How to become a millionaire.

[lizerdking]

Dave speaks to those that can't manage their own money effectively, The reason his method works is for those that need him, it's the right way. He preaches things like paying off the low balance cards before the high interest cards. He's against most any risk involved in investing, he uses unfair gain calculations to motivate people, etc...

If you aren't drowning in debt, he's not the guy to follow. Warren buffet was once asked what to do with a 50k inheritance if you are an average income american. His advice was to put it in an index fund and go back to work... Looking at the top three, i started throwing money in one of them in 2008... it's done fairly well.



https://www.google.com/finance?q=NYSEARCA:SPY&ei=nU7jVLmNLcPGqgGSyYHoCw

https://www.google.com/finance?q=DIA&ei=ok7jVKmqM9DXqQG6roHgAg

https://www.google.com/finance?q=QQQ&ei=7U7jVMmpFIryrAGH34CgDA

 

[Baditude]

I followed Dave Ramsey and it really helped when I was married. There are many sound principles. However, I do disagree with the investing as I have learned how from some books like Rule 1 Investing etc and typically earn at least 15% in a given year. Right now money is cheap in regards to Home Equity and mortgage, any money borrowed at less than 5% is not worth paying off early. Let's say I have an extra $10,000 /year I could pay down or I could invest it. If I made 15% that would be $1,500 now you have to pay Capital Gains of 20% or $300. You now have $10,000+ $1,200 =$11,200. If I paid down on a loan of 5% or less with that $10,000 I would have not paid $200 in interest that year but lost $1,000 and yes I understand there is risk but following the advice in that book has been golden.

Rule 1 for me is understanding that money is a tool just like a drill etc...

Here is where it makes all the difference in the world: Now do that for 5 years:

Year 1 $11,200
Year 2 $11,200 + $10,000 =$21,200 x 15% investment return = $24,380 $3,180 is taxable at 20% = net $2,544
keep going and it will really grow.
Now if you can find a better income stream once it grows, you should. But if you can borrow "cheap money" and use it to make more money then viola.
Fun fact I did this in A Roth IRA max contribution is $5,500 / year it grows tax free until you take it out and the Capital gains rate retirement age
Another fun fact: Say you need money, you can withdraw any money you deposited prior to retirement penalty free or pay capital gains on the earnings - How cool is that? Nice having a retirement Stuff Happens account that you control.
** Disclaimer I am not a financial advisor just stating what I have done.

 

[CountryBoy19]

*I watched the video.Why did he not mention the 60% drop in the stock market in 2008?Average 12% a year for 20 years,and ONE bad year can wipe out more than half of your retirement account,and it did for many.

Because that 60% drop is entirely irrelevant to anybody that is "in it for the long-haul". You're right, 12% AVERAGE can by wiped out by one bad drop, but typically a bad drop is followed by several years of VERY good gains. If he was going to mention the 60% drop he likely should have also mentioned the years of 20-30% gains that followed the 60% drop. Remember, an AVERAGE is just that, it's an AVERAGE of all the good and all the bad. The stock market on a whole has had a historical average of right around 8% per year. I don't find it that hard to believe that there are funds paying an average of 12% per year.

ETA, that 60% drop only comes into play when people get cold feet and sell out, locking in the losses. What you SHOULD be doing is buying more when it drops like that. I was a broke college student at the time but scraped together every penny I could and bought into some mutual funds. Within 7 months I had tripled my money. ~300% APR gain made up for the 60% bath I took on all my other funds. Today that single investment I scraped together from nothing has grown to about 10 times the value it was when I invested in the fall of 2008. I only wish I had more money to invest at the time. If I had been able to dump 5 or 6 figures into the market I would be a LOT more wealthy than I am now.

 

[gregkl]

Dave speaks to those that can't manage their own money effectively, The reason his method works is for those that need him, it's the right way. He preaches things like paying off the low balance cards before the high interest cards. He's against most any risk involved in investing, he uses unfair gain calculations to motivate people, etc...

If you aren't drowning in debt, he's not the guy to follow.

I agree. I was talking to a guy this morning about this very thing. He felt that Dave speaks better to those that have difficulties controlling spending.

My friend went to say that Kyosaki(sp?) Who wrote Rich Dad, Poor Dad may have a better philosophy for those that do manage finances well. I have not read that book yet. I do utilize several of the principles from the book, The Millionaire Next Door.

