When I grow up…

Eric • 10th Sep 2005 • Uncategorized

I can remember, as a child, being asked this question. Hm… a doctor? A lawyer? A rock star? (nah!) A bus driver (well, the original plan was my brother was going to drive a bus, and I was going to ride on it – but I hear the benefits aren’t that good).

Other than riding on a bus, there’s only one answer I remember giving when asked what I was going to be when I grow up.

No, I had no idea how I was going to do it, but now I’m starting to learn. I’ve been reading quite a bit, and learning lots. So far, the three most important points I’ve learned are:

1. Don’t give someone else your money
2. Pay yourself first
3. Let your assets generate your income

The first point is simple – if you have credit card debt (and believe me, I have my fair share – in face, if I had the average $8,000, I’d be ecstatic), then you’re paying interest charges and getting nothing out of it. Granted, 4 years ago I lived like a king, but I’m paying for things that the kids have outgrown, we’ve thrown away or quickly eaten.

Credit cards and financing are two different things, and the two should not be confused. For example, my water softening system cost about $2200. While I could have outright purchased it 3 months or so ago, I was given 0% APR for 12 months. So I’m making my monthly payments, and the money, instead of the money being gone, it’s earning a modest interest rate in my savings account. Oh, and I’m building a better credit score.

Point 2 – pay yourself first. What this means is to put money away to pay yourself when you retire. The easiest way to do this is to automate it – every 2 weeks, $x goes into a savings account. Every month, $y buys a savings bond. Every month, $z goes to Scottrade, and I make an educated trade (more on that at a later time). You need to pay for your retirement now.

The third point – let your assets generate your income. This is the newest one to me, and I’m still working on building assets that generate income. The easiest example to give is an investment property (say one that costs $150K). If you buy a “double” and rent out both parts, and the income (rent) covers your 15-year mortgage, then in 15 years, you’ve added a $150K asset to your portfolio. And it doesn’t stop there – until you sell, your asset is generating your income. Your money works for you, you don’t work for your money.

As I learn more, I’ll share what I know. My kids will know how to handle money properly, and I will be rich.