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I’ll admit it: I’ve succumbed to the craziness and bought a few (four, to be exact) tickets for the MegaMillions lottery jackpot, which as of this writing sits at a ridiculous 1.6 billion U.S. Dollars. To get my $8 worth of entertainment out of the purchase, I took the time to develop a detailed spreadsheet delineating how I would apply said jackpot. However, realizing that instant wealth can create its own problems, I decided to do a little practical research on how seriously wealthy people actually handle their money. The advice was useful enough that I thought I’d pass it along, even if I don’t win said jackpot (odds of winning are one in over 302 million).
Live Below Your Means
This is an even simpler way of saying spend less than you make.
Make Savings an Automatic Process
Savings in this case means both cash savings and investing. I read one site that advocated setting aside as much as 15% of your income for saving and investing–that’s a sure way of ensuring that you live below your means. At one point, I was setting aside 10% of my income toward savings. Nowhere near that number now, but one way I make the savings process “automatic” is by having it taken out of a savings account as an automatic deduction so I never see it. And because I’m a 1099 worker, I try to put at least 50% of my earnings into savings (from which that investment money is drawn) so I have money set aside for taxes and emergencies.
Know the Difference Between Wants and Needs
This is basically a reminder to delay any urges toward instant gratification and to check your impulse spending. I admit to being a bit of an impulse spender, but I also budget for that, with most of said impulse purchases being books or eating/drinking at a restaurant somewhere. But, again, I don’t need to do those things, and I can do without. A car is a necessity; a new sports car every three years is not a “need.” Food and clothing are necessities; high-end purchases of either are not. A home is a necessity; a McMansion is not (at least to me).
This means keeping the number of credit cards you have to a minimum, paying off any balances every month, paying cash, financing purchases over time, etc. It also means calculating the full price of something if it is purchased over time, such as a house. For example, I’ve let my credit card bill wax and wane over the years, but it’s coming down again, and I can tell you that there’s nothing so great as that feeling of seeing a zero balance on the bill after years of big numbers. Looking forward to that again. I’ve also heard of “good debt” vs. “bad debt,” where good debts would be for assets that appreciate like homes; whereas bad debt would be, you guessed it: consumer credit cards.
Have a Professional Advise You on Managing Your Money
If you’re in one of those upper tax brackets, you might have a lot of your money put into a trust, which is managed by a professional money manager. Some trusts will even tell you what you can spend your money on. Sounds crazy, but if you get rich, you want to stay rich, right?
If you aren’t in the position of having or needing a trust, you can still speak with a financial advisor of some sort. I’ve worked through credit unions and professional investment firms, and both have advantages. They can help you plan for things like retirement, college education(s) for your child(ren), and other long-term or major purchases like buying a home. Detailed plans might cost you extra, and I decided to spend on one this year, as I’m approaching 50 and want to know if I CAN retire at 70ish or if I should just keep working. We’ll see what the planner says.
Consider Tax Implications
You will have varying tax rates depending on what you invest your money on, whether it’s stocks, mutual funds, business ownership, and some taxes hit at different times, like when you make a purchase vs. when you cash out an account. Financial advisors are good for advising on that, too.
Leaving a Legacy
I’ve touched on this before, but unless you’re eager to go broke instantly just buying things, you might want to use some of your hard-earned (or instantly won) cash on charities and causes in which you believe. And you don’t want to be remembered as one of those folks who ended up worse off by getting money, do you? In any case, there are financial advisors and lawyers who can help you set up charitable giving and the like. There are tax benefits, to be sure, but ideally you get some personal benefit from doing the right thing.
Have More Than One Income Stream
This is pretty straightforward, yes?
Now…am I going to win MegaMillions on Tuesday? Odds are, no. That doesn’t mean I can’t start learning how to manage my money or planning for a better future now, right?