Are You on Your Way to Being Wealthy?

Mar 23, 2011
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CATEGORIES: Investment Planning

Post by Vered DeLeeuw*

When people ask me to recommend a great investment book, I almost always suggest they start with “The Millionaire Next Door.”  It’s not really a book about investing – it’s a straightforward personal finance book with a simple message: If you live below your means and save aggressively, you too can become financially independent, even if you were not born with a silver spoon in your mouth.

I agree with the book’s premise, and I have a real life proof that it works: my own parents. They started out with literally nothing. My mom grew up poor. My dad came from a wealthy upper middle class family, but had received very little financial help from his parents – they always believed he should work and build himself financially.

So he worked. My mother did too. They both worked hard, saved aggressively, and refused to get sucked into an expensive lifestyle and into competing, or keeping up with the Joneses. Indeed, one of the most important observations in the book is that most self-made millionaires consider financial independence as more important than acquiring social status through spending.

It’s not that my parents didn’t enjoy life through all these years of working hard, living below their means and saving. The book’s critics often claim that the book promotes an anti-social lifestyle of secluding oneself and hoarding money, but this is not true at all. My parents traveled extensively, entertained friends and family, and spent money on the things that were important to them. They did not, however, live in a big house or replace their car every year. They never borrowed, except for the mortgage on their home, which they have repaid in full in 15 years.

Now, in their early sixties, they are financially independent. In fact, my father was able to fully retire at the age of 55.

But why are we discussing personal finance issues, and money beliefs, in an investing blog? Sure, we discuss investing all the time, but one needs to have money in the first place in order to invest it. You can dream about winning the lottery or hope that your startup will be the next big thing. It happens. But in the vast majority of cases, it’s not about a “big break,” but more about saving day by day and month by month. And once you begin saving, you’ll have money to invest – that’s when services like Jemstep can help you invest wisely.

Of course, we live in a culture that promotes the exact opposite of living below our means. There’s a lot of pressure to live way above our means, and to finance the difference by borrowing. This irresponsible borrowing had led to the Great Recession, and in a way, that recession has taught us that borrowing in order to live beyond our means might not be such a great idea after all. Frugality is now more desirable, even a trend. But will it last? Only time will tell.

As a society, we have grown accustomed to assume that if one appears wealthy, one is indeed wealthy. But in many cases, those around us that lead a lavish lifestyle are financing it with debt. They are not truly wealthy, because their “wealth” will evaporate if they lose their job. Many are not investors either, because they don’t have money to invest – rather than save money in a tax-friendly 401(k) or IRA, they are spending their income on over-consumption. The truly wealthy often don’t appear to be so – they live below their means, save aggressively and invest wisely. And because of the magic of compound interest, the earlier you start, the higher your chances of eventually becoming financially independent.

Are you on your way to being wealthy?

*Vered DeLeeuw is a freelance writer and blogger. She writes about a wide range of topics, including personal finance, real estate, marketing and self-improvement, and is a frequent contributor to the Jemstep blog. Vered lives with her husband and two children in the San Francisco Bay Area of California.

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The team at Jemstep is dedicated not only to helping you make better investments, but also to enlightening and educating you about financial markets and responsible investment decision-making that will help you achieve your financial goals faster.

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  • rh

    This article does nothing to answer the question in the title.

    • RealityBetraysus

      Absolutely true the bible says what does it profit a man to gain the whole world but to lose his immortal soul? instead of looking at life as merely this short time we spend on earth, we should be asking ourselves where do we want to spend eternity in Heaven or Hell?
      if you understand those implications you soon realize that what Jesus said is true; it is much wiser to spend your time using  your wealth here on earth by building the kingdom of God and thereby building up the kingdom of God where neither moth, nor rust nor thieves may break in and steal your wealth, but store it up in heaven where you will have eternal rewards that can not be taken from you. Jesus is the best financial investment counselor I have ever heard of. No surprises there….. 

