Get-rich-quick schemes abound and can be very tempting, but ultimately don't deliver. Ultra-conservative financial plans such as savings accounts and U.S. Treasury bonds are safe, but won't provide the level of returns you need to see your money truly grow. In fact, they may not even keep pace with inflation, causing you to lose money in the long run. You can get rich, but slowly, by following a long-term financial plan.
Here are some ways you can build wealth over time:
- Study your finances to know you're current financial state. Add up the approximate value of everything you own, then subtract the amount of debts you have to determine your net worth. Then start and maintain a record of your income and your expenses.
- Think and pray about specific financial goals, then develop a plan for how to meet each one. Act on the plan whenever you can, such as by reducing expenses in a particular area of your budget. At least once each year, review and update your plan.
- Set aside as much cash as you would need to live on for three months should a crisis hit. Then think and pray about how much of your remaining funds you should use to invest.
- Study various investment opportunities that might help you achieve your specific goals, keeping in mind that most of your investments should be long-term ones, in which you keep your money invested for at least seven to 10 years and ideally 15 years. As you think and pray about each potential investment, check your motivation. If you're motivated by either greed or fear, the investment is probably too risky or not powerful enough to make your money grow well.
- Get started with your investing as soon as you decide on the best investment vehicles. The sooner you invest, the more time your money has to accumulate, because interest compounds significantly over time.
- Diversify your investments to decrease your risk. Consider investing in a mutual fund, through which one lump sum investment can be divided among many different companies and managed by professionals.
- Think about the purchasing power your money has rather than just the amount of money you have. For example, if you have $10,000, consider how much you could buy with that money in the future once inflation has increased over the years, and make your investment decisions accordingly.
- Strive to invest a little bit of money frequently over time rather than investing a large amount just once. This technique, called dollar cost averaging, will usually earn you more than if you had invested only once.
- Take advantage of tax-deferred investments such as IRAs and 401(k) plans.
Adapted from Get Rich Slowly ... but Surely! by Randy L. Thurman, CFP, MBA, copyright 1992 by Starburst, Inc. Published by Starburst Publishers, Lancaster, Pa., www.starburstpublishers.com, 1-800-441-1456.
Randy L. Thurman is a certified financial planner with a master's degree in business administration. He teaches college courses in investing and financial planning.
Have you ever been tempted by a get-rich-quick scheme? If you tried it, what did you learn from the experience? If a long-term financial plan has helped you build wealth slowly, how did it work for you and why would you recommend a long-term financial plan to others? Visit the Books forum to respond, or read what others have to say. Just click on the link below.
