Book Review: The Millionaire Next Door

I was unimpressed with this book.  It's main point is just because you make a lot of money doesn't mean you are rich.  Those who invest in assets rather than save are more wealthy.  Being frugal is a huge part of becoming a millionaire.  Status symbols like expensive cars and nice houses will only make you spend more and save less.  People tend to spend more the more they make.  Teach your children about money, but don't tell them how much you have.  Children of wealthy parents tend to not be as frugal as their parents and then require help throughout their lives.  Don't live your life with a paycheck as your only source of income.  All in all not very helpful and if a solution isn't offered other than be frugal then I don't think too many people will see a benefit from this.      

Also the book doesn't focus on how to really make a million or how someone who makes 40k a year can make a million.

There are better books out there like Rich Dad Poor Dad if you want better theories and for personal finance Suze Orman Young Fabulous and Broke.

Halloween Strategy

Coincides with sell in may and go away.  The idea is to maximize capital gains by getting out of the market between May-Oct.  Historically those are the most volatile times.

Halloween Strategy - Investopedia

Play the stock market game to learn how to do everything without the risk

I've played this game and I'll be honest I lost interest pretty quickly but I started trading for real around the same time.  Hopefully you can practice and learn without the risk.  Here's a suggestion

Create 3 accounts

1 - A trading account so you can see what that's like

2- An investing account to get an idea how much more you can make with investing rather than a savings account ( keep in mind investment accounts and strategies are long term and can take years to really pay off well.  Great results can occur in the short term but the main idea for creating an investing account in this game is to see in a couple months what 100,000 would make if invested in good dividend/strong companies.

3- Practice options account this can also be your trading account but if you want to separate results at first its up to you.





The Stock Market Game

Correction

Corrections are drops in a market index of 5-10%.  Investopedia says 10%, but 5% can still be considered a correction.  Also if you are always waiting to get in after a 10% decline and the index doesn't decline that much, then you are less likely to maximize your gains and miss a good entry point.

Correction - Investopedia

How do I invest if I have no money? Step 2 of the investing process

You start by making a budget so you can understand what you save every month.

See my beginning budget post here Budget with Excel

In that example the person saves 203 dollars every month.

Now that we know whats available to us lets talk about where to put the excess.

I think that you should always add a little to your savings because you have to be ready for expenses that you weren't prepared for.  Of the 200 put 50 towards savings and over time try to get your savings to equal 6 months of living expenses.  This way if you lose your job or fall on hard times you have something to help you through.  

Next I would add a little extra to credit card debt or school loans.  Which ever has the highest interest rate and pay that down so you can reduce the time you are in debt for.  Let's say we put 53 towards that column.

Credit Card tips

Now we are left with 100 to go to investments.  Depending on where you are with your investments you should disperse this amount evenly among your holdings.  For example if you own 5 stocks put $20 towards each holding.  If you are just starting maybe you want to put the whole 100 towards your initial investment in each holding.  That's up to you especially depending on the price per share of whatever it is you are buying.  What to buy will be in another post and I can't tell you what will be good for you so take my ideas, thoughts, and opinions to help you research what will be best for your situation.

Trading vs Investing : making the case for investing

I started trading with very little money in college.  I used most of my savings account to trade.  I don't recommend that at all.   I made some money in the beginning, but over time I learned that trading is very risky and investing is a better approach for long term results.

Trading is more like gambling, because no one knows what will happen in the short term and the market does not always act logically.  

Investing is long term and uses risk management, diversifying, and dividend strategies to provide good returns while limiting losses.  No one can time the market, be smart and create an investment plan.  (stick with this blog and we'll cover it or look at some strategies on-line)

Also once that plan is in place set up a payment schedule to constantly send funds into your investing account so that you are always adding to your investments that accrue dividends and capital gains over time.  As I said in the beginning, investing takes time but you would be amazed what you can accomplish with a solid and patient strategy.


There is so much to cover on every subject I have to make multiple posts to really cover it in depth without making the posts unreadable.  Check back for more on this subject.


My Coke Reinvested Dividends post gives an example of what can happen if you make your money work for you.