Reply #42: Here's a brief summary of the parts of my book that would [View All]

pertain to your nephew. It's pretty basic, common sense stuff.

Private mail me an e-mail address and I can send this, and a couple other things I've collected over the years.
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Get a written budget. Know how much comes in, how much goes out. Don’t just track the obvious, necessary stuff (like rent, utilities and groceries). Also keep tabs on the little stuff: coffee, snacks, sodas, alcohol. A little spending here and there adds up.

Organize all your financial information. Have it in one place, easy to find. Get a binder and put together your investment statements, life insurance policies, copy of a will, and passwords for accounts. Have a list of beneficiaries for all accounts and policies. Then, keep this someplace safe, where it won’t be destroyed in a fire or natural disaster.

Be frugal. Spend no more than you earn! This is the number one key to wealth. The financially struggling people spend more than they earn. Read The Millionaire Next Door: the wealthy get and stay that way by living within their means. Their outgo is never more than their income. If that means they cut coupons, pack a lunch, drive a beat-up (paid-for) car, and shop at thrift stores, so be it. They do not use credit to fund a lifestyle they cannot afford.

Tithe ten per cent of your income. If you are religious, it’s easy: give 10% of your income to your religious group. If not, practice the art of consistent charity, and have 10% automatically bankdrafted out of your account to go to one or two of your favorite charities that make the world a better place. Give to the universe, and the universe will give back to you. Call it karma, call it what you will, but when you give, you get. It works.

Get an emergency fund. The first step is to have $1000 saved up in a safe, liquid, easily-accessible account, like a separate money market fund that you can write checks on. This should NOT be commingled with your regular bank account. This is your Murphy Fund (because if something can go wrong, it will). It is ONLY to be used in case of an emergency. Christmas shopping is not an emergency. A weekend vacation is not an emergency. The alternator in your car conking out is an emergency. That’s what this fund is for. Under no circumstances should you ever use a credit card as an emergency fund.

Make sure you have adequate insurance—home, auto, life, health and disability. Again, you never know what life will bring your way. Be prepared for the worst, even if it’s unlikely that it will happen. If you’re young and you have no dependents, you may not need any life insurance, because no one will suffer financially if your income is lost (perhaps get a small $10,000 policy to cover your funeral). But once you are married and also once you have children, you definitely should get an inexpensive term life policy that will pay your spouse 5 to 10 times your annual salary should you die. Also, make sure you have adequate health, auto and disability insurance.

Have a 72-hour kit, ready to go, in case of a natural disaster. Pack up three days’ worth of stuff you might need if everything were to go horribly wrong in a hurry. Have enough food, water, clothing (include gloves, hat and sturdy shoes), cash, matches, blankets, etc., ready so that you can grab it and be ready to go at a moments’ notice.

Start food storage. Bit by bit, store up some non-perishable food items that you could use if you temporarily were out of work, or were unable to get to the store for a period of time. Also have some drinking water available.

Work hard. I shouldn’t have to say it, but I will. Be productive. If you’re an employee, find out exactly what your employer expects from you in your position, and then do MORE. Employers tend to reward employees who go the extra mile, especially if they are innovative, creative, problem-solvers with great attitudes. The more valuable you are to your employer, the more you will earn—and if your employer doesn’t appreciate your talents, some other employer will. Get the education and training you need. Always seek to improve your skill set.

Stay out of debt. This cannot be stressed too strongly. STAY OUT OF DEBT. If you are already in debt, GET OUT OF DEBT. If you are not in debt, don’t go into debt. Never buy anything on credit. If you don’t have the cash for it, you can’t afford it. Save up until you do. Don’t be fooled by “6 months same as cash” or “0% interest for 12 months.” That’s all a lie. Credit card companies are NOT your friends. They want you to be their slave. Refuse. Remain free. Do not be saddled with interest payments for years to come. Never go into debt for anything that depreciates in value. Buy only used cars, and pay cash for them.

Get a trusted advisor. Eventually, you’ll want some help with your finances. Get some professional advice and guidance. Shop around, ask for referrals from wealthy people you trust. Find someone who has your best interest in mind.

Plan your retirement goals, and the steps to get you there. Figure out when you’d like to retire, and how much money you’d like to have. Figure out how to get from where you are now, to where you want to be in retirement. Calculate how much you need to save each month, and what rate of return you need to earn, to be able to have the nest egg you need when you are retired.

Try to save and invest 10% of your salary. Pay your retirement one-tenth of all you earn.

Start investing in company retirement plan, get full match. If your employer is offering a matching contribution on any portion of your pay that you put into the retirement plan, take it. Put in enough to get the whole match. If you don’t participate in the plan, you are leaving FREE MONEY sitting on the table. Keep the money in a retirement plan until retirement. This is NOT short-term money.

Start a Roth IRA. It’s after-tax money you put in, so you don’t get a deduction now, but if you play by the government’s rules, you could have a huge bucket full of money at retirement that you can withdraw INCOME TAX FREE.

Invest wisely. You work hard for your money. Get your money working hard for you. Let compound interest work for you (investing), rather than against you (debt).

• Start early. The younger you get started, the more time you have to let compounding work for you. A 20-year old can become very wealthy by only investing $100 a month. A 50-year old that is beginning to invest will have to invest $2000 a month to get similar results in a much shorter time.

• Diversify. Don’t put all your eggs in one basket—don’t put all your money in one investment, or in one type of investment. Spread your money out among funds that invest in large growth companies, large value (dividend-paying) companies), small and medium-sized stocks, international stocks, real estate, and maybe a little in bonds.

• Stick with your choices. Don’t jump around, moving money from fund to fund. Some funds will go down from time to time. That’s okay—they’re meant to. The market moves in cycles. Keep investing in those funds, in good times and bad.

• Control your emotions; don’t let your emotions control you. Don’t get fearful, and get scared out of the market when it gets bumpy or drops. Conversely, don’t get greedy when the market soars. Keep your head and stick to your plan.

• Don’t pay attention to the news. The media says it’s ALWAYS a bad time to invest. The apocalypse is always just around the corner. Learn to love bear markets. You’ve got a long time to go until you retire. You’re investing money every couple of weeks. You want the market to go down, because you’ll buy more shares when they’re on sale. Those shares will be worth a whole lot more forty years from now. It’s all about accumulating as many shares as you can.

• Don’t try to chase what’s hot. You’ll almost always be too late.

• Don’t bother with individual stocks, unless it’s just play money. Nobody is smart enough to know which company to buy, exactly when, and also know precisely when to sell it. One stock can easily go to zero if the company goes out of business. A fund that’s invested in 100+ stocks can only go to zero if all 100 companies go out of business.

• Invest systematically. Week after week, or paycheck after paycheck, keep investing regularly. Make it automatic. When you have money going automatically either out of your paycheck into a 401(k) or out of your bank account into a Roth IRA, you won’t notice it. You won’t miss it. You won’t be tempted to (or able to) spend it. That’s how wealth is built over time.