Financial Ignorance Cost My Family Millions
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| David M. Pickett |
Lack of understanding, limited knowledge, and poor investment advice cost my family millions of dollars. Unfortunately none of my Pickett and Williams grand- and great-grandparents were educated in the area of financial management. Their inappropriate financial decisions led to a very bleak life style and retirement for them and affected many other family members as well.
If they had known the importance of time, discipline, and rate of return in relation to building wealth, all their descendants would be wealthy today. But like many people, my grandparents believed two myths: first, that it took a lot of money, genius, and luck to earn a fortune; second, that only a certain class or race of people could have great riches and wealth.
The reality is that,
any family or person, regardless of their socioeconomic background, can
acquire a substantial amount of money over a period of time through
positive thinking and the application of easy-to-learn, highly
profitable money management concepts.
The Value of Time
The first step to accumulating a fortune is to start planning and
investing today, not tomorrow or next month and certainly not next
year. You must use time to your advantage. A delay in starting your
investment plan will slow down your race to financial freedom and cost
you more money.
Let’s assume you want to accumulate $100,000 by age 65, and that the
annual interest rate is 10% on what you put away. If you begin saving
at age 25, you would need to save $18 per month. If you start at age
45, you’ll have to put away $138.12 per month. If you wait until you’re
55, you’ll need to save $496.38 monthly – all to reach the same goal.
Procrastination is a great threat to your investment and golden years.
The Importance of Discipline
The second step to accumulating your fortune is discipline. You must
develop the habit of investing money (paying yourself) every month. A
mistake made by many people -including my grandparents – is to pay
everyone except themselves. When planning and investing for your yearly
household budget, treat your future security like a monthly expense or
debt. If you budget for cable TV or the charge cards, then also set
aside a monthly portion of your income to build a self-directed
tax-deductible Individual Retirement Account (IRA) for your retirement.
If your dollars are scarce, make sacrifices. To free up money that you
are now wasting, give up some dinners out; instead of renting five
movies a week, rent two and swap others with friends. Try to
consolidate your debts into one payment at the best interest rate you
can get. That alone can reduce your out going expenses by 35% to 60%.
No matter the amount — even a dollar a day — it’s essential to get into
the habit of paying yourself first, every day, every week, every month.
Because what’s important is not how much you earn, but how much you
keep: a person who earns $100,000 per year and saves $2,000 is no
better off financially than someone earning $20,000 and saving $2,000.
The most important decision that you can make is to start investing
now. Not later! Assume that you decide to invest $100 per month (you
know, the three or four dollars a day that goes for junk food, video
games, a new pair of shades) at a 12% annual rate of return; after 30
years, you would have an additional $349,496.
Rate of Return Matters
The third step to amassing your fortune is earning the highest rate of
return (R.O.R.) on your investment dollars. If your investment
portfolio is limited to low paying investment vehicles like cash-value
life insurance, Certificates of Deposit, or savings bonds, you are
losing thousands of dollars. Invested wisely, however, your money can
work harder for you than you ever had to work for it.
That’s because Compound Interest means that your money earns interest,
and then the interest earns more interest. Over time, that interest
really adds up.
An R.O.R. of two to five percent annually is barely keeping pace with
inflation. A 6% or 7% R.O.R. is better, but will still leave you in
need in your golden years. But an annual rate of return of 10% or 12%
or better can make all the difference for your and your family’s
future.
$100 per month at 6% compounded monthly will turn into $13,150 after
forty years. At 10% percent, the same $100 a month will grow to
$64,400. And at 12%, it will become $142,000. Double the interest rate
and you get ten times as much return!
Whether you plan for your retirement or not, it will still come around.
Put time on your side and get started today at creating a secure
financial future. If my great-grandparents and grandparents had each
been able to save a modest $50 per month, at an average annual yield of
12%, over a 60-year period the Pickett and Williams families would have
accumulated cash assets totaling over $5,000,000 today.
David M. Picket is President and Managing Director of Asset
Acquisitions & Funding Advisory Services. For more information call
1-800-672-3805 or email [email protected]. This article has not
been endorsed or reviewed by any organizations that Mr. Pickett
represents or may be affiliated with. The contents of this article are
solely the thoughts and research of Mr. Pickett.
