Does saving money get you RICH???

Answer 1

http://www.cbsnews.com/stories/2005/01/06/earlyshow/living/money/main665127.shtml

CBS) The Early Show continues its series designed to help you retire rich -- even if you haven't started saving yet.

Wednesday, we discussed how to cut spending and lose debt. Thursday, financial expert David Bach, author of "Start Late, Finish Rich," offers advice on what to do with your money.

The first step, he says, is one that most people will relish -- throw out your budget. That's right! Don't even try to stick to that budget you created in a fit of self-improvement.

"If you're starting late and you begin your catch-up process with a budget, you may never get truly started," Bach writes in his book. "If budgeting worked, then everyone would be doing it and we'd all be rich."

Frankly, as long as you're saving a certain portion of your salary, it doesn't really matter what you do with the rest. So, the key is making your saving automatic by "paying yourself first." In other words, pay yourself before you pay the mortgage, the credit card company or even your taxes. And make sure it happens automatically each month so you don't have a chance to put that retirement money toward new shoes or golf clubs.

The government pays itself automatically each time you get paid. Taxes are taken out of your salary before you even get your check. You should arrange for money to be taken from your salary and put into a retirement account before you ever get to see it. Most employers make this easy through a 401(k) plan. Sign up and you're well on your way to retirement.

Bach offers this advice to anyone who wants to finish rich. But, if you're starting late, you need to pay yourself faster. In other words, you need to commit to having a greater chunk of money automatically taken out of your paycheck.

"I've always believed that to be fair to yourself and your future, you should Pay Yourself First, at least one hour's worth of income every day," Bach writes. "(Another way to put this is to say that you should Pay Yourself First 12.5 percent of your gross income, but an hour a day is easier to remember.)

"... If you're over 40 and looking to retire at 65, paying yourself first just one hour's worth of income every day isn't going to be enough ...As a late starter, your goal should be to work the first and last hour for yourself. In other words, you should strive to pay yourself first two hours' worth of income every day.

"Now, I know what you're going to say. 'Two hours! Are you crazy? That's a quarter of my gross income! How can I possibly save that much?'

"Hey, don't shoot the messenger," Bach continues. "Nobody said starting late would be easy. And I'm not saying that you should start out trying to pay yourself first that much. But in a perfect world, that is where you'd like to end up."

Bach emphasized this final point by writing, "It's like just trying to get on base. You don't have to swing for the fences every time."

Most people today only save about 4 percent of their income. That means they are only working 22 minutes a day for themselves. If you're serious about finishing rich, you need to change this behavior. By making small, incremental improvements to your savings, you can win big.

As Bach wrote, people who are starting late should try to work up to saving two hours a day for themselves - that's 25 percent.

Once you've decided to Pay Yourself First, how do you make this money work for you? Where should you put it?

"The answer is simple," Bach writes. "If the world is complicated and crazy, you create an investment plan that is simple and sane. In short, you create an incredibly boring investment plan."

Bach calls his easy, boring investment plan the Perfect Pie Approach. He recommends putting one third of your retirement money in stocks, one third in bonds and one third in real estate. He says it doesn't matter how old you are, this plan is proven to work. It diversifies your money and will double your money every five to seven years. And, it keeps you from taking too much risk.
Bach says a lot of people who try to catch up on savings attempt to get rich quick and instead wind up being broke forever. Get-rich-quick schemes simply don't work. Slow and steady wins the race, thus, the Perfect Pie Approach.

The idea of owning stocks and bonds is not new to most people. However, the idea that you should own an equal amount of real estate is less familiar.
Ask your parents, your grandparents, anyone, Bach said, and they'll tell you that real estate is the best investment they ever made. You really can't go wrong by investing in real estate, he continued. Everyone needs a place to live and all businesses have to be based somewhere. Real estate consistently offers high returns on the dollar.

If you own a home, the equity you hold is included in this section of the pie. If your house is worth $250,000 and you've paid down $150,000, then you have about $100,000 in the real estate section of your pie. If this is one third - or more - of your total assets, you're all set. If not, you need to fatten this section of your pie.

The surest way to get rich, Bach said, is to buy another home or two and rent them out. However, many people may not have the money or desire to go this route. The easiest thing to do is not to buy another home!

