how can i become finantially wealthy with $10k?

Question

i am 23, bought my first house at 21 then a second 6 months later. i have since sold that and getting ready to sell my principal residence. i am about $25k in "bad" debt plus a $30k truck. after i sell my house i will pay off ALL debt and only have my truck on my credit. i have a 710 credit score now. should be much better in the comming months. if i put aside $10k from the sale of my house for investing, what should i do?

Answer 1

At 23, time is your best friend (hooray compound interest). Your best bet is to (if you haven't already,) open up and max out your Roth IRA. This allows you to allow that compounding to work in a tax-free manner after you deposit. See what a difference that can make here: http://www.dinkytown.net/java/RothIRA.html

If you work for a company that provides matching funds for your 401(k) or similar retirement account, be sure to get the maximum match - it's free money! (that has to come from your income, but you can use your $10K to buffer your cost of living while you max your contributions).

Note, it'll depend both on your capital gains, and the tax efficiency of your investments, but when I ran the numbers for myself, I found that I was much better off using my 401(k) for investment even though I plan on early withdrawal: http://randomfoo.net/blog/id/4087

(Over a longer time-horizon, the tax efficiency is going to make a huge difference, plus you can also drastically rebalance with near impunity, tax free)

Regardless of the type of account you put your money in, you still have to decide what you're going to invest in. There aren't guaranteed returns, but for your goals (growth until eventual financial independence, yes?) you're best bet is probably a good index mutual fund. (You'll want to do your own research on this - although index funds are by definition 'average' they tend to provide total returns (after expenses) that beat the vast majority of mutual funds. Here's one article to help you get started on why that's the case: http://www.fool.com/mutualfunds/indexfunds/indexfunds01.htm

Your best course of action as you save towards financial independence is to continue investing (dollar cost averaging) and to diversify as your capital grows (bonds, international, REITs, metals) and to try to keep an eye towards what your goals are. A good book on the subject matter is "You Money Or Your Life" by Domniguez and Robin, which talks less about investing (they suggest an extremely conservative approach), but more about a good basic mindset/framework for thinking about money.

If your goal is early retirement (reaching the point where you can live off your investments) you may also want to take a look at FIRECalc, an interesting early retirement calculator: http://fireseeker.com/ and the related Early Retirement forums (lurking and reading the archives is a good way to dip a toe in the water, so to speak): http://early-retirement.org/forums/

Answer 2

You could, and probably should for a while, park the cash in a mutual (index fund-i might humbly suggest Vanguard VTSMX since it's cheap, highly recomended and relatively low risk and fair return) fund for a couple years until you can find a venture that you are knowledgeable and are comfortable with buying or starting up. I don't know your background, but with some specialized skills, it is lucrative to start up a consulting, or technical business as your own employee and later add on as you are able.
With $10K, you can probably get another $10K guaranteed from the Small Business Association to start up a business after putting together a business plan. A very long time ago, I took cash advance offers from all the credit card companies I could get and put them in the bank for a few months to show liquidity, which allowed me an SBA loan I otherwise couldn't get. Doing this might add to the $20K possible with just the SBA loan.
Anyhow, this isn't a specific get rich idea, but knowing you have the option to run with an idea makes it easier to generate good ideas to start your own thing with.
$10K at 23, and a good credit rating is pretty good situation. You're a pretty good risk, and should seriously look at investing in yourself as a money maker instead of risking it with everyone else who doesn't know or could care less about you, besides, working for someone else and letting them make money off you is a drag too.

Another thing, Buffet has been suggesting that outside of pure luck, you will only make about 7% on your money by investing, this makes your $10K double every 10 years. Most entrepreneurs do well over that easily.

Whatever you do, don't give your money to a portfolio manager that confuses $10K with $100K. Portfolio managers are parasites anyway.

Good luck to you.

Answer 3

10k in the right mutual fund could make you a wealthy. There are no future guarantees. Remember the rule of 72. take the interest rate you are getting paid and divide by 72. This tells you how many years it will take for your money to double. So let's say you get 12% on your money. 12/72 is 6. Every 6 years your money doubles. There many different mutual fund companies. Look for one that has more than 1 portfolio manager and be sure they keep stock longer than 1 year. More than 1 manager means they are diviersified in their opinions and holding a company longer than a year means they look for strong companies over time not the flash in the pan companies. so in 6 yrs 20, 12, yrs 40, 18 yrs 80, 24 yrs 160, 30 yrs 320 etc. 36 yrs 640, 42 yrs 1.28 million and you are 65 ready to retire. Tis is the way to go.

Answer 4

Investing in the stock market is the way to go. Mutual funds are a good bet if you are merely a speculator.

The only problem with Michael's response is that you will need to find a fund that will consistently produce an average increase of 12% a year. Before you get into any funds you should do a little research. Learn the difference between loads (fees) associated with any mutual fund. My biggest piece of advice for a mutual fund: Don't buy it from a broker. Buy straight from the fund.

Answer 5

Compound interest (savings) and mutual funds are thought of by most people as "safe" investments. However, most everybody isn't rich, - or are they? - so I wouldn't take advice from them.

In fact, I think they are the easy ways out of financial insecurity. Mutual funds are easy. Savings are comparatively easy. Almost nothing is learned in either one b/c they are so easy, even a monkey could do them.

Learn how to have your money work for you so that you don't have to work all your life for someone else. Learn to use leverage, and not just for real estate. Educate yourself. If you're not serious, though, and you're not a hard-worker, don't bother; just give your money to someone else. But if you are, you can turn that $10k into $millions, depending on how smart and dedicated you are. I think most people could do it in 5-10 yrs, if only they actually tried. Anyway, good luck!

Answer 6

India is my heritage and I only really have one question - How? Not that I'm meaning anything negative about the country, not at all... it just comes as a surprise. A big one. I don't know. I just think that there would be at least 8 other countries that I would list if asked to list the 8 richest countries in the world. But, hey, if that's the case, that's really exciting!!!

Answer 7

If you really want to be wealthy you should invest $100,000.00 in the Stock Market with the help of a Portfolio Manager like myself if you can afford it or at least a Financial Advisor.

Top 3 Answerer in Business & Finance. (Vote for me)

Answer 8

take a look at MSFT $25 jan 2007 and ELN $20 jan 2007 option calls.

Answer 9

Start a business by buying house and reselling them to get more money by fixing them and stuff.

Answer 10

go to the bank they have ppl u could talk to about these type of things n they will give u the best advice possible