Men’s Health gives us four steps to retiring rich. Some of the tips (the first two) come from the author’s discussion with Mr. Warren Buffett.

Here the list:

RULE 1: Instead of trying to time the market, try to tie it. Unless you’re a top sensei yourself, don’t try to beat the market. Instead, cast the widest net possible using index funds. Buy a fund that tracks the S&P 500 or maybe even the entire U.S. stock market. If you’re able to lock in the gains of the market–roughly 10 percent a year, historically–you will have accomplished a vast amount.

RULE 2: When you’re tempted to sell, buy. When stocks are in the tank, your gut will tell you to bail, to move your money into less-volatile investments like bonds or money-market funds. It’s human nature. It’s also a huge mistake. When the market plunges–over days, months, and years–there are opportunities to make real money.

RULE 3: Collect sectors. But you have another best friend, one you don’t spend a whole lot of time thinking about: diversification. You don’t want to be thrown for a huge loss by drops in any one sector. Make sure your holdings cover the entire investment field, so if “energy” collapses, you might be protected by gains in, for example, “financial services” or “health care.” This is another great reason to invest in an S&P 500 index fund: It comprises stocks from virtually every sector.

RULE 4: Invest in yourself (involuntarily). Chances are you’re putting away money for retirement automatically; your employer takes it out of your paycheck, pretax. If you ever want to amass a lot of liquid assets–that is, money you can spend today if you want–you need to set your savings to automatic, as well.

So my Comments on each are:

1. Big thumbs up here because index funds are well diversified and come with no-load fees and very low expense fees.
2. This is also absolutely true because this is where stocks/shares are and will be at there cheapest so in times like this buy as much as you can and save in times of high bubble prices.
3. Yet another beauty of investing in index funds.
4. This way you never forget and it is all done for you.

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There was a great post today at Get Rich Slowly that answers how investing in low fee index funds generates up to 33% more in savings.

Using a comparison between low fee index funds with no-load versus class-A mutual funds that do have load fees plus management fees tied to them. You lose up to 33% in fees right off the top every single time that you purchase more stock.

This not only beats down your potential for high returns but also lowers the amount of money that you can withdraw yearly by drastic amounts.

To fully see the drastic change in compounded wealth that is subtracted you have to check Get Rich Slowly “How Lower Fees and Expenses with Index Funds Could Mean 33% More to Spend in Retirement.”

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The debate is in and it is a very touchy and personal decision.

First let’s talk about the pure proud feeling of knowing that you finished paying off for your house. Another factor would be that you would be reducing your mortgage term significantly. Another factor that you have to include is that all interests that you pay towards your mortgage is tax deductible. Let’s say if you were to enroll yourself in bi-weekly payments and/or if you were to just add an additional 10% of your monthly mortgage payment just to principal you would cut down the term by about 3/5.

Now let’s say that you were to instead invest that extra money into a index fund or better yet an Exchange Traded Fund (ETF) in the stock market. For one point, the 10%-14% that you could have compounded within the years would have been greater then paying down the mortgage of a 5%-7& interest rate.

That is the question that you must ask yourself. Is the interest on your mortgage a comparable rate when compared to the stock market returns of a index fund that is well diversified. If you are looking to gain upwards of 4% and are willing to test the waters and have a good risk tolerance for long investments then by all means then you should invest in the stock market.

You would be able to invest and after say 10 years you would have a great deal more net worth and capital then if you decided to just prepay your mortgage instead.

If this article has intrigued you then please go to Investing Versus Paying Ahead on Your Mortgage: Which Makes More Sense? and Question From a Reader: What to do With My Mortgage?

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A house or real estate property is by far the best investment to make if you can afford to right now.

Benefits of Owning a House or Real Estate Property

1. Forces you to put away money in the form of mortgage payments.
2. Houses generally and mostly do not go up and down as the stock market does.
3. Most of the time a house always continues to build up equity.
4. If you live in the house, you get the added benefit of enjoying it as well.
5. Later on you can sell it and cash in or turn it into a revenue generating cash box.

If you cannot afford one right now, you should save as much as you can on a weekly basis or a paycheck basis. Save like 20%-5% into a secret account in which you pretend to forget about then throw that money into the stock market and the bonds market.

Simply invest 40% into iShares Lehman US Aggregate Bond Fund (AGG) and put the other 60% into SPDR Trust, Series 1 (SPY).

Keep saving and compounding and you will get there.

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Being frugal should always be top on your list in order to be retire early.

Steps for early retirement

• Be very Frugal. Live below your means and don’t pay for anything that you don’t have to.
  • Use coupons for everything.
  • Ride a bike to your destination or car pool.
  • Send your child/children to public school instead of private school. Major money saver here.
  • Use credit cards with cash back rewards like Citibank, Chase and CapitalOne.
• Save at least 20% of every paycheck. After five paychecks you already have saved a whole paycheck without thinking about it. If 20% sounds like too much, then by all means start by 10% or even 5%.
• Learn how to get multiple streams of income. Get another job, start blogging, fix computers or cars in your spare time. Start somewhere and then that whole paycheck can become 100% saved.
• Invest for the long term in the stock market and always buy low. Try hassle free methods like investing in Mutual Funds and Exchange Traded Funds (ETF). These help you because you don’t need to buy individual stocks and they are well diversified.

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This is actually the not to do list. This is the way to the dark side of becoming financially independent. If you find yourself doing any the things listed here, immediately stop yourself.