 

[Leo]

Rich Dad, Poor Dad may have a better philosophy for those that do manage finances well. I have not read that book yet. I do utilize several of the principles from the book, The Millionaire Next Door.

Read them both, pretty good ideas that are easy to understand and apply in modern life. If you can find it, "Voluntary Simplicity" also has some good points. They all have one thing in common, the good points in them are found in economic principles in the Bible.

 

[Leo]

Because that 60% drop is entirely irrelevant to anybody that is "in it for the long-haul". You're right, 12% AVERAGE can by wiped out by one bad drop, but typically a bad drop is followed by several years of VERY good gains. If he was going to mention the 60% drop he likely should have also mentioned the years of 20-30% gains that followed the 60% drop. Remember, an AVERAGE is just that, it's an AVERAGE of all the good and all the bad. The stock market on a whole has had a historical average of right around 8% per year. I don't find it that hard to believe that there are funds paying an average of 12% per year.

ETA, that 60% drop only comes into play when people get cold feet and sell out, locking in the losses. What you SHOULD be doing is buying more when it drops like that. I was a broke college student at the time but scraped together every penny I could and bought into some mutual funds. Within 7 months I had tripled my money. ~300% APR gain made up for the 60% bath I took on all my other funds. Today that single investment I scraped together from nothing has grown to about 10 times the value it was when I invested in the fall of 2008. I only wish I had more money to invest at the time. If I had been able to dump 5 or 6 figures into the market I would be a LOT more wealthy than I am now.

You make some good points and I have heard them all from the brokerage houses that pretty much lost my life savings. Unfortunately that is not the whole picture. "riding it out" is not always a solution. A lot of those things will NEVER come back. For example, have documents that say I own $36,500 that I paid over $35,000 to purchase in Prodigy internet stocks. Prodigy folded when NADAQ failed when clinton was in office. That is never coming back. At the last 5 years of stock market "recovery", it would take far more decades to break even with the loss of my PRINCIPLE (let alone make anything) I did not "just loose it on paper", I lost principle from earned wages. I do not have cold feet, but it is not wise to look at gains from 1932 while America had record growth and balanced budgets and think we can apply them to our current lives here and now.

If one were to take the performance of their retirement accounts from say 1990 until 2008, the picture is not as rosey. The clock is ticking for everyone, few have 50-75 more years to ride out the loss caused by fraud, and that is presuming another stock market "correction" will not happen in that time frame. The financial system is not set up for making the regular investor money, it is set up to lavishly support itself, they just return enough to the little guys to keep the hook baited.

 

[CountryBoy19]

You make some good points and I have heard them all from the brokerage houses that pretty much lost my life savings. Unfortunately that is not the whole picture. "riding it out" is not always a solution.

If you're not in a position that "riding it out" is a good solution then you shouldn't be in investments that carry high risk. High risk investments are for people that have LOTS of time on their side.

A lot of those things will NEVER come back. For example, have documents that say I own $36,500 that I paid over $35,000 to purchase in Prodigy internet stocks. Prodigy folded when NADAQ failed when clinton was in office. That is never coming back.

Mutual funds are a great compromise between the very high risk of investing in a single company's stock and the rewards of a more conservative investment. Mutual funds mitigate a HUGE part of the risk of total loss out of the equation yet maintain most of reward of investing in stocks.

Think of it this way: if you you were instead invested in thousands of companies to include Prodigy and Prodigy collapsed, you would only lose a small percentage of your investment because the Prodigy holdings of a mutual fund accounted for, at most, 1% of that funds holdings...

There is a saying that says something like don't keep all your eggs in one basket. This holds true here. When investing large amounts of money in a single company you are taking a great risk. Sometimes it pays off and you make it big, other times it comes back to bite you. This is why diversification is a VERY critical step in the markets. You open yourself up to HUGE risks by purchasing large amounts of a single company's stock.

but it is not wise to look at gains from 1932 while America had record growth and balanced budgets and think we can apply them to our current lives here and now.

Very true in-deed. The history simply gives us something for comparison and cannot predict the future. That being said, what other way is there to hold retirement savings? Yes, creating a revenue stream as mentioned above is one option, it also comes with a lot of strings attached and isn't as easy as it sounds on paper.

