"Whatever you have, spend less." If compound interest isn't working for you, it's working against you.

By keeping what he has, and adding to it by living below his means, the Master Investor lets his money compound indefinitely.  And compound interest plus time is the foundation of every great fortune.  

Wealth is really a state of mind.  In the words of Charlie Munger:  "I had a considerable passion to get rich.  Not because I wanted Ferraris  -- I wanted the independence.  I desperately wanted it."  If you share this attitude, once you have gained that hard-fought independence the last thing you're going to do is jeopardize it by blowing all your money.

The alternative to living below your means is the debt-laden pattern of the middle class:  If compound interest isn't working for you, it's working against you, bleeding your money away just as a spurting artery drains your life-energy.




Additional notes:

Most people want to be rich so they can fly first class, live it up in the Ritz, feast on champagne and caviar, and go shopping at Tiffany's without giving a second though to their credit card bill.

The problem is that people who have this attitude to money don't wait until they're rich before they start indulging their fantasies, even if only on a small scale.  As a result they never accumulate any capital, or even worse go into debt so they can live beyond their means ... and remain poor or middle class.

Can money buy happiness?

Can money buy happiness?
Yes, if you re poor.

Money is better than poverty, Woody Allen quipped, if only for financial reasons. If we re starving or homeless, money can bring a better life.

But beyond a certain point ” a surprisingly low point ” more money doesn t deliver more happiness.

A study of tens of thousands of people in 29 countries compared average life satisfaction in each country with average purchasing power (see Figure 9).^[1]It showed that in poor countries, purchasing power and life satisfaction are clearlyrelated. Yet once countries are half as rich as America, there is absolutely no relationship between money and happiness.

Figure 9: Life satisfaction and purchasing power in 29 countries

Looking within individual countries bears this out. Very poor Americans are less happy, but otherwise money does not affect happiness. Being one of the 100 richest Americans adds only a smidgeon to happiness.

Or consider a study of 22 lottery jackpot winners, who showed initial euphoria. It didn t last. Within a year, the winners were no happier than before.

More evidence: real purchasing power in three rich countries doubled between 1950 and 2000, yet happiness levels didn t rise at all. As countries become wealthier, depression soars, with victims also suffering at a much younger age.

The evidence is overwhelming. Being moderately well off means that you are happier than if you were very poor. But once you are well fed, clothed, and housed, getting wealthier probably won t make you happier.

In the nineteenth century, John Stuart Mill gave one excellent reason for this being true ” we don t want to be rich, we just want to be richer than other people. When our living standard improves but everyone else s does too, we don t feel better off. We forget that our cars and houses are better than before, because our friends all drive similar cars and have just as pleasant homes.

Right now, I m living in South Africa. Here, I feel rich. In Europe or America, I don t. My feeling has nothing to do with how well off I am and everything to do with how well off other people are. Living standards are much lower in South Africa, so I feel wealthy.

There s also the pain and hassle of making money. On April 8, 1991, Time magazine s cover story highlighted the price paid for successful careers:

• 61 percent of 500 professionals said that earning a living today requires so much effort that it s difficult to find time to enjoy life.
• 38 percent said that they were cutting back on sleep to earn more money.
• 69 percent said they d like to slow down and live a more relaxed life ; only 19 percent wanted a more exciting, faster paced life.
• 56 percent wanted to find more time for personal interests and hobbies, and 89 percent said it was important to them to spend more time with their families, something that their careers made difficult.

How are we doing now? Have many of us fled the rat race? Nah. We re still chasing more money for more time. The average working American now works 2,000 hours a year. That s two weeks more than in 1980! And the average middle-income couple with children now work 3,918 hours between them ” seven weeks more than just 10 years ago.

More money can be a trap, leading to more spending, more commitments, more worry, more complexity, more time on administering money, more desires, more time at work, less choice about how we spend our time, and degradation of our independence and life energy. Our lifestyle locks us into our workstyle.

How many houses or cars do we need to compensate for heart attacks or depression?

^[1]See Martin E P Seligman (2003) Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Deep Fulfillment, London: Nicholas Brealey.

http://flylib.com/books/en/1.522.1.36/1/

Help Teach These Kids How to Fish

By Chuck Saletta | More Articles 

December 31, 2010 | Comments (0)

There's an old saying: If you give a man a fish, you'll feed him for a day, but if you teach that man to fish, you'll feed him for a lifetime. When it comes to extending that parable to handling money, truer words have never been spoken.

