CNN Finance - Rules to Grow Rich By...

Besides the convoluted title, I read with interest some of CNN Finance's "25 Rules to Grow Rich By." I will post a couple of them here (with comments) but you should click the link for the full list.

12. If you're not saving 10% of your salary, you aren't saving enough.
The earlier you start saving, the less you'll need to set aside every year to meet your goals. That's because you allow your money more time to grow -- the gains on your invested savings will build on the prior year's gains. That's the power of compounding, and it's the best way to accumulate wealth.

Saving at least 10% of your annual salary for retirement is recommended, but the older you start saving, the more you'll need to save. If you start at 50, you may need to put away 30% a year and still postpone retirement by a few years.

From site stats, it appears most of the readers here are well under 50 and can probably meet this one, although I can see how it can be pretty tough starting out. I personally am saving 8% because I'm setting aside a good bit of my savings for shorter-term endeavors (house down-payment, and Other Things).

7. To figure out what percentage of your money should be in stocks, subtract your age from 120.
Since 1926, stocks have returned an annual average of 10.5 percent, long-term government bonds returned 5.1 percent, and "cash," measured by Treasury bills and other short-term investments, has returned just 3.1 percent. In other words, if you're investing for the long-term, stocks are the place to be. But in the short term, the stock market can be downright dangerous, with much more severe drops than the bond market has.

That's where this rule comes in - the younger you are, the more time you have to recover from stock-market crashes. As you get older, you should gradually move money out of stocks and into bonds.

Note that these returns are over a long-term period. If you are looking for short-term (less than 5 years) place to park your money, I wouldn't advise you to place it in the stock market. Over longer periods though, there's no better place to put it--even real estate returns about 4-6% on average. And to get that market average, the best place to be invested is probably a market-tracking index fund.

13. Keep three months' worth of living expenses in a bank savings account or a high-yield money-market fund for emergencies. If you have kids or rely on one income, make it six months'.
An emergency fund is a hassle to build, but you'll be glad you did next time your transmission sputters or your boss hands you a pink slip.

I was talking to some mentees of mine and made sure they were aware of this rule at a young age. You won't be able to build six months of income in a month or two (unless you're very good.. Nah, I don't think anyone is that good.) It will take probably 4-6 months to get a secure account unless you spend much less than you earn. Nevertheless, it's a very important step. And don't use just any old "bank saving account." Loook for a high-yield savings or checking online.


Next time I want to tackle this myth I keep hearing that you have to be rich to invest. We'll try to convince you that you should look at that the other way around. Take Care.