Happy Leap Day, Everyone! It’s that rarest of holidays, the one that shuns all those ‘only once a year’ days to come along only once every years (and sometimes not even that often; people had to wait eight years between Leap Days from 1996 to 2004). So, let’s all get up and celebrate!
Although, the problem with a holiday that comes around only two or three times is that there aren’t any obvious ways to celebrate. No Leap Day trees, no special Leap Day desserts, not even too many Leap Day sales (little point in setting up a sale that you won’t be able to repeat until 2016, I guess).
So, to ensure there’s something at least a little celebratory about this Leap Day, I decided the theme of this post was going to be related to ‘leaping’, that is, leaping ahead of the typical personal with your net worth and future prospects. It won’t always be easy, but if you can do the following, you’ll end up far richer than the average person:
1. Invest More Than 10% of Your Salary: The 10% figure is one that almost every source I’ve read agrees on for a good minimum to invest. It’s not a bad starting goal to set; investing 10% of your salary at a 10% rate of return (another 10%; the markets love this nice, round value) for forty years leaves you with about twelve times your salary in savings (even assuming a higher than historically seen inflation rate of 5%). Not too shabby; you could live off that without too much trouble, and if you toss in Social Security, you could live pretty well.
But if you up your contribution to 15%, you can achieve that 12-fold increase in 33 years, and have 18 times your salary in savings within forty years, a much nicer way to start the ol’ retirement. Up your investment rate to 20%, 25%, or even higher, and you’ll see your time to having more than enough to retire go down steadily in turn. Putting a third of your income into retirement savings is certainly tough, but being able cut your time to having significant retirement savings in half (or have three times as much available if you keep it up a full forty years) could make it all worthwhile.
2. Aggressively Pay Off Debt, Particularly High Interest Debt: More than a few of you probably read through the above point while thinking, ‘Yeah, everything looks good if you are consistently earning 10% on your investments, but that’s far from guaranteed. How can I ensure that I’m maximizing my money’s ability to increase my net worth?’ The answer, in a nut shell, is to pay off debt. Most of the debt you can accumulate will have a fixed interest rate (and most of those that don’t, like credit cards, will likely only increase for most of us). Paying off a 17% interest rate debt on a credit card saves that 17% interest, plus you don’t have the worries about taxes that arise with profits from investments. Try finding that sort of return on a typical investment.
3. Build Up Side Income: This is possibly the biggest thing you can do to get ahead of the curve, money-wise; with more income, you can invest, pay down debt, or simply save more than you can otherwise, allowing you to boost your income much faster as a result. It’s no longer an issue of needing hours of time and tens, possibly hundreds of thousands of dollars to get started. With modern technology, you can start anything from a craft boutique to a world-dominating omni-company with little more than the computer you’re using to read this very blog entry. Don’t get me wrong, it can be tough at times, but being willing to put in the effort can prove the difference between a moderate net worth and an impressive net worth when it is time for retirement.
There you go, three methods of boosting your net worth this Leap Day. Keep it up, and by the time next Leap Day rolls around, you should have ‘leaped’ well ahead of most people your age. Plus, you have four years before you have to put up with any more leap year puns, so that’s always a good thing.