I recently read an article in US News and World Report that had eight tips from financial planners that their millionaire clients had in common. I thought I would share this list with you and give you my own take on these eight tips. Not only do I agree with them I advocate them in my own dealings. These are some truly priceless tips that are not only good for someone who is a millionaire but for the very day saver trying to ensure that they have a decent retirement.
The first bit of advice is to make your money work for you. This is key for anyone and is not limited to the ultra-rich. Yes, most rich people have more money to work for them, but that does not mean that everyone should not make their money work for them. As most rich people do tend to own their own businesses, it may make sense for them to do this while it is not as common for others. But anyone can own a business through the ownership of equities. Anytime you can have your money working for you and not someone else it is an advantage for your savings. The key here is to try to limit debt and make your hard earned money work as hard for you as it can.
Secondly, everyone needs an emergency fund. Now people will argue over how much needs to be in such a fund but most agree at least three months but ideally, six months of expenses is better. This way you will be prepared for the unexpected emergency that all of us at one time or another will experience. Most wealthy people have an emergency fund despite the fact they can afford most emergencies, but this will keep them from accessing money making assets in the event of the emergency. Keep your emergency fund liquid and not invested in a money making asset.
Third prepare for a health emergency. Most of us at one point or another will experience a health emergency as well. The key here is to maintain proper health insurance and life insurance. And if you think you may need it long-term care insurance as well. But with proper planning just about any health emergency can be covered with an insurance plan. And in the event of someone’s death have proper life insurance in place to cover your loved one’s in your absence.
It is essential that you always are reviewing your finances at least on an annual basis. Some people look at theirs on a semi-annual basis, but I believe unless there are extenuating circumstances annual reviews are sufficient. The reason here is things change, and if your finances are out of date, you may be missing opportunities or the chance to limit the damage that could have already begun. Year-end reviews are wise as you are preparing to file your taxes, it is a new year and just the perfect timing to review everything to make sure things are in proper order.
If at all possible, try to avoid lending anyone money. This may sound cold, but it is a reality that is necessary. If you loan someone money more than that may be on the line. The lending of money could strain your finances, the finances of the person who borrowed the money and your relationship with that person. Friends and family need not rely on you for their financial well-being so avoid becoming the family bank. Simply avoid the situation and never lend money.
It is a wise idea always to teach your children or children of someone you love about money and finances. The more a child is aware of finances and how they work the more likely they will not be afraid of them as an adult. That means they will have a better than average chance of being financially stable and hopefully will not make the mistakes of children or young adults who did not have the wisdom provided to them at an early age.
This tip is one I have preached for a very long time. Same as much as you can as early as you can. This tip goes hand in hand with making your money work for you. The power of compound interest has been called one of the most powerful forces there is. Warren Buffett is always talking about the power of compound interest. It really is that powerful and important to anyone saving. Play around in Excel and see for yourself just what time can do for your savings. The difference between someone who saved 30 and 40 years is astounding so check it out for yourself.
And finally, understand why you spend. Some people spend based on needs others it is based on emotion. The key is to understand yourself and knows why you are spending. Then try to spend based on needs and not emotion to aid in keeping you out of debt and collecting tons of things that need to be cared for in your residence.
These are eight tips that I think are amazing and yet simple in nature. If you need any assistance or have any questions, feel free to contact me or leave a comment on this post.