Instead, invest your money in a REIT - Real Estate Investment Trust - Index Fund. Basically, this is a mutual fund that invests in real estate instead of stocks.

Bach calls REITs the PERFECT start-late investment. Consider the following:

REITs have outperformed the stock market over the past 25 years.

REITs offer huge dividends - up to 10 percent.

REITs are an easy way to own real estate.
Most 401(k) plans do not offer REITs as an investment option, though Bach believes this will change in the next couple of years. If your plan doesn't, you'll need to look to an outside source.

What's next?

Spending less and saving more are great ways to jumpstart a retirement fund. But to really turbocharge your savings, you also need to earn more. Friday, Bach will explain his four-step plan for getting a raise.

©MMV, CBS Broadcasting Inc. All Rights Reserved.

Answer 2

Remember the #1 rule with saving/investing money:

NEVER touch the principal. Compounding interest is a very powerful tool.

Did you know, that if you save around $3,300 a year starting in your early 20's and earn a relatively modest 8% per year you will accumulate over $1 Million by the time you retire in your 60's.

You might think that 8% seems high, but you need to be sure to ignore any individual year's return and be commited to the long haul. The average return on equities in the US market over a 76 year period in the 20th century was greater than 12% per year.

It can be done. It just matters if you want to be rich today, or can wait 30+ years to be rich.

$3,300 invested annually for 42 years at 8% will equal right around $1 Million. Of course asssuming 3.5% inflation, it only WORTH about $250,000 in today's money.

It's all about componding interest and inflation for the average Joe.

Answer 3

No. Investing like Warren Buffet did in high profit companies like Coca Cola and others is what made him rich. I have saved money ...but some financial emergency always comes along that drains the savings.

Answer 4

Anymore saving money in a bank is financial suicide. You won't even stay up with inflation. Savings accounts are a joke and bank cd's are just as bad. Put your money into dividend-paying stocks. Strong, dependable companies that have been around forever and are run well and don't carry a lot of debt. Either get into a dividend reinvestment plan (a DRIP) for companies that deal directly with the public (examples: CenterPoint Energy or Bob Evans Farms) or set up a reinvestment plan with a brokerage firm (that is, all dividends from stocks in your brokerage account are put into your money account for you to reinvest when you decide to buy more stock). Also, you should be automatically putting money into your brokerage account's money account. (I have a certain amount of money per month taken from my bank account and into my money account for eventual investment in stocks.)

Answer 5

not always, sometimes you need to spend them at the right moment so that you will get more money back( like an investition). This is what smart people do.
And of course, doesn't make you rich, it makes you have more money.

Answer 6

No., not necessarily....It can help build a nest egg that you otherwise would have spent foolishly.... Getting you rich could not be done by saving a quarter here and a quarter there... getting rich is getting involved in activities on a larger scale and I could go on with a book-size expose on that subject.

Answer 7

Try this on.... You have to spend money to make it, but A rich man doesn't get rich by giving his money away.

Answer 8

if u save your money it does get u rich

Answer 9

Just saving is a slow road to wealth but investing PRUDENTLY on a regular and consistent basis is the most likely path to wealth.

Staying out of debt is also a big part of the equation.

Answer 10

Tax sales are spent instantly via the government for greater or worse. Presumably such sales are spent within the U.S. economic system. Money spent within the U.S. economic system has a multiplier end result within the localities in which the items and offerings are procured via the federal government or or else spent via Americans with a poor financial savings cost (that is such a lot Americans). The multiplier end result of presidency cash spent in a locality stimulates fiscal progress and growth in that field and stabilizes truly property costs. Tax cuts for the wealthy would not directly advantage the American capital markets via reducing the fee to borrow cash wanted for funding within the home economic system. However, tax cuts for the wealthy would simply as effectively be used to put money into China or to quick promote the American inventory, bond, and truly property markets. All the monetary funding recommendation I have heard ago yr involves the portfolio variety mantra that five-10% of your cash must be invested in overseas markets and five-10% of your cash must be invested in gold and gold-like hedges in opposition to inflation. So, following that recommendation, 10-20% of the tax cuts will likely be used for non-efficient and even counter-efficient functions to the target of developing the country wide economic system.

Answer 11

Yes - but what good is being rich if you don't spend your money