THE BEST DECISIONS YOU CAN MAKE ABOUT MONEY

When this title was first suggested to me, I instinctively blurted out: “I can think of only one best decision…acquire as much of it is you can!”  I’ve since reconsidered; there are others.

1. DON’T SPEND WHAT YOU DON’T HAVE

First and foremost, regularly spend less than you make.  Consider a local mattress dealer that advertises on radio and TV.  His madcap skits, offering “no deposit, no interest, and no payments until . . . whenever,” are hilarious.  However, I shudder at the thought that someone actually purchases an unaffordable product, gambling that in a year or so the full purchase price can be paid so to avoid scheduled fees and retroactive interest.  It’s a recipe for disaster. 

2. YOU’LL FIND YOUR FINANCIAL HELPING HAND AT THE END OF YOUR ARM

A half-century ago, the average American anticipated retirement through an employee pension fund, supplemented by social security.  Much has since changed since.  Many employers, for sheer survival, are under-funding their pension programs and ridding themselves of employees.  And with Social Security rapidly evolving into a welfare system, there is little outside assistance to count on.  The significance is clear: Fund your own retirement through regular savings and sound investments.  Fashion your life so that part of your income is not consumed, but available for the future.  You must do this yourself; don’t expect help elsewhere.

3. ARRANGE TO MAKE YOUR MONEY GROW

The adage that time is money is accurate; it depicts the earning power of money astutely invested.  Let me suggest a method.  Open a self-directed brokerage IRA account—preferably a Roth if you’re eligible—in which you accumulate certificates of deposit, treasury notes, and high grade corporate bonds.  Begin at an early age and pursue this program systematically through your working years.  An annual contribution of $4,000 invested at 7½ percent, compounded semiannually over the 40-year period from ages 25 to 65, results in more than a million dollars.  It’s the compound interest that brings this about, a phenomenon as close to magic as you’ll ever encounter. 

4. DON’T BE TAKEN ADVANTAGE OF

There is no limit to the ways your money can be misspent or the persons who will take it from you.  Don’t let this happen.  Delete spam e-mails unopened.  Recognize that all advertisements qualify for the admonition: Ninety-five percent of everything is nonsense.  Purchase nothing from uninvited salesmen.  Ignore random solicitations for charitable contributions. 

5. PLAN FOR THE CHANGES THAT MUST SURELY COME

Life is a constantly evolving process, with significance at each stage.  In your twenties it’s acceptable to live on a shoestring while dreaming and scheming for the future.  By your thirties, as family or professional obligations take precedence, closely control your spending and savings habits.  During your forties assiduously concentrate on asset accumulation.  I recommend that by age fifty you are able to subsist on passive investment income if necessary.  By your sixtieth birthday, you qualify as wealthy, meaning that you can live in a style you choose with no employment required.  Be aware that things will work out this way only by your early decision to make it happen

6. DON’T EXPECT MONEY TO MAKE YOU HAPPY

You’ve heard the old saying: “Money isn’t everything.”  That’s true.  Like it or not, wealth brings with it certain demands and responsibilities, and if you ignore them you’ll regret it.  As you become wealthy¾recognizably wealthy¾certain aspects of your life change, and not all for the better.  Although the problems of meeting the mortgage and financing the children's schooling may no longer exist, other problems move in to take their place.  Your relationship with friends and relatives begin to change as you are viewed as something apart.  It seems that admiration and envy are opposite sides of the same coin, and as your perceived fortune grows, you will be the recipient of both emotions.  Merely possessing money doesn’t ensure happiness.  Only its prudent use results in satisfaction. 

7.  GIVE AWAY WHAT YOU DON’T NEED

In the final analysis, there is a practical limit on personal consumption, beyond which satisfaction is marginal.  At some point in our lives there must be more than mere acquisition.  In this hostile world are deserving people, and the opportunity to share your bounty in a meaningful way is exactly that–an opportunity.  There is satisfaction in giving back a portion of your good fortune. Establish a private non-profit educational foundation into which you contribute sums of money.  These funds become available for scholarships to students chosen by the foundation directors whom you select, perhaps faculty members of a nearby college.  The student chosen receive payments as long as they perform satisfactorily, and it’s your task to monitor their performance.  Not only do deserving students benefit directly to the extent of nearly 100 percent of your contributions, but also your donations qualify as tax deductions.  This is a fine way to fund a philanthropic enterprise in which the value to the actual recipients can be seen and appreciated.  What finer way might you spend money?

AL JACOBS has been a professional investor for more than four decades. His business experience ranges from real estate, mortgage, and securities investment to appraisal, civil engineering, and the operation of a private trust company. In addition to managing his investments on a day-to-day basis, he is a featured financial columnist for both online and print publications. He is the author of Nobody’s Fool: A Skeptic’s Guide to Prosperity. You may subscribe to his financial Newsletter, "On the Money Trail," at no cost or obligation, by visiting www.onthemoneytrail.com.