Money, if not handled well, can be very fleeting. Multimillionaire athletes, celebrities, and lottery winners have all wound up broke. On the flip side, there are stories of people like Grace Groner, who managed to turn a modest income into amazing wealth through prudent long-term money management.

Good habits start earlyThere's an enormous difference between income and wealth, and it's surprisingly easy to have a very large income, but not be able to save or invest a bit of it. Without an investing mentality, income alone will never turn into wealth. On the other hand, as Grace Groner's story showed, you don't need to earn a fortune to wind up with one, if you manage what you've got well.

That's an amazingly powerful message that, if it can be driven home to at-risk youth, can help them escape the cycle of abject poverty that may have plagued their families for generations. And it's a message that needs to get through to people early, for two critical reasons:

• The earlier that people understand how to manage money, the longer time they have for their little bit of cash to compound in their favor.
• It's far too easy to get trapped into financial pain in things like payday loan traps from short=term decisions made without a full understanding of the long-term consequences.

With that reality in mind, The Motley Fool has chosen Thurgood Marshall Academy as this year's Foolanthropy recipient. The academy is a Washington, D.C., charter school whose students are drawn from an area with an average per-capita income around $14,000 per year, just about one-third of the national average. For people in that situation, every penny counts, and there's not much keeping them from getting trapped in a state of perpetual indebtedness.

With Foolish financial training to go along with Thurgood Marshall's mission to provide a first-class education, these students can break free from the bonds of generational poverty. In essence, the Fool and Thurgood Marshall Academy are teaming up to teach these students how to financially fish -- so that they may eat for a lifetime.

Break the bonds that tieOne of the most powerful Foolish lessons for these students explains credit card debt, and how a $20 pizza can wind up costing $100, if financed over time on a credit card. But what happens if you take that lesson to the next level, and show what can happen to that $20 if it gets invested, rather than spent on pizza in the first place?

With a long-term perspective, the same compounding that would cause a $20 pizza to really cost $100 can turn that $20 into something far more useful -- if it's invested well. And while you may think that $20 may be too little to invest, there is one type of investment that often accepts even small-scale contributions at or around that level. They're called Dividend Reinvestment Plans (DRIPs), and they can be a great opportunity for people without much cash to join the investor class.

Companies that kids may be familiar with that offer DRIPs include:

Company	Initial DRIP Enrollment	Minimum Optional Contribution	$20 Invested for 20 Years Turned Into	More Information
Hershey(NYSE: HSY)	$250 or 1 Share of Stock	$25	$156.89	Click Here
McDonald's(NYSE: MCD)	$500 or 10 Shares of Stock	$50	$287.28	Click Here
Nike (NYSE:NKE)	$500 or 1 Share of Stock	$50	$491.47	Click Here
PepsiCo(NYSE: PEP)	$250 or 1 Share of Stock	$50	$157.04	Click Here
Verizon(NYSE: VZ)	$250 or 1 Share of Stock	$50	$65.46	Click Here
Walt Disney(NYSE: DIS)	$250 or 5 Shares of Stock	$50	$105.47	Click Here

While they all offer DRIPs, most are not exactly the friendliest for small investors, thanks to high enrollment minimums, high optional purchase minimums, and/or investment fees.

On the flip side, 3M (NYSE: MMM) has an extremely friendly DRIP for small investors. Once you have the single share you need to join the plan, you can invest as little as $10 at a time, and the company covers all purchase and dividend reinvestment fees in the plan. Of course, kids may not know 3M products as well as they do the Disney princesses, but they have at least likely used 3M's Scotch Tape and Post-It Notes.

Simple lessons -- powerful resultsWhether it's "invest even small amounts early" or "avoid paying stupid fees," if the lessons really sink in, then they're laying the foundation for true long-term financial success. Of course, past performance is no guarantee of future results, but any possible investing result is better than paying $80 in interest charges on a long-ago forgotten $20 pizza.

