Ten Good Years

To build your nest egg, all you need is 10 good years of hard work and discipline. These ten good years work best if they are early in your working career. If they are in the middle or at the end, it is still good that you put in 10 good years. You do not leave your savings much time to work for you but you are more focused if you leave it that late.

There are a zillion ways to make this work but the skinny of it is that unless you are born with a silver spoon in your mouth you need to do it. When you are young you have a lot of personal time and personal energy. You can waste it or you can work hard and long hours. Working long hours is beneficial in two ways. First you are making money. Second, you are not spending money. If you have a young family, you are limited by time and range. There is only so much you can do without more stress than it is worth. Enjoy those times close to home where a walk through the park is a two hour non-cardiovascular exercise of how patient you can be while the youngsters explore the world from their level. It doesn’t cost money and it is the best thing for them. It is also the best thing for you and your pocket book.

The first thing you need to do is save. Remember to put away 15% - 18% of your income into your retirement fund which is tax deductible. For a young person to even put away normal retirement percentages is an enormous step in the right direction. If you averaged $30,000 per year income over 10 years of working and put away 15% in your retirement fund, you should have saved thousands in taxes. You will have the $45,000 that you have saved and if you invested it properly and you should have all the compound interest that it has earned. Your total retirement nest egg should be between $60,000 and $70,000. It should earn $4000 to $8000 per year in interest depending on how wise of an investor you have become. This is now equivalent to a month’s wages or more and it will compound for many decades before you retire.

Second, build equity in your home. Part of your mortgage payment is actually paying down your mortgage. You will be 40% finished paying for your home so that a higher and growing percentage of your mortgage payment will pay off the debt and increase your equity in your home. Do not count equity gains due to increase in market value of your home as income. Keep your hands or somebody else’s covetous hands off of it and let it grow you will have an enormously pleasant revelation at mid-life...you will have a lot of financial power in 10 years. With the equity in your home and the credit history you have built Banks will say yes to your projects instead of no. If you do want to borrow money it will be a matter of wanting to borrow not needing to borrow. And when you do borrow it will be at the lowest rates. You have figured out how to live your life by putting some money away in savings and you don’t really miss the money once you have established this habit. You will find banking and investment firms respect your discipline. They want to help you make your investments grow because that is the new culture for banks. They have found they make more money from helping you make money than from lending you money.

Third, avoid thoughtless and irresponsible spending and borrowing. I don’t have to say much more as this article is being written on the 1 year anniversary of the fall of Lehman Brothers.

After 10 good years you need to allocate some of each work week to understanding, monitoring and managing your money. Because you have a substantial nest egg, you will get better financial advice because you will have achieved levels of net worth of $100,000, $100,000 to $500,000, or over $500,000. For the higher levels you get the more trained, experienced and successful advisors. To get the most out of their advice you need training, experience and success of your own. To do that you must devote time to these tasks.

This may be hard to do if your career is spooling up and is more demanding of your time. Your young family will be as well. However, it is more important than ever that you give your assets some attention. This is where your partner and you must work as a team. Not only can you divide home duties and money making duties but you can share the chore of asset management. You cannot totally leave this to a professional manager and go to sleep on it. You worked hard to make it and save it. The third step is to take care of it, protect it as others will leech on it. Make it grow the way that is best for you.

Take care of the other aspects of your life during this time. Remember the goal is that this is for you and your family. At the end, there should be more than enough to live on and share.

Think Your Money
Tools and coaching for household finances