So you want to retire rich, or at least you want to be able to keep the same lifestyle as you are enjoying now after you retire? Keep reading, you have come to the right place. Attaining financial freedom before retirement is not rocket science. All it takes are a few very simple steps.
Kids growing up in North America do not receive the minimum financial education that they will need later on in their life to properly manage their personal finances. This is a total shame. It is not surprising that most households nowadays are crumbling under an enormous mountain of debts. People rack up the credit card until it is full, purchase houses that are beyond their financial means, rent luxury vehicles, purchase 60 inch plasma TVs, and then are always stressed out about money matters. Did you know that disputes over money are one of the leading cause of domestic violence and divorces in the western world?
Go to school. Choose a career that is interesting to you. Do your homework and meet people who are working in that profession. If you can, take a summer job so you can have a taste of what it's really like to work in that profession. Choose your profession wisely. Because you'll be working most your adult life in that profession, it's better that you choose something you will like doing for a very long time, because otherwise you will be miserable and unhappy for a very long time. Furthermore, people who love their work perform better, get more promotions, and earn more money. Speaking of money, you will spend roughly the same amount of money studying for obtaining a commercial airplane pilot rating then for obtaining a bachelor's degree in computer science. However, while in the early years you will be struggling to make ends meet as a pilot, you will make a lot more money as a software developer, and you'll have more work opportunities. The bottom line here is that you should go to shcool and pick a profession that you will enjoy and will pay you enough money so that you can live comfortably.
Contribute 10% of your gross income to an RRSP (Canada) or to a 401k plan (USA). If you do that and just that, you will be well on your way to financial independence by the time you retire (65 years old for most people). You will barely notice the difference, but at the end of the year you will benefit from a huge tax break from the government, and your money will grow for years sheltered form income taxes until you retire. That's like minting money! Being able to be disciplined and replace instant gratification with long term wealth is attainable for almost everyone, so make it your top priority. It's not rocket science to get rich before retirement age arrives. Go to your favorite financial institution, and ask to meet an investment advisor. Say that you want to start saving for retirement. The financial advisor should be willing and eager to help you define an investment strategy that suits your needs. Do not be afraid to ask questions. If you are not getting the answers you are expecting, or if the investment advisor seems to be a simple salesperson only interested in your money and not your well-being, you should leave and look for a more professional person. Remember, not all investment advisors are equally professional. A good advisor will make you reach your goals with the minimum amount of fuss, while an incompetent one could completely squander your money. If you don't know any good advisor, ask someone you trust for recommendations. Once you have found an investment advisor, invest with him/her, and then reevaluate every year if the advisor helped make your hard earned savings grow or not. Verify how your investment portfolio is doing when compared to industry averages, such as the S&P 500. Your investment advisor should be able to devise for you an asset allocation - that is, a mix of investments in stocks, bonds, mutual funds and other secutiries - that will mazimize growth while minimizing risk.
Since the money you invest doubles roughly every ten years (depending on inflation and other factors), the sooner you start saving, the richer you will get. It's the magic of compound interests. Someone who starts later in life, say at 40 years old, may have to invest three times as much money as someone who started at age 20 in order to end up with the same amount of money by retirement age. This why so many people have to adjust their lifestyle downwards and still need to work a few extra years before thay can retire, and why so many people cannot do the things they had dreamed about doing when they retired (like travelling around the world, playing golf or eat out at restaurants every day). You are 40 years old and haven't started saving for retirement yet? Fear not, all is not lost. If you work smart and make a real commitment to saving for retirement, you can make it.
How much do you spend each month in restaurants, cell phone communications, and other useless stuff? How much crap do you purchase at the store that you will use maybe once or twice and then shelve for ten years before you either throw it away or sell it for peanuts in a garage sale? Do you drive one of those monster SUVs and have come up with some justification for this ridiculous gas guzzler? How big is your house, does it have more bedrooms than there are people in the house? You could purchase a small and economical car, or even better take public transportation to work and you wouldn't be hurting all that much, but your wallet would be ecstatic. Come on, you know you can easily cut your discretionary spending in half and you'd be as happy in life as you are now. So why not start immediately?