You don't need an MBA in finance -- or even a college degree, for that matter -- to benefit from understanding the basics of personal finance. And if this year's Foolanthropy campaign is successful, the students at Thurgood Marshall Academy will benefit enough to become successful financial fishermen. When all is said and done, isn't that all that really matters?

http://www.fool.com/foolanthropy/2010/12/31/help-teach-these-kids-how-to-fish.aspx

Teaching kids to manage wealth

2008/03/29

BUSINESS/YAP MING HUI:Teaching kids to manage wealth
By : Yap Ming Hui


Parents should encourage their children to start saving in the piggy bank at a young age.


MANY high net worth individuals worry that their children may not be competent to manage their inheritance.

So when should the parents inform their children regarding their potential inheritance? If they learn of their inheritance too early, will that knowledge adversely affect their motivation to be self-sufficient adults? In anticipation of their future wealth, the children may not reach their full potential in life.


If they are told at later date, will the surprise adversely affect their ability to maximise the advantage of the inherited wealth? The answers to these questions have very much to do with how well we prepare the children for the responsibilities of wealth? We are supposed to be the best judge about when is the best time to talk with their children as each child is different.


However, it is important to teach the children about how to management wealth responsibly before you tell them about your wealth.


In the best case, you are leav - ing your wealth to children who have developed prudent earning, saving and investing habits. They understand the value of wealth and will respect the time and effort you expended to accumulate it.


Ideally, you should begin to educate your children about finances when they are young. When they are 4 to 5 years old, you can start introducing wealth management concepts. You do not need to tell them how much money you earn. Your objective should be to introduce three basic ideas:

That you earn money by working

That you use money to pay for things your family needs, such as food, clothing, the house, the car and others.

That you save and invest to meet more luxurious goals like overseas holiday or higher education for the children.


Remember that children learn from their parents.


Our children need to see us exercising a consistent approach towards wealth management.


The value of thrift is lost in children who see their parents indulging in luxuries.


The children copy the highlife style of their parents. It is not so much what we tell our children in words but how we express our perception of “having arrived”.


The expensive car, branded clothing, overseas family vacation and the luxurious home are statements that our children are reinforced with each and every day. So rule number one is to be a good example of wealth management to our children.


The concept of saving

One of the earliest wealth concepts you can start with young children is saving.


You should encourage your children to start saving in the piggy bank. To further motivate the saving habit, you may choose to match the fund inside with an equal amount.


When the child is old enough, you can give him allowance and teach him to put half of each allowance in the piggy bank. Half of his saving could be used to purchase what he wants and whatever balance would be deposited in a savings account for long-term saving.


Bring the children to a bank and tell them that this is where you save money for the family. Explain how you save money to do things for the family. You may even open a savings account for them so that they can see the money grows each month because the bank pays interest.


Explain to them the source of money for your ATM card. Otherwise, the children may have the impression that you have endless flow of money to spend.


Regular allowance programme

Giving children an allowance for doing common household chores is another good way to teach wealth management knowledge.


It is important for you to decide early whether your children’s allowance must be earned.


I would suggest that the children should take care of certain chores because they live in a household with other people. It is their contribution to the smooth running of the household. The idea is to instil a sense of responsibility and the concept that you have to work to make money.


Decide also how much should each child get. Will it be based on age, number of chores completed, or will it be the same amount for all? Decide how frequent they will get their allowance.


Very young kid may have trouble waiting to buy things and should get the allowance weekly. Otherwise, they may finish spending their allowance before the next is due.


Older children may get the allowance on monthly basis.


They need to learn about spending carefully, making it last for at least 30 days.


Living within their means

This is definitely a great wealth management concept for all ages. It simply means that no bail-out when the children cannot make his or her allowance stretch for the whole month.


You simply must not give in.

Lots of parents would give in and bail the children out. Life would not provide your children a bailout when he or she is an adult.


We have to let the children learn to manage money the hard way. Eventually, the child will get the message and live within the allowance, now and for the rest of his life.


The concept of investing

As your children start their secondary education, you can begin to share with them the concepts of investing in stocks and unit trust.


Select companies that they can identify with and track their performance in the newspaper. When the child gets older, you can buy individual stocks to give them a feeling of ownership in the business.


We can definitely teach our children many wealth management lessons. However, the children learn most by observing and practising.


They learn good wealth management habits, like many other habits in life, by imitating their parents.


So, it is important to make sure you keep your wealth management affairs in order.


Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-family office in Malaysia

http://www.nst.com.my/Current_News/NST/Sunday/Focus/20080329150955/Article/index_html