Think you'll never make enough money to be able to save and invest?
Think again, the financial experts advise.
Ken Whitman, far right, earns less than $40,000 annually and his wife, Beth, second from left, doesn't work outside the home, but they have paid off their five-bedroom home and set money aside. The Whitmans provide an example of how saving pays off. They are pictured with their children, from left, Hannah, 12; Cassie, 14; Joel, 15; Amber, 17.
It's not the size of your paycheck that determines whether you'll become wealthy. It's what you do with your money, say the folks who get paid to help people plan their financial future.
"If you're making $1 million a year and spending $1.2 million, you're in trouble," is the way that Ed Kudrna explains the necessity for money management.
Kudrna, president of the Northeast Ohio Chapter of the Financial Planners Assn., stresses that it's "attitude in all capitals, boldface, italics, whatever you want to say," that determines whether you'll be a saver or a debtor.
"Income is irrelevant. It's a little bit more difficult (to save money), all things being the same," he says.
You don't have to take the experts' word for it.
Family leads by example
Just ask Ken Whitman of Wadsworth, Ohio. The 43-year-old father of four credits Christian principles for what he's accomplished on his annual income of less than $40,000.
Five years ago, he built and fully paid for a five-bedroom, three-bathroom home for his family. The money for the home, which Whitman estimates is worth about $130,000, came from the sale of the family's previous house and Whitman's investments.
"I try to base everything on scriptural principles," Whitman says in explaining his philosophy of money management.
He says that as a Christian, he believes it's not right to go into debt.
"Every time debt is used in the Bible," he says, "it's used in a very negative sense."
Whitman said he and his wife, Beth, went into debt for a home mortgage when they married in 1980, but have paid cash for purchases of everything from cars to clothing. She has not worked outside the home since becoming a mother nearly 18 years ago.
"All of the debt and spending comes because you don't have self-control on your spending," Whitman says of the pressure of America's debt-driven economy.
Whitman's principle of avoiding debt is one of the basic rules that financial advisers cite.
They also advise:
Live within your means. That means devising a budget and sticking to it. It also means spending less than your full paycheck.
Pay yourself first. Save part of every paycheck. It doesn't matter how much you put away; it's more important that you save regularly.
Start saving early in life. The power of compounding works in your favor, whether it's interest from a savings account or dividends from a stock purchase.
Save for a rainy day. Having money in the bank means you'll be able to better handle the crises that life throws your way.
Good vs. bad debt. Know the difference between good debt, such as a home mortgage that allows you to build up some assets, and bad debt, such as credit card bills with high interest payments. Paying interest on debt lowers your spending power.
Balance today's wants and tomorrow's needs. That means developing the habit of making small sacrifices today in return for building up a nest egg for future spending.
Over time, the financial experts say, following those principles leads to a pot of gold, but it's up to you to determine the size of the pot.
Kudrna says it's crucial to make a commitment to save; figuring out where to invest those savings matters less, he says, than accumulating the money to begin with.
Saving isn't difficult
Nearly everyone can find a way of saving something, even if it's as little as $25 a month, says Joe Brooks, account vice president with UBS PaineWebber in Beachwood, Ohio.
The experts say that putting money away before you see it is a painless way of saving. If you sign up for a 401(k) program through your employer, saving will be automatic. The money will come out of your paycheck before you see it, and unless you change your percentage of deduction, you'll save even more every time you get a raise.
John Adams, a financial representative for Northwestern Mutual Life Insurance Co. in Bath Township, Ohio, says he tells clients that each rise in income is an opportunity to save before they get used to the bigger paycheck.
If you think there's an element of luck in getting rich, forget it. Financial planners say there's no magic shortcut.
"If you buy lottery tickets, you'll never be a millionaire," Adams says, quoting one of his favorite college professors, "because you can't control the outcome. You can control the outcome of saving money."
Kudrna tells his clients not to think of saving as what they have to give up but to focus instead on the future rewards of investing.
Saving and investing mean setting priorities, he says, and once clients are committed to a goal, "other things (in life) tend to fall in line."
The payoff for following the basic principles of money management can be tremendous.
Brooks, the PaineWebber account vice president, cites a retired Willowick, Ohio, couple who are his clients.
The wife quit her job soon after the couple married in 1948. They raised three children, and the husband never earned more than $40,000 a year.
Yet from the beginning of their marriage, they saved some money from each paycheck.
The payoff: more than $1 million.
The couple's investments exceeded that benchmark before the Sept. 11 terrorist attacks, and they give away more money each year than what he ever earned in a year.
Finally, there's this thought from Steve Strayer, a certified financial planner at National City Corp.: "You have the chance to take control of your life now or have to work for the rest of your life."
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