How to Retire Rich
Understand basic financial principles and vocabulary., Prioritize savings over big purchases or expenses., Reinvest profits and raises., Know how much you need to earn.
Step-by-Step Guide
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Step 1: Understand basic financial principles and vocabulary.
The National Bureau of Economic Research found that people with basic financial literacy made as much as 25% more money for retirement than those who had little financial knowledge.
The most successful retirees start saving early and often, avoided putting all of their money in basket, and know key financial language.
Some essential terms to know include:
Investment:
Money you spend to earn more money.
Common investments are the stock market, property, and large assets like houses, but even small, high-value purchases like baseball cards could be considered investments.
Interest:
The percentage of money you earn on an investment or must pay on a loan.
For example, if I open a savings account with a 2% annual interest rate, then I will have 2% more money in my account at the end of every year then I stated with.
If I open a loan at 2%, I must pay the bank an extra 2%, plus the money I borrowed.
Stock:
An ownership share of a company that can be bought or sold.
The price changes depending on how well the company is doing.
The goal is to buy a stock at a lower price than you will eventually sell it for to make money.
Bonds:
A small "loan" to a business or government that pays back a set interest rate.
The safer alternatives to stocks, bonds pay less over time but are much less likely to "crash" or lose value. 401(k):
An account offered by your job where you and your employer invest stock money for retirement without being taxed.
Often you can choose which stocks are invested in with your money from a series of plans.
You usually cannot touch this money until retirement.
There is a year limit to the money you can add.
IRA:
Individual Retirement Accounts (IRAs) are safe places to invest money for retirement without having to pay taxes on it while it grows.
There is a yearly limit to the amount of money you can add.
Portfolio:
Your collection of stocks, bonds, funds, and accounts, a portfolio is another word for your entire financial package.
Nest Egg:
A colloquial term for the amount of money you save for retirement. -
Step 2: Prioritize savings over big purchases or expenses.
While it is easy to tell yourself that you will "invest more money later," putting a money in savings early and often will make a big difference in the long run.
If you place $5,000 a year in retirement savings in your 20's you will have twice as much money when you retire as someone who invests $20,000 a year in their 40's.
This is because accumulating interest over time grows your money much faster than investing big sums at the last minute. , At every instance you can, take additional cash and put it back into savings and investments.
Get over the temptation to spend all the extra money you have knowing that having money makes it easier to get money.
The power of compounding cannot be understated! When you get a raise, add that amount to your monthly savings.
You will keep your same quality of life and save much more in the long-term. , The US Department of Labor predicts that people need 70-90% of their pre-retirement income to live a comfortable retirement life, and you'll need more than that to retire rich.
This may seem like a daunting amount of money, but it is easy to pay for it if you start 30, 40, or even 50 years in advance.
Ask yourself what kind of life you would like to live when you retire.
If you want to have a lavish retirement you should shoot for at least a seven-figure nest egg. -
Step 3: Reinvest profits and raises.
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Step 4: Know how much you need to earn.
Detailed Guide
The National Bureau of Economic Research found that people with basic financial literacy made as much as 25% more money for retirement than those who had little financial knowledge.
The most successful retirees start saving early and often, avoided putting all of their money in basket, and know key financial language.
Some essential terms to know include:
Investment:
Money you spend to earn more money.
Common investments are the stock market, property, and large assets like houses, but even small, high-value purchases like baseball cards could be considered investments.
Interest:
The percentage of money you earn on an investment or must pay on a loan.
For example, if I open a savings account with a 2% annual interest rate, then I will have 2% more money in my account at the end of every year then I stated with.
If I open a loan at 2%, I must pay the bank an extra 2%, plus the money I borrowed.
Stock:
An ownership share of a company that can be bought or sold.
The price changes depending on how well the company is doing.
The goal is to buy a stock at a lower price than you will eventually sell it for to make money.
Bonds:
A small "loan" to a business or government that pays back a set interest rate.
The safer alternatives to stocks, bonds pay less over time but are much less likely to "crash" or lose value. 401(k):
An account offered by your job where you and your employer invest stock money for retirement without being taxed.
Often you can choose which stocks are invested in with your money from a series of plans.
You usually cannot touch this money until retirement.
There is a year limit to the money you can add.
IRA:
Individual Retirement Accounts (IRAs) are safe places to invest money for retirement without having to pay taxes on it while it grows.
There is a yearly limit to the amount of money you can add.
Portfolio:
Your collection of stocks, bonds, funds, and accounts, a portfolio is another word for your entire financial package.
Nest Egg:
A colloquial term for the amount of money you save for retirement.
While it is easy to tell yourself that you will "invest more money later," putting a money in savings early and often will make a big difference in the long run.
If you place $5,000 a year in retirement savings in your 20's you will have twice as much money when you retire as someone who invests $20,000 a year in their 40's.
This is because accumulating interest over time grows your money much faster than investing big sums at the last minute. , At every instance you can, take additional cash and put it back into savings and investments.
Get over the temptation to spend all the extra money you have knowing that having money makes it easier to get money.
The power of compounding cannot be understated! When you get a raise, add that amount to your monthly savings.
You will keep your same quality of life and save much more in the long-term. , The US Department of Labor predicts that people need 70-90% of their pre-retirement income to live a comfortable retirement life, and you'll need more than that to retire rich.
This may seem like a daunting amount of money, but it is easy to pay for it if you start 30, 40, or even 50 years in advance.
Ask yourself what kind of life you would like to live when you retire.
If you want to have a lavish retirement you should shoot for at least a seven-figure nest egg.
About the Author
Benjamin Collins
Specializes in breaking down complex crafts topics into simple steps.
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