And as far as ways maintain a higher rate of return you need to look toward dividend stocks/mutual funds. Dividends will always win out. Dividend mutual funds are typically invested in a lot of large, historically successful companies that are often too big to fail, that have a great reputation of paying out large dividends. There is no way for the financial markets to "manipulate" dividends away. They are company profits paid out to stock-holders. The only way they are "lost" is if the company doesn't make money, or doesn't pay out (possibly due to capital improvements etc). That being said, it helps to have a general understanding of what exactly stock is and what drives the prices. Stock is a share of a company. When a company goes public people buy shares of that company. What do they gain from those shares? They gain profits in the way of dividends, they gain stock value increases that tend to follow the overall "value" (capital, cash, inventory) of the company, or they gain stock value increases due to expected future profits (dividends). As a company's capital increases, it also generally means an increase in future profits, the stock price follows suit.

Yes, financial markets can manipulate these things, but they cannot make them vanish from thin air. You own a share of a company, when that company pays out profits you get paid. Choosing stock and mutual funds wisely is crucial. There are still a lot of big money-makers in the markets, you just have to find them. The only way your money is vanishing is if they company you chose completely collapses and gets liquidated. Unfortunately, if they also have a significant amount of debt, the liquidated assets go to pay that debt off before it goes to pay off shareholders. Once again, this is something a little bit of research can prevent.

Sorry to have gotten off-track. The stock market is a great choice for many people to be. Unfortunately, you must educate yourself on these matters to prevent yourself from making stupid mistakes. I've made my fair share of stupid mistakes in the market; I've lost quite a bit of money. But I learned from my mistakes and continued my education on investing. It's not something you just jump into with both feet and learn the hard way.

You wouldn't build a $300,000 street racing car having zero experience actually driving and then go out and race for "pink slips" to learn how to drive the car. You'll lose everything you've got. It would be prudent to start small and work up. All or nothing quite often turns into nothing.

 

[looney2ns]

I don't ever agree with everything Dave Ramsey says but videos like this one sure make a lot of sense to me. There are too many people in this great country who aren't saving a dime and it will hit them hard someday.

I think everyone should watch this video.

Also, I'd like to add that it's never to late. Even if you're in you're 40's or 50's you can still start saving. I work with people every day who are in their 50's and know they can't retire anytime soon. I even know a few who don't even put enough in our 401k to get the company match.

[video=youtube;7wjuCgtL0yA]https://www.youtube.com/watch?v=7wjuCgtL0yA[/video]

My wife works at a local place that matches her 401k contribution $1 per $1 up to 10%. Only roughly 15% of the 3500 employees take advantage of this. Of the 15% that do participate, only put in 2%. Of the 15% that participate, 28% will take loans from their 401k on a regular basis. Duh.

Dave is right most of the time, especially of what he says in this video.

I have a cousin, that worked for GM back in the day as a foreman. He was always a saver from a young age. When he started at GM at age 22, he vowed to save/invest any overtime $$ he made. Retired at 46. Been retired now for 22 years...doing whatever he wants.

 

[jd4320t]

My wife works at a local place that matches her 401k contribution $1 per $1 up to 10%. Only roughly 15% of the 3500 employees take advantage of this. Of the 15% that do participate, only put in 2%. Of the 15% that participate, 28% will take loans from their 401k on a regular basis. Duh.

Dave is right most of the time, especially of what he says in this video.

I have a cousin, that worked for GM back in the day as a foreman. He was always a saver from a young age. When he started at GM at age 22, he vowed to save/invest any overtime $$ he made. Retired at 46. Been retired now for 22 years...doing whatever he wants.

Yep I agree.

Regardless of what some of the more intelligent and experienced "money smart" people in this thread say, you CAN become wealthy from working and saving. I've known a few where I work who have retired with millions worth of Indiana and vacation/retirement properties. They also have nice cars and toys, airplanes, air strips, motorcycles, boats and so on. I know these things are true because I've worked side by side with them for years. You can tell when someone has their stuff together and things paid for.

Maybe being a one or two millionaire isn't that big a deal to some in this thread but it is to me. It is a goal that IS achievable for me and it's what I will do. I'm not against being super rich but the odds of it happening are slim. I will work overtime when I can, have the things I want and need now and I will save for my future so I'm not working until I'm dead.

