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This article was written by Michael McGinn of Debt Management Talk – a personal finance forum that shares its revenue with their members. Debt Management Talk is a place to learn about debt strategies and personal finance (or share your knowledge with others) while earning additional income at the same time. You can learn more about the forum at http://www.debtmanagementtalk.com/about.php

E.F. Schumacher, who taught economics at Columbia and Oxford, often said that any real economics calculations can be done on the back on an envelope. The same principle could be applied to investments. Yes, there are lots of “systems” with complex formulas that promise you can beat the stock market. They leave you thinking that you understand precisely what the stock market is going to do. Nobody does. The statistics you get from complex investments system may have many decimal points but only offer the illusion of certainty.

Want to beat the stock market? Get important information about a company that nobody else does. That’s usually called insider trading. It’s also called a felony. Ask Martha Stewart about it. The best answers are often the simple ones, and that goes for personal finance as well. Everybody wants to get rich quickly. But only a few people can do that. Most of those who try go bankrupt quickly instead.

Anybody up for getting rich slowly? You can write a basic plan for doing that on the back of an envelope. Here are some of the simple features of a personal financial success plan that works:

Start saving early. The secret of investing is not finding the most lucrative investment. The secret of investing is allowing enough time for your investments to grow. Remember, the “annual” in “annual rate of return” comes from the Latin word for “year.” The more years you let your money grow, the more it’s likely to grow. The more patience you have with your investments, the more time you’ll have to recover from downturns in the economy. Which is easier to find: an investment that earns 5% a year for 20 years, or an investment that earns 120% for one year? And, by the way, which investment will result in the greatest profit? (Hint: remember the power of compounding before you answer that question.)

Save all you can - not save what you feel like saving. Not, save what seems convenient or comfortable. We’ve challenged you before to live on 25% of your income and invest the rest. You may not feel comfortable now doing that, but you will sure feel comfortable about it when you’re able to comfortably retire because you did it when you were younger. As we said, the more time you hold onto your investments, the greater the return. But you can’t get around the fact that the more money you invest, the greater the return. Ten percent of $1,000 is more than ten percent of $100. Make the sacrifice to invest more now and reap more benefits later.

Don’t despise small beginnings. Don’t wait to save or invest until it’s easy, or until you have a large sum set aside. In a year, you can come up with $1,000 simply by eating out one meal less each week. You can save $500 a year simply by getting your coffee from work instead from an international coffee corporation. You can find 100 extra hours a year to start and run your own business simply by skipping two TV shows a week.

Most Americans spend more than 1,400 hours a year watching TV. How much money could you invest if you were paid for those hours at your current pay rate? How much would that money be worth in 20 years?

Don’t be a sheep. Don’t follow the crowd. People are paid a lot of money to tell you what to spend your money on. Ignore them. You don’t live next to the Jones. You don’t have to keep up with them. Buy what you need. Buy what works and what lasts, rather than what’s temporarily fashionable. Buy quality products that, in the end, cost less than cheap products that always need to be fixed or replaced. Buy quantity products that cost less per ounce or per liter than the products in small convenience packaging.

Keep the main thing the main thing. The best things in life aren’t free. It costs you something to gain the satisfaction of knowing you’ve made the world a better place for someone, You pay for it, not with money, but with your life, with your time. Invest your money in the short term (that means now) to gain what will last for the long term.



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