Armchair Millionaire Community Bulletin Facing Up to Your Financial...

May 18, 2005 -- Certainly there are still many opportunities in this country to create substantial wealth. But even more important, achieving financial security and a degree of financial independence is within the reach of just about everyone--provided they take the right steps over the long term.

Two interesting studies reveal a curious phenomenon. The first, a 1999 Newsweek poll, found that 41 percent of surveyed Americans believe that it is very or somewhat likely that they would become wealthy. Contrast this with a 2004 study by the American Savings Education Council that found that only 27 percent of all those surveyed had saved more than $50,000. Only 18 percent had saved more than $100,000. It seems that some of us remain committed to the part of the American dream about getting rich, but have forgotten about the hard work part of the equation.

Some comments from the Armchair Millionaire community show that at least some people are still taking a common sense approach to building their wealth:

"Our goal is to retire when my husband and I are 48, or at least have our $1 million saved so we can get fun jobs. We save about 25 percent of our income in 401(k)s, Roth and traditional IRAs, mutual funds, savings accounts and bonds. The majority of our savings goes into the 401(k). We plan yearly goals and so far have met them each year." --Kristi

"I do think I will be wealthy one day because prudent spending, saving, and compound interest are on my side. Time is, too--I'm only 24. I'm in a job now that has the potential to create residual income for the rest of my life, and I am a hard worker. Also, I try to spend my money on appreciating goods, and as little as safely possible on depreciating ones like cars and clothes." --Patrick

It's important to remember that financial success depends on having a realistic outlook of just what it takes to become financially secure and how much our day-to-day spending choices can affect our long-term financial health. My guide provides some eye-opening examples of what you should know.

The Armchair Millionaire's Guide to Getting Real About Your Money

Know what it will cost to retire. You already know that Social Security is just not going to cut it for providing a secure retirement. Assume that you want to have an additional income of $3,000 per month during retirement. To generate this amount, you'll need a retirement portfolio in the neighborhood of $900,000. Knowing this may make you head straight to your HR department to bump up your 401(k) contribution.

Know your real car costs. The difference between a $15,000 Toyota Corolla and a $32,000 Jeep Grand Cherokee is $17,000, right Wrong. That extra 17 grand represents a huge opportunity cost. For example, invest that money in a stock mutual fund, keep it there for 15 years and earn an average historical return of 10 percent per year on it, and you'll end up with a bit over $71,000. Factor in the higher ongoing costs for insurance and fuel, and you'd be up even more. Once you understand that choosing between car models can actually mean choosing between a secure future and a not-so-secure one, you may find that you're no longer quite so interested in that SUV.

Know what those little splurges really cost. What's five bucks here and there for a latte and a muffin So what if you're paying an extra $15 a month for those premium cable channels you almost never watch It turns out that it matters a lot. Assume that you spend $150 a month on all those little extras. That money has all been taxed, so if you're in the 28 percent tax bracket, you had to earn nearly $200. Now assume that you stash that $200 of pre-tax money into a tax-deferred retirement account every month instead. Leave it alone to grow for 30 years at an annual rate of 10 percent, and you'll end up with just under $456,000. Armed with this knowledge, you're much more likely to just walk right by that Starbucks.

Understand how a little can add up to a lot. Now here's the good news: Given time, a consistent approach, and just a bit of sacrifice, you really can strike it rich. Consider if you shaved just $15 a day off your daily spending--that adds up to a nice $5,475 every year. If you invest that sensibly in the stock market (such as in a broad-market index fund), and keep at it year after year, that money will grow enough to make you a millionaire. In fact, over 30 years and a 10 percent rate of return, that money would turn into a whopping $1,088,000.

The bottom line: All dreams are grounded in reality. If you want to make it rich--or even just become financially secure--you need to understand just what that takes.

The Armchair Millionaire Weekly Survey: Are you saving for your kids' college educations Log on to www.armchairmillionaire.com and let us know.

Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at www.armchairmillionaire.com.

Contact Information:

Lewis Schiff

Armchair Millionaire

877-833-2823

http://www.armchairmillionaire.com

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