When you’re measuring your financial progress, most of you may think that you could just be richer if you could make more money per month. But have you ever though whether making more money is enough to make you richer?

One of the most controversial debates that are currently going on in the world of personal finances is what constitutes rich. Most people agree that the place they live at makes a big difference in whether or not you feel that you’re rich. Standard of living is the most important thing that determines your richness. Becoming debt free in a place where the standard of living is high is much more difficult than paying off debts in a low profile place.

Making more money does not translate into having the money to spend on whatever you want.

What are the expenses that drain off your wealth?

It is worth noting that there are some particular expenses that drain away wealth, no matter how much money you make each month. Staying educated on these spheres will help you avoid such expenses so that you can maintain a wealthy life.

1. Your house or car

Most people in America turn out to be house poor. They decide to get a big house and then terribly struggle to make both ends meet. If you have not been modest while purchasing your home and you had stupidly bought a home beyond your affordability, you must have been suffering lately. Since the financial crash, it has been surveyed that most homeowner’s monthly housing costs comprise of half of their monthly income. The same theory goes for a dear car for whose insurance you cannot arrange money.

2. Your unsecured debts

Your unsecured debts are a big expense for you. What can be more unfortunate than having unsecured debt obligations and paying interest rates to someone else instead of using that money to invest for your future? There are instances of people who make more than $150,000 per year but are saddled with unsecured credit card debt and feel themselves to be nothing but poor creatures who are failing to make both ends meet.

Monetary resolutions to set your foot on a wealthy life?

After some studies have been made among the affluent, it has been derives that planning, perseverance, dedication, hard work and self-discipline is what it takes to be a wealthy man. Here are some monetary resolutions that must be taken by every individual in order to build wealth and take a plunge into the life of a millionaire.

1. Live below your means

Don’t be fooled by the average lifestyle of a millionaire. The keyword to living a life of a true millionaire in the near future is ‘frugal’. Most financial experts believe that leading a frugal life is the secret of saving for your future. The typical Americans are known for working hard, making money and then spending it well. You must change this spending habit and make sure that you stop buying unnecessary things that you can do without.

2. Evaluate the importance of saving each dollar

When you put in your efforts in saving money, you can soon understand how spending $10 and $30 dollar makes a huge difference. You must always remember that money has the ability to work in your place and therefore, the more you employ it, the faster it will grow with time. Try to save money at every step of life and enjoy leading a frugal life so that you can soon get the results you desire.

3. Become proficient as an investor

In order to boost your savings and build wealth, you can try becoming a proficient investor. Investment is one of the best ways to make money and also boost your savings by controlling them. Get to know about the investment market so that you can understand the fluctuations and take good control over your investments. Also make sure that you manage a balanced portfolio that will help you gain maximum profits with minimum risks.

As you might think that there’s nothing wrong with spending money on things that seem to be important to you, you must reconsider your decision. The actual concept of being ‘rich’ is being able to spend money for what you need now, save money for your future and spend a little in purchasing things that you like. Lead a debt free life and boost your income so that you reach one step closer to becoming a millionaire.

Why You Should Do It NOW

If you are as yet questioning why you should save up for your retirement, perhaps the realization that you can’t work forever will be enough encouragement for you.
Like it or not, you will reach a point in your life where you don’t have a lot of money coming in, and you will somehow have to get by with whatever money you have squirreled away. Hopefully you will be covered for any eventuality by this point, and will have some money set aside for any unforseen emergencies as well.

What about Social Security?

Don’t think that you can rely solely on your Social Security pension to live on when you retire either. While your Social Security will give you a fairly respectable base for your retirement savings, you will have to augment this in some way, whether with a job related pension, or with a savings plan offered by your company or one that you will start up on your own using your own funds. Either way, you will want to have some money set aside for a comfortable retirement.

Living Expenses in the Future

It can be quite disheartening to realize that living expenses don’t necessarily go down when you retire. There is always the threat of inflation to worry about, and the rising property taxes could result in a corresponding increase in your housing costs as well. In addition, advancing age comes with it a host of health issues, all of which may result in higher medical costs or at the every least, a jump in your health insurance premium.

Can You Work Your Way to Retirement?

Don’t automatically assume that you will be able to work for as long as you are able to either. A 2007 study showed that as much as 37% of all retired respondents have had to retire earlier than they would have wanted to either because of health issues or company lay offs. In order to make sure that you are protected for any eventuality, it would be best to start planning for your retirement as early as possible.

You Need To Live Without an Income for a Long Time

Here are some figures that may drive the point home a little more clearly. If like most people you plan to retire upon reaching 65 years old, you have a 50% chance of living 15 more years, and even longer if you are a woman. There is even a 25% chance that you will live to 90 years of age, and a 10% chance that you will live to be a hundred years old! That can be quite a while to go between retiring and kicking the bucket, and going through those years can be quite a challenge indeed if you haven’t planned your retirement properly.

One of the most valuable tools to have at your disposal is the 401(k) plan. This retirement plan is paid for with funds that are deducted by your employer every payroll. These funds can be invested in a number of ways offered by your employer, or you could get a broader range of investment options with the 401(k) administrator. In any case, the 401(k) plan gives you an easy and convenient way to use money you are earning today and earmarking it for your use when you will need it the most.

Are you doing anything to save money for your retirement?

Warren Buffett has made a million dollar bet that the S&P 500 index fund will return more to investors over the next 10 years than a collection of hedge funds that are carefully selected by experts.

The bet was made between Buffett and a company called Protégé Partners LLC – a company that specializes in running funds of funds. Those in the dark – a fund of funds is just like a hedge fund but instead of owning stocks or bonds, it owns other funds.

This has some positive and negative aspects.

The Good

A fund of funds is extremely diversified. Since it consists of funds that each consist of hundreds of stocks it is relatively risk free. This is good during the bad times.

The Bad

When compared to owning stocks or index funds a fund of funds has extremely high fees. Such a fund has an annual management fee of 1% and each one of the funds that it consists of have fees of about 1,5%  a year. In contrast -  owning the Vanguards S&P 500 index fund has a yearly fee of only 0,07%.

Hedge funds also typically collect 20% of the gains they make – this leaves you 80% of which the fund of funds also takes its share – typically about 5%.

Why Buffett Decided to Take This Bet

The high management fees of funds of funds are what Buffett thinks will win him the bet.

In order for a fund or a fund of funds to equal the return of the S&P 500 index, it has to have a lot higher yield than the index. Buffett is essentially saying that even if the fund he is betting against can surpass the yield of S&P 500, the costs associated with the fund will be so high that net of all fees the yield of S&P 500 will be greater than the fund of funds Protégé Partners is running.

You can read Warren Buffett’s and the Protégé Partners views on the bet at Long Bets.

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The rule of 72 is an easy and necessary rule for investors and ordinary people alike who wish to know how long will it take for their investment to double.

In order to get to know how long will it take for your investment to double you need to take the interest rate of your investment and divide 72 with it.

For example if the money in your bank account generates 6% interest per year you need to make the fallowing calculation:

72/6= 12 years

This means that when you invest 1000 dollars with an annual interest rate of 6%, it will take 12 years for it to grow to $2000.

The average annual return for the stockmarket in the US has been 12% per annum. Using the 72 rule we get that investing your money with this rate will take (72/12% = 6) 6 years to double.

Current inflation in the US is about 4% a year. By using the 72 rule we get that (72/4=18) it takes 18 years for your money to lose half of its value. Your $100 will buy 50 dollars worth in 18 years.

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