1. Apply for all those cool credit cards like free miles, points and cash rewards. These are good in limited numbers like a maximum of two of these combined.
2. Apply for any credit card that does not give you anything back.
3. Take your credit card and max it out to buy unnecessary things for crazy luxury or to impress your friends.
4. Pay your bills late and then pay late fees.
5. If you have big bills, at least try to pay the minimum payment.
6. Wait till a unpaid bill goes to a collection agency.
7. Don’t pay your landlord or mortgage because you want to buy that sweet new current year vehicle. My friends dad told him “You can’t live in a car and if you could, how long do you think that will last?”
8. Try to runaway from your taxes.
9. Payday loans are for emergency funds in which you pay back high interest rates. Instead create your own emergency fund of about 6 months worth of emergency money.
10. Pride, think you don’t need to budget and put away some side money. Listed as pride but it can be listed as poor thinking.

If you are guilty of any of these things, please call a financial adviser!

LoL, I had fun posting this little folly list because I am happy to report that I am no longer doing these things any more.

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One of the greatest money savers comes weekly in the form of the Sunday papers.

Every week you get these great coupons and updates on the weeks greatest deals in your area. I started this and I am able to save a few extra bucks every week.

I can save on grocery items and even electronics. I love electronics and that is my vice. I can stay semi current while still saving by being frugal on my purchases.

Never take those little silent coupons lightly as they can save you a ton in time.

Popularity: 26% [?]

I was very fortunate to always get what I wanted when I was growing up. All I had to do was say I wanted something and sure enough I would get it. That made me into an impulsive buyer when I became an adult. I never looked for sales and therefore money just trickled out of my savings account.

I am not going to talk about looking for coupons or impulsive buying. When you work so hard to save money into a savings account you want to keep it there.

Save Money and Keep your Saved Dollars

1. Create a personal budget – very important first step. The best way to save money is to trim what doesn’t need to be spent.
   • Depending on your income and expenses you will know a reasonable number to set aside solely for savings. Declaring a realistic figure like $25-$50 per week or maybe even bi-weekly.The point is something is always better then nothing so don’t get discouraged if it seems like a small amount.
2. The 3 Bank Account Difference – the 3 accounts all serve a distinctive purpose.
   • Spending Account – this account can be a checking or savings account. This account will receive paychecks and will take the role of dealing with daily expenses. This one is okay to have an ATM card in order to withdraw money for day to day activities.
   • Rainy-day/Emergency Fund Account – this will be your emergency blanket. This will cover any unforeseen emergencies. Job loss, car repairs, household repairs, house tax increases and so on.This account should have no ATM card and should be emergency use only.
   • Savings Account – this account also should not have and ATM card and you will not transfer out money from this account for day to day purposes or things like groceries and so on.I use currently use Paypal’s money market account for this and I also use Sharebuilder money market account.
3. Fill up Emergency Funds Account – this account should be filled up before the savings account.As a rule of thumb try to save enough to cover all of your expenses for at least the next 6 months or do like me and save enough for 10 months
4. Save Money Now – when you have a nice emergency fund setup and ready only then would you start saving.Try to set an automatic transfer that occurs every two weeks or every month. Automatic transfers makes sure that you do it and you never have to worry about remembering.I picked up this from David Bach and his Automatic Millionaire book.

No worries about tracking where your money goes and wondering if you put money in.

That’s it to automatic savings and novice budgeting.

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Credit cards are great but require self restraint. It just makes it too easy at times to spend money and you don’t notice the total until the end of the year. So this is the greatest debt builder but we have a great way to combat this.

1. List you credit cards in interest order.
2. Determine which credit cards you will terminate because as a rule of thumb, you don’t need more then 3 credit cards ever.
3. Call each credit card company in order and ask for a lower interest rate and “no fee 0% APR” transfer.
4. Start transferring balances from the new adjusted higher rates to the new lower rate.
5. Pay off the remaining balances on the highest credit card balances first.
6. Snowball your new debt free life.
7. As you pay off the debt, cancel the card on balance completion until you have 3 credit cards or less left.
8. Pat yourself on the back because you just terminated you debt.

It’s that simple to do. It may take some time but this method is the best and cheapest method to remove these hurdles from your path to getting rich.

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To become financially independent you will first need a road map that will help you attain that level of independence. I have been playing around with some methods and I found that these were some good methods to help me out. A good road map should help you get out of debt, invest, budget and plan for retirement.

Making Money Methods

• Set Goals – What do you want to do? Make money, attack debt or plan for retirement. Hopefully you will like to do all of these things at once. I planned to set my goal to increase wealth and in that respect to increase wealth.
• Read Personal Finance – Read every web article, book and subscribe to personal finance magazines.
• Track Spending – Track all of your expenses so you can see where your money is going. I realized that I spent about $60 per week at Duane Reade. You know that was cut later on.
• Cut Expenses – This goes hand in hand with tracking expenses. You then analyze where you spend too much and then trim them out of your budget.
• Decrease Debt – Start cutting down credit card debt. Start with the smallest debt then work your way up to the big ones. Shop around better interest rates then call up your current credit card and tell them to rate you can get and see if they will negotiate. If they do fine but if not then transfer the debt to the new one and close the old credit card immediately. Cut your total credit cards down to 2 maximum cards.
• Extra Income – Look into alternate streams of income. I use dividend stocks, Google Adsense, web advertisement, regular 9 to 5 job, high yield money market account for liquid money, rent house/apartment.
• Purchase Stock – I would say to purchase dividend stock because they increase per share and they still function as stock.
• Purchase Property -By purchasing a property, you increase your wealth automatically and fast. You force yourself to save and properties increase with inflation.

This simple but highly effective methods are so simple when you think about it, but highly effective. These cover making money, removing credit card debt, gaining extra income, cutting expenses with a tighter budget and planning for retirement by learning steps to increase wealth.

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