5 ways to get rich slowly
Everyone wants to get rich. How do people actually do it? You could win the lottery, or maybe get a surprise inheritance check, but most people don’t have that sort of luck. So how do average, reasonable people get rich? They do it slowly.
You are probably pretty young right now, so now is the best time to start. As I mentioned in my article on compound interest, every day that you wait to begin investing is a day of lost interest—each additional day of interest adds a lot to your bank account. So, let’s look at 5 things you can do to get rich slowly.
1) Make it a goal to begin investing today – This is the most important thing you can do. Your money sitting in your bank account isn’t doing anything for you–it’s actually losing money because of inflation unless it is in one of the few high-interest accounts out there. By taking the first step and opening an online brokerage account as well as a Lending Club lender’s account, you are setting yourself up to accrue a lot of money thanks to compounding interest.
2) Open a retirement account – I recommend that you open up an IRA, and max out the account every year if you can. Roth IRAs are amazing because they minimize taxes that you have to pay when you take your money out. However, they also limit how much you can invest (around $4,000) each year, so check out the various types of IRAs and choose wisely based on your own circumstances. If your company offers you a 401k, definitely take advantage of it. In many cases, your company will match part or all of your 401k contributions–that’s free money.
3) Invest in safe index funds – Index funds are a great investment because they directly model the market (or a specific part of the market), and they have very low fees in comparison to mutual funds. The stock market generally goes up about 10% a year on average, so you can expect very decent returns over a period of time.
4) But, don’t forget about stocks – Certainly, stocks are much more risky than index funds because they are based on a single company’s performance. However, if you are young and you can afford it, put some money into stocks that you trust. The stock could go down, but if it goes up you will have a lot more capital on which to gain future interest. For example, my investment in Amazon has earned me over a 100% return over the last couple years—not a normal return, but not unheard of.
5) Make a commitment to invest money from every paycheck – If you put 10% of every paycheck into your retirement accounts and personal investment accounts, your chances of getting rich will skyrocket. See if your employer can put the money into your accounts directly so that it never even gets to you. A lot of investment accounts offer steep discounts if you set up a monthly direct deposit plan, so see if you can transfer money every month into a specific index or mutual fund.
Of course, diversifying across a number of investment vehicles is always a good idea. If you invest in stocks and bonds, for example, you might also want to allocate money to make person-to-person loans via Lending Club. You can use LendingMatch™ to create diversified portfolios to match your risk/return preferences.
If you follow these guidelines, you have a very good shot at being rich–that is, rich enough to continue your current standard of living indefinitely. I’m not saying you’ll be able to buy mansions and private islands, but you won’t be out on the street either.
Monday, August 27th, 2007 at 11:43 am