 

[GodFearinGunTotin]

I have a cousin, that worked for GM back in the day as a foreman. He was always a saver from a young age. When he started at GM at age 22, he vowed to save/invest any overtime $$ he made. Retired at 46. Been retired now for 22 years...doing whatever he wants.

GM's retirement used to be much better than it is now. My former boss retired at about the same age--maybe a year or two older--and has been living the good life ever since.

 

[jd4320t]

GM's retirement used to be much better than it is now. My former boss retired at about the same age--maybe a year or two older--and has been living the good life ever since.

I'll agree that the retirement probably isn't as good but I'll also bet most of the employees don't save like those in the past.

 

[hoosierdoc]

A gas station worker just donated six million when he died and people say earning and saving can't lead to wealth.

the vast majority of millionaires are first generation. Hardly anyone inherits serious money. The Feds have guaranteed that.

 

[jd4320t]

A gas station worker just donated six million when he died and people say earning and saving can't lead to wealth.

the vast majority of millionaires are first generation. Hardly anyone inherits serious money. The Feds have guaranteed that.

Yep

Just the other night I saw a guy I worked with in another building six years ago. He works overtime when he can, drives a mid 90's Chevy S10 and will retire a millionaire. It is possible.

 

[GodFearinGunTotin]

I'll agree that the retirement probably isn't as good but I'll also bet most of the employees don't save like those in the past.

No they don't. I've got an in-law relative that is a GM-hourly person with 30+ years of senority. It's all he can do to keep his water service from getting shut off (which happened for the 2-3rd time this past month).

 

[jd4320t]

No they don't. I've got an in-law relative that is a GM-hourly person with 30+ years of senority. It's all he can do to keep his water service from getting shut off (which happened for the 2-3rd time this past month).

My moms lifelong best friend worked for Ford until they closed. She always had money and new vehicles. Now she can't even afford to have dental work done and will work until she dies. I guess she never saved a dime.

 

[GodFearinGunTotin]

My moms lifelong best friend worked for Ford until they closed. She always had money and new vehicles. Now she can't even afford to have dental work done and will work until she dies. I guess she never saved a dime.

That's sad. The person I was telling you about bought a house from his mother when his dad died. He rarely made a house payment and I don't think he's made one in years now. It must be nice to not have a house payment.

 

[jd4320t]

That's sad. The person I was telling you about bought a house from his mother when his dad died. He rarely made a house payment and I don't think he's made one in years now. It must be nice to not have a house payment.

Yeah I've known a few like that too. When the parents go the baby soon struggles more than ever.

 

[hoosierdoc]

1.3% got their money from a trust or inheritance. 98.7% did it through hard work. Sorry, no excuses here guys.

[FONT=Verdana, Arial, Tahoma, Calibri, Geneva, sans-serif]In the introduction to the interview, there was an interesting statement: "hard work will matter less, inherited wealth more." Really? Added up the entire annual realized income of those households in the $10M and over category the total would be over $300 billion. What percent of this amount is derived from trusts and estates? The answer is 1.3%. This percentage even doubled or tripled would hardly qualify America as a country where inherited wealth "mattered more."[/FONT]

 

[hornadylnl]

1.3% got their money from a trust or inheritance. 98.7% did it through hard work. Sorry, no excuses here guys.

It would be next to impossible to quantify but what about gifts given before death or a child given a free education by their parents vs one who took out loans? I'd like to buy my daughters first house. It's not inheritance but it sure as hell would make it easier for her to amass wealth without a 30 year mortgage than with. The purpose of the gift would be so that it does set her up better for later in life. If she proves to be too irresponsible to handle it like the person GFGT is referring to, I won't buy the house.

 

[shibumiseeker]

The most I ever earned from a job in one year was $28k. Many years it was much less than that. I've had 3 significant windfalls in my life that have allowed me to accumulate capital equipment or more land, but all of them were less than my annual salary at the time. My net worth has a good start on the first mil. The first bit of land (~100 acres) I bought at age 19 and paid off by age 26 is now worth approximately 8 times what I bought it for and it has provided two rounds of income from timber sales on top of the lumber I produce annually from it.

If I outlive my parent I may inherit enough cash to have enough in the bank to meet my modest needs on conservative interest alone, but even if not, if I live into my 70s I'll probably be working on my second mil. I fervently hope I don't inherit any time soon.

I live extremely frugally and and am currently only working part time by choice but even then am starting to sock away some cash.