Money may not grow on trees but you can grow it in your back yard without lifting a finger. You just need to do a little bit of prep work for these “set it and forget it” strategies. If it’s that simple, you might ask, then why isn’t everyone doing it? The plain answer is that you won’t get rich over night. People are more likely to buy lottery tickets than they are to use simple, long-term wealth-building strategies.
Isn’t that a sad statement about our society? We have so much money we literally just piss it away by buying lottery tickets, drugs, alcohol, cigarettes, and other “sins”. It’s your money and your life; you can do whatever you please with them. But you can build your wealth any time you want and if after 30 years of not trying you’re unhappy with how little money you have, the great news is that it’s not too late to start.
All you need is a regular income. If you have a job you have more flexibility.
Avoid These Bad No-Thinking-Required Investment Strategies
Before I tell you the 3 simple methods for growing wealth without thinking about it, let’s look at some of the worst possible investing advice you’ll get from professionals. Why is it bad if they are professionals? Well, that depends on the circumstances.
Avoid Annuities There is no reason whatsoever to buy an annuity of any kind. The sales hype makes these investments look like they’re stable, quality investments. But there’s a catch and it’s a doozy! If you need your money you have to pay an early withdrawal penalty. Annuities are designed to discourage early withdrawal. On the surface that sounds like a smart idea. The longer you keep your money invested the more it should grow.
But the plain truth is that most annuity investors withdraw some or all of their money before they are scheduled to. And that means they pay penalties. You lose money on annuities if you cannot leave the money alone. Of course, whoever is selling you the annuity wants to earn a commission. They’ll tell you that using common sense will prevent you from withdrawing that money too soon. What they won’t tell you is that most Americans cannot afford to wait for their scheduled annuity payments.
So just don’t invest in annuities.
Avoid 401(k) and other workplace “retirement” plans These plans are the biggest ripoff in American history. The people who created these dumb investment ideas should have been carted off to jail after the financial meltdown of 2001. But when that didn’t happen they should have been sent to prison after the Great Recession of 2008.
Like annuities, you have to pay an early withdrawal penalty if you take money out of your 401(k) or other retirement plan. Now, experts are quick to point out that you can withdraw money from Roth IRA (individual retirement account) plans without penalties. So if you want some sort of tax-advantaged retirement savings, the Roth IRA is about your only hope.
Retirement plans are sold to employees by companies that don’t want to pay pensions. Truth be told, the self-managed retirement plan is a better gamble for you because A) you’re probably not going to stay in the same job for 30-40 years and B) many companies are struggling to make pension plan payments on time. Pension plans sound like a great idea but as the number of retirees increases these plans require additional funding to stay solvent. So most companies prefer to leave your retirement in your hands.
You have to take the 401(k) with you when you leave your job. If you don’t have someplace to put that money you pay a 10% early withdrawal penalty.
If you fall on hard times, where you need money fast, you can get an emergency loan from your retirement fund but you’ll pay an administrative fee. You also have to repay the loan in 5 years or you’ll pay an early withdrawal penalty.
The bottom line here is that ANY investment that comes with an early withdrawal penalty is a BAD investment. It doesn’t matter how many great advantages and benefits the investment tool provides when you need your money. All they do is take their cut from your desperately needed funds, and that doesn’t help YOU in any way whatsoever.
3 Simple Ways to Grow Wealth With No Thought
You should not have to think about how to grow your wealth. It should happen automatically for you. And the great news is that you can set things up for yourself. You don’t have to pay anyone any money to do your thinking and there are no early withdrawal penalties.
1. Set Up Automatic Savings Plans
This seems like a no-brainer but most people still don’t do it. If your company offers direct deposit, they will send your money into multiple accounts. So set up 2 savings accounts and make automatic deposits to them. These can be small deposit amounts so you don’t feel much pain.
The first savings account is your fallback fund. You can tie your checking account to it if you have automatic overdraft protection.
The second savings account is your emergency fund. This is where you want to grow a cash balance that will carry you through hard times. You can limit how much money you keep in this account but ideally you want to put at least 3 months’ expenses there. It’s going to take you years to save that much money, so start now and forget about this account.
If you want to transfer some money from savings to an investment portfolio, use your fallback savings. You only need enough there to cover occasional overdrafts, so build it up and then take some money out every few months for investments.
2. Automatically Divide Your Raises
If you’re still working and you occasionally get a raise, before you start spending that money increase your automatic savings deposits by about half of your new raise. This way you’ll never become used to spending that new money.
The same principle holds when you change jobs and start earning more money. Before you become accustomed to your new income level, divert some of it to your savings. You’ll never miss that money. You’ll automatically adjust your lifestyle to spend all the money you deposit in your checking account. So deposit as little new money there as you can.
3. Buy Stocks with Dividend Reinvestment Plans
Your company may offer an Employee Stock Option Plan (an ESOP), where you are able to buy shares at a discounted rate. These plans are great ways to build wealth if your company pays quarterly dividends from earnings. If you can get into a DRIP you should. Just set aside some money from each paycheck to buy some shares and forget about it.
Unlike retirement plans, you don’t have to move your DRIP balance when you leave your job. Better yet, there is no early withdrawal penalty for DRIPs. You still have to pay taxes on the dividends but that should not be a problem.
But don’t limit your DRIP investing to just your current and past employers. Find a few good companies that offer DRIPs. I look for these criteria:
- They have stable share prices
- They pay dividends only from earnings
- They pay on a regular basis
- Their dividends are about the same or growing
Dividend reinvesting is considered one of the safest, least volatile ways to grow your wealth. You don’t have to think about what to do with your money. Better yet, you don’t have to pay any trading fees every time your dividends are reinvestment. Your equity in the company grows over time and you can eventually either sell the shares or convert the plan to pay you dividends directly.
Conclusion
You should not have to think about how to grow your wealth. The mechanisms are already in place to help you do this for free and without anxiety. The less you worry about your money the better off you’ll be throughout your life.
And one day those investments will pay off because you’ll have money when you need it and you won’t have to pay anyone an outrageous “early withdrawal” penalty to get to your own money.