  • Vw_fan17

    I don’t get it. Everyone touts the magical “compound interest”. With it stuck at 1% for the last X years, it’s hardly a factor. 70 years to double your investment ONCE. Nowhere near the 5-7 years in the 80s when interest rates topped 10%!!

  • TJB

    If you are only gaining 1% per year, you’re not investing in the right things. check out some dividend-paying stocks and you’ll do much better, or invest for growth, or go for a moderately aggressive mix. If you are too conservative, inflation will eat your investments alive.

  • Al Allen

    Bunch of rookies posting here. I’ve been investing, living beneath my means since 1973 and will retire in 2012 at 57 with no bills, $1 million in assets, military pension, fed civil service retirement at 62 and social security to come. Either you planned to fail or failed to plan. Not me, I’m looking forward to all my free time starting in 2013. Anyone can do it if you have a plan and stick with it. Retire early or work until you are 70, your call.

    • Ratel

      People like Al who are “triple-dipping” Federal retirement plans are bankrupting this country. 

      As for Al himself, in 10 years, I think he’ll see cuts in the pay of one or more of those pension plans.  Right now, he arrogantly thinks he’s got the world in a bottle.

      • http://www.facebook.com/people/Babs-Anthony/100003177074909 Babs Anthony

        Al does have the world in a bottle! Can you say that you have $1 million in assets notwithstanding his two government pensions? I thought so.

    • RealityBetraysus

      No man knows the future, I hope you die in 2013, then you will appreciate saving for nothing, because none of us are God and none of us have any guarantees on how long we will live. This scenario is no more absurd than the man who saved and planned for nothing but on the day he dies, he wins the lottery but will never get to spend it! Making assumptions is foolish, the bible states that no man knows the future only God, much wiser to put your faith and trust in God rather than your own plans or in money. Realize you can do nothing unless God allows it, because you are not in control even of your own life, only very limited choices that God allows you to make. 

      • RealityBetraysus

        Here’s a scenario none will like but all may have to swallow: The Eurodollar crashes and takes the US Dollar down with it 6mos. later. The paper currency and bonds all fail and become worthless. Precious metals and diamonds are the only thing that maintain value but the US gov. forces all owners of bullion to turn in their gold and they reissue it later backed by new currency like they did during the last depression. The only owners of precious metals are those who have in in the form or art or coins. The gov. does not want to get into a pissing match arguing over value on these collectibles so does not try to force confiscation..Millions lose homes because they can not pay mortgage debts and taxes with precious metal coins and gov. and banks refuse to take worthless dollars.This is exactly the scenario predicted by Anderson Williams (see Alex Jones talk radio Dallas Texas about (Illuminati-es-secret-organization) plan to bankrupt USA and cleanup financially for themselves afterwards).Fed Reserve is neither federal nor a reserve merely counterfeit agency that was created during Wilson’s presidency as a means of allowing the world bankers to bankrupt the USA and take total control of our country by controlling the money supply).The USA government could use the bankruptcy of the dollar as a means to cancel all previous debt, and reissue a new currency backed by either gold or oil.(OIl companies are now in a rush to develop gas deposits in USA N and S Dakota as well as Alaska, and cut off dependence on all middle east oil.) Pressures will continue on USA because China wants to make their currency backed by gold, and wants to have their runimbi currency the next “world reserve currency like the dollar is today).Any personal plans you have for your money can be destroyed overnight by the economic disasters that are coming.The bible says to put your faith in God not man and not money.Look up for the believers in Jesus, your redemption draweth neigh (Kings james english for jesus is coming back get ready to go!)

    • Marty

      Well done, Al.   One thing I would advise you to do, though.   Take a 2 week vacation and stay home.   That’s what retirement feels like.   At the end of that, you will know if you are mentally ready to retire.  

  • Art

    Vered,

    Like rh already suggested, your title has no connection to what you wrote. That automatically makes the article itself a failure.

  • Jim in Oklahoma

    “Magic of Compound Interest” That was true when interest rates were 7-10%, but todays interest rates don’t come close to keeping up with inflation, which will get much worse as Bernacke continues to print money day and night…….