In the Preface of this 7-part series of blogs, I explained that my daddy was always a salaried employee, yet by following seven rules he went from being recently out of college to a millionaire-plus twenty-five years later. My mom never worked, and they fully-funded the education of their two sons. He passed away in 1980.
I suggested that with the 2010 ready to begin, this would be the perfect time for each of us to initiate Daddy's 7 Rules for Securing Your Financial Future.
Here, stated again, are the rules:
- Save at least 10% of your gross income
- Know about, understand, and use the principal of Dollar Cost Averaging
- Intellectually know that you don't have a profit or a loss in an investment until you sell it.
- Secure your family's well-being and your retirement income stream with life insurance annuities
- Pay off the mortgage on your home as quickly as you can
- Accumulate a portfolio of income producing real estate
- Diversify
SAVE AT LEAST 10% OF YOUR GROSS INCOME
Daddy said over and over that saving means saving, not saving-up to spend. The point of saving is to prepare for a time when, through no fault of your own, you are unable to cover your current living expenses.
That can be the result of loss of job, illness, catastrophic loss or retirement. It is not for the purpose of saving to buy a new washing machine, a new car, even your child's college education.
If you and your spouse earn a total of $100,000 per year. You should save no less than $10,000 of that income every year. If you should be forced to use any part of that savings, you are morally obligated to yourself to pay it back.
The savings vehicle for this $10,000 per year savings account should be a risk-free investment such as an insured account with a commercial bank or US Government issues bonds.
So what would occur if you invested $10,000 every January 1st for 25 years, and your investment earned just 5% simple interest? You would have put $250,000 into the pot, but the pot would have grown to about $475,000.
KNOW ABOUT, UNDERSTAND AND USE DOLLAR COST AVERAGING
This is the second rule, and tomorrow's blog will discuss it.
BILL CHERRY, REALTORS
DALLAS - HIGHLAND PARK
Our 45th Year
214 503-8563
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