I Will Teach You To Be Rich And Get Ready To Invest
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Week 3: Get Ready To Invest
Open your 401(k) and Roth IRA -- even with just $50
I am reading I Will Teach You To Be Rich by Ramit Sethi. This book provides a 6-week step-by-step guide to getting your finances in order to become rich.
Week 1 focused on optimizing your credit.
Week 2 focused on opening and optimizing your bank account.
Week 3 focuses on teaching you to get ready to invest.
This chapter will discuss why you should invest and the best way to start investing your money and how to set up the process in a week.
THE WHY
A millionaire is not a person who makes $1 million or more per year. A millionaire is someone who's net worth is $1 million or more.
On average, millionaires invest 20 percent of their household income each year. Their wealth isn't measured by the amount they make each year, but by how much they've saved and invested over time.
Investing is the single most effective way to get rich!
THE HOW
Step 1: If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100% of the match. This is free money and there is, quite simply, no better deal.
Step 2: Pay off your credit card and any other debt (excluding any primary home loans you may have outstanding). If you can't pay this off immediately, set up a plan to pay off your debt within a specific amount of time.
Step 3: Open up a Roth IRA and contribute as much money as possible to it, up to the maximum allowed by the Internal Revenue Service.
Step 4: If you have money left over, go back to your 401(k) and contribute as much as possible to it, up to the maximum allowed by the Internal Revenue Service.
Step 5: If you still have money left to invest, open a regular nonretirement account and put as much as possible there. Also, pay extra on any mortgage debt you have, and consider investing in yourself: Whether it's starting a company or getting an additional degree, there's often no better investment than your own career.
*Please note that my philosophy varies slightly from what Ramit suggests in his book. My how, which takes into account Dave Ramsey's Baby Steps, would be the following.
Step 1: If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100% of the match. This is free money and there is, quite simply, no better deal.
Step 2: Pay off your credit card and any other debt (excluding any primary home loans you may have outstanding). If you can't pay this off immediately, set up a plan to pay off your debt within a specific amount of time.
Step 3: Open up a Roth IRA and contribute as much money as possible to it, up to the maximum allowed by the Internal Revenue Service, but no more than 15% (minus the % you have already contributed to 401(k)) of your income.
Step 4: If you have money left over, go back to your 401(k) and contribute as much as possible to it, up to the maximum allowed by the Internal Revenue Service, but no more than 15% (minus the % you have already contributed to 401(k) and Roth IRA) of your income.
Step 5: If you still have money left to invest,
5a: If you have children, open an ESA or 529 plan to save for their college education. If not, skip to 5b.
5b: Use all extra money to pay off your home early. If you don't have a mortgage, skip to 5c.
5c: Open a regular nonretirement account and put as much as possible there. Also, consider investing in yourself: Whether it's starting a company or getting an additional degree, there's often no better investment than your own career.
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I Will Teach You To Be Rich by Ramit Sethi
