Knowledge is power

I’m certain that by now you have read a million articles that give you the magic formula for retiring rich. The trick is to save your money, invest on a diversified portfolio, and let time work for you. Considering that the vast majority of the population continues to fail to reach their retirement goals, I can only conclude that they miss the point when reading these articles. The truth is that it all sounds simple but for many people the idea of creating a budget for themselves or even understanding the money-making power of compound interest is a far bigger challenge that many financial advisers think it is.

So, let me make it simple for you to understand how to save money using an example. A friend of mine in his early 20s is a car nut. He has a part-time job that allows him to earn close to $20,000 every year. He lives with his parents so he doesn’t have to pay for housing or food (unless when eating out.)

So, what does he do with the little money he earns (which is lots of money since he doesn’t have to pay rent or a mortgage)? Remember when I said that he is passionate about cars? Well, he spends all (and by that I mean all) of his money on his car. The man purchases more car accessories in one year than I ever will in my entire life. It is very sad. Money spent on a car are wasted money. He will never be able to recover nothing by a small portion of the money he has spent on his car. Cars and car accessories are not an investment. The reason being that such objects will never appreciate in values. Instead start losing value the moment you pay for them at the store.

This is just one example of how one can sabotage their ability to retire rich. There are many other ways that people waste money and cars are just one of them. Think for example that amount of money wasted every day on overpriced coffee at the local Starbucks or other coffee chains. Should you be paying $3-5 for coffee? When you hit 65 years of age and have no money in the bank to pay your bills and have to live on food stamps, will the faded memories of Starbucks coffees be of comfort to you? Think about it!