very common among the super wealthy that I’ve had the privilege of meeting. The majority of them created their own businesses. Whether it’s their own Sports Agency, PR Firm, Tech Startup etc. They all took a chance, in fact they took several chances. They’ve failed plenty of times in business but they learned from those hard lessons and came back even stronger.
If they can do it, you and I can do it. Let’s get to work!
What are some of your tips for wealth building. Hit us on the Gram.
“By the time you can afford it, the car aint important.” Nas (around the 2:30 mark)