How to Become Wealthy - The Slow Way

"A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way the desired result is attained. It requires some training, perhaps, to accomplish this economy, but when once used to it, you will find there is more satisfaction in rational saving than in irrational spending". ~ The Art of Money Getting, by P. T. Barnum

Investments

Invest your money in assets that tend to appreciate over time like stocks, bonds and your house. Minimize your investments in assets that depreciate, such as furniture and boats.

Dump your stock broker and invest your money in low cost index funds. Most professional money managers cannot beat index funds over time, due in part to the law of averages and in part due to transaction costs associated with buying and selling stocks. You will also generally save money on taxes with income funds by minimizing your short term gains, which are taxed at a higher rate than long term gains. Studies show that in a given year index funds beat 80% of the managed funds, and those number don't even take into account the higher taxes people tend to pay on managed funds due to a much higher portfolio turnover than index funds. So there is no logical reason for most average investors to hire a professional money manager. For a good article on this subject, read The S&P 500 Index Fund from the Motley Fool.

For most people it is not a good idea to hire a financial advisor whose only job is to find someone else to manage your money. If you pay this "finder" advisor 1% of your assets and the actual manager another 1% per year, then that is 2% of your assets going to nothing but management fees. You can invest in a fund like Vanguard 500 Index fund for a management fee of less than .2% per year instead, a saving of 1.8% per year on management expenses. As of the writing the Dow Jones Industrial Average had a ten year return of just under eight percent, so 2 percent in management fees is a huge percent to have to make up. With advisers with fees like these, after inflation and taxes, you would be getting almost no real return at all. At 2% fees your money money managers would have to outperform the market by almost 25% just to break even with an index fund in order to make up for their costs. Because of this, study after study shows that over time most managed funds simply cannot outperform index funds.

Diversify your investments. The best book on the subject that I've read is Asset Allocation by Richard Ferri. Books on asset allocation by William Bernstein are also popular, but I personally found his writing style to be condescending and closed minded. I thought the Ferri book was more professionally written.

Strive to generate passive investment income. Passive investments are investments that make money with little or no effort on your part. These may include stock, bonds, CDs, book royalties, ebook sales, and possibly web site income (if you have a low maintenance site). Some people include real estate as a passive investment income, but to me buying, selling, maintaining and insuring rental property takes a lot of work. I was really excited awhile back when I made a small web site that started making $4 a day. One of my friends thought I was crazy to be so excited over $4. But that web site only took me an afternoon to write, and it is evergreen content that will still be valid for years to come. In the last few years I haven't changed the site very much, yet it has made several thousand dollars. That is a pretty good return for not too much more than one afternoon's work.


Home Ownership

Buy a house in an appreciating area with good public schools and live there a long time. It costs a lot of money to send your kids to private schools. It also costs a lot of money to move due to moving costs, realtor fees, closing costs, disruption to your life, time spent moving instead of working on your business, etc.