Corrigan's Guide to Building Wealth and Maybe Retiring Early

The state of economic and financial education is deplorable in the US. Many people struggle to even balance a checkbook let alone understand why gas prices fluctuate or where inflation comes from. The fact is that many people are unprepared for their financial future. I'm banking on social security being long gone by the time i retire and i think most people would agree that's a pretty safe bet.

But now it's a new year, a good time to look forward and be optimistic. As always, i want to be part of the problem, not the solution. I mean solution, not the problem.

Here are some basic rules that anyone can follow to build wealth, and maybe even retire early. 40 is a nice round number that i like to dream about.

Rule 1: Sleep on every purchase over 50 bucks! I'm not talking groceries here, but for lots of people impulse buying can be dangerous. Me included. I woke up one morning about a year ago with another car. It's an investment, i swear.
Luckily i now consider myself a recovering impulse buyer.

Rule 2: Don't use credit cards! The fine line between paying them off every month and plunging into debt is microscopically thin. Bottom line is if you can't pay for it with cash, don't buy it.

Rule 3: Manage your debt! Debt on assets like houses is not that bad, after all the government subsidizes part of the service on that debt. Debt on cars is a bit worse, but credit card debt tops them all as the worse debt. When you consider the interest and the time it can take to pay off a credit card, you've paid for that new TV many times over. This is more like rule 2.5

Rule 4: Save! It's really not that difficult. Every month you should save a minimum of 10% of you paycheck. “Pay yourself before you pay someone else.” My dad used to tell me that allot.

Rule 5: Invest! This also is really not that difficult. Put half of the savings (rule 4) into a Roth IRA, sit back and wait. The growth in a Roth is 100% tax free! If you have the opportunity to participate in an employer investment plan like a 401k or thrift savings plan, do this as well. It's hard to beat the employee matching, it's like getting a raise without doing any additional work.

If you don't know what to buy, buy Index funds. If you're more risk prone, move into some stocks. Contrary to what many believe, it's not gambling, that is unless you choose a strategy that make it so. Buy stocks like you would buy anything else. Look for hidden value in a company, look for undervalued stocks. Diversify enough with this approach and you'll meet or beat the market every year.

Here's my list for CY '06.

ASH, FMT, SCHN, X, GKIS, OSG, GMR, LFG, MDC.

Anyone interested in an “Investment Challenge”? Loser buys the winner a bottle of Jack?

Rule 6: Buy used. 9 times out of 10 when you want to buy something, you can find it much cheaper by buying used. Why absorb the almost instantaneous depreciation of new cars, electronics and the like when someone else can take that hit! NOTE: This doesn't work for food, and only occasionally works for clothes, such as when you have a Halloween party and the salvation army is the only spot to get those classic bell bottoms.

That's right 6, just 6 simple rules that anyone can follow to build wealth, and maybe retire early. It would be easy to write a hundred more, but these are the simplest easiest to follow and don't require allot of capital, only self discipline. But don't take my word for it, the proof is in the pudding. The pudding being the math.

Scenario 1: Save 2000 dollars every year (166 dollars per month) with an annual return of 10%. After 25 yrs, you would have 216,000 dollars. If you did this in a roth, this is tax FREE

Scenario 2: Save 4000 dollars every year (333 dollars per month) with an average annual return of 10%. After 25 yrs, you would have 433,000 dollars. If you did this in a roth, this is tax FREE

Scenario 3: Save 8000 dollars every year (667 dollars per month) with an average annual return of 10%. After 25 yrs, you would have 865,000 dollars. The yearly limit for a Roth is 4000 USD right now. So only part of this would be tax free.

To put the monthly savings cost in perspective, how much is your average credit card bill per month?

Here are a few rules that didn't make the list.

Rule X: All on black. Take all your money to Vegas, hit the craps table and throw it all down on black. (this rule is sometimes known as the “let it ride” rule).

Rule X: Screw the creditors. Here, you would spend your way so far into debt that your only
choice is bankruptcy. The idea is that bankruptcy courts will alleviate you of your debt responsibility while you get to keep your stuff for free! Contrary to popular belief, you won't get to keep all your stuff and write off the debt. You'll wind up with bad credit and a long term payment (although low interest) plan.

Rule X: Rob a bank. I actually like this rule, although it's really more of an idea. I've thought about robbing a bank before. If all these criminals can get away with it, then i ought to be able to. Come on, i've got two degree's! In reality though, most of the criminals get caught.

Or do they.....

Rule X: Find lost pirate treasure. This is also called the “Goonie” rule. I've never been to Maine and i don't have a tall retarded, sorry, mentally challenged friend named sloth who thinks he's superman. I do have a Filipino friend who thinks he's a ninja...naah, this one isn't worth pursuing.

Rule X: Move to China. By moving to China and converting your dollars you could instantly achieve an 8x increase in your wealth, but China sucks. After all, China is full of Chinese people

(Disclaimer, if this last sentence offended you, get a life. It's only a joke)