Because if you rent an apartment, you will end up paying the owner's mortgage over 25 years and then you will not have anything to show for all that money you paid. Buying a house is probably the best investment you will have done in your lifetime. Buy a well-maintained house close to a school, a park, the public transit, and in area with a low crime rate. Your first house should not be too expensive; paying off the mortgage should not put you in trouble financially. While buying a house you can afford is the best decisions you can make in your lifetime, purchasing a house that exceeds your financial capacity will quickly turn into a nightmare, so be realistic about your expectations. The bank can help you figure out how much you can realistically afford to pay for your house.
It's always easier to take a 25 year mortgage than a 15 year one. That's because monthly payments are lower, and you can have more discretionary money to spend on other useless junk. The downside is that with a 25 year mortgage, you will be in debt forever and you will be paying off your house forever. With a 25 year mortgage, you can easily pay the equivalent of the initial amount borrowed in interests over the 25 year period. So if you borrow, say, two hundred thousand dollars, you are looking at two hundred thousand dollars in interest fees over the lifetime of the loan. That is so huge! During the first ten years of your loan, more than 90 percent of your payments will go to pay interest; the capital owed on the loan will only have decreased by less than 7 percent over these 10 years. So you should purchase a house that you can afford to pay back in less than 25 years. For example, you could start with a 20 year loan, and as your salary goes up, every time your loan is renewed (every two to five years, depending on the terms you chose), gradually increase your monthly payments to bring down the reimbursement period down to 15 years. You know you can make it. But don't go out and purchase one of these huge new castle houses that are in vogue these days, because your castle will quickly become your prison.
Pay off your credit card's balance every month. Credit cards are evil; they carry very high interest rates. If the balance on your credit card keeps on growing with every passing month, you are in trouble. Look at your monthly statement, look at where the money is going, and make sure you cut those expenses down to a level you can actually afford.
Some people drive luxury cars, live in huge houses, wear gold Rolex watches, and have all the electronic gadgets you can imagine. If they look loaded, that's because they are; they are loaded with debt.
Cutting Edge Electronic Gadgets
A 60 inch big-screen high-definition TV. Early adopters of new technology always pay a big premium for the privilege of being the first ones to show off their new gadget to their friends. Be patient; you will be able to purchase the same gadget at a significant discount if you defer your purchase by a few months.
An expensive vehicle
Unless you have more than two kids, there is usually no justification whatsoever for driving an SUV, a minivan or a luxury vehicle. When I say expensive vehicles, it includes the total cost of ownership, including insurance premiums, payments, and also gas (especially for gas guzzlers such as SUVs).
A dream house
A house that has more bedrooms than the number of people in the household. A bigger house costs more in mortgage, heating, air conditioning, and municipal taxes. Do you really need a 4 bathroom house? Be honest.
Eat out in restaurants every day
Simply add up all the money you are pouring every month for restaurants, and you see that you can save a wad of cash by simply cutting that in half and fixing a quick meal at home. Cooking your own food does not have to be hard, and while you're at it, why don't you cook enough food to be able to freeze some leftovers for consumption at a later time.
An expensive watch
Actually, watches are on the way out. Cell phones give the time, play MP3 songs, take pictures, and they also can carry a telephone conversation too! Rich people do not usually wear expensive jewelry, and are not impressed by people who wear it.
Expensive hobbies / equipment
Playing golf or tennis once in a while is fine, but playing on a regular basis at the country club can be an expensive proposition. Unless you are a very serious golfer, there is usually no correlation between how much you paid for the golf clubs and your performance. You should consider getting involved as a volunteer in one of the dozens of community groups that exist in your community, such as the Rotary club, or the Optimists. This way you will get a free pastime, and I can assure you that what you will get in personal satisfaction will make it all worthwhile.
Subscription based services
Look at your monthly usage of your cell phone. Are you using all these minutes you paid for in your plan? If not, then you should switch to a cheaper plan which includes less minutes. Likewise, for a month, keep tabs of what you are watching on TV. Do you really need the premium TV package that includes all 500 channels offered by your cable or satellite provider, or could you simply keep the basic plan and save 50$ per month? Actually, have you ever considered how much time you waste every single week watching TV instead of soing meaningful things?
Here are a few books that I recommend:
The Automatic Millionaire by David Bach
The Wealthy Barber by David Chilton
The Warren Buffet Way by Robert G. Hagstrom
The Investment Zoo by Stephen A. Jarislowsky
Beating the Street by Peter Lynch
Common Stocks and Uncommon Profits by Philip A. Fisher