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How the youth can yield wealth

By L. Marie Joseph · Bankrate.com
Thursday, June 23, 2011
Posted: 9 am ET

With all of the negative financial news and stock market woes, it's easy for youth to think achieving wealth is impossible. Of course, starting a business or become a Hollywood reality star can help anyone fast-forward their way to wealth. But for those of us who aren't interested in building an empire, creating wealth is possible starting with just 5 percent of your income.

First, decide to be wealthy. You'll be surprised at how many people just want more money but don't aspire to become financially independent.

Develop ways to reduce your overhead expenses. Housing and transportation are the biggest expendidtures for most people. So own a practical space instead of paying for a palace. You'll be shocked to find that there are suburban areas that have homes for $40,000 to $50,000. Once you find a comfortable and attainable home, pay it off as quickly as possible.

Purchase a used car with low miles and strive to pay it off as soon as possible. Credit cards and other loans should also be paid off.

By eliminating your greatest expenses, you will create a nice cushion of discretionary income with which you can use to pay yourself. With reliable transporatation and a place to live, you can avoid the financial stress of paying a big mortgage or a monster car loan, unlike your peers living outside of their means.

With these large expenses paid off, triple your saving contributions of 5 percent. Build wealth through a mutual fund with a low expense ratio (under 0.99 percent) or a stock porfolio of your own that is well diversified with a price-earnings ratio of less than 20 percent.

Now that you're saving at least 15 percent of your paycheck, up from 5 percent, you can sock away funds to upgrade your lifestyle later, when you can comfortably afford it.

Using this strategy toward wealth takes sacrifice, so you have to focus on the reward at the end. Your friends may call you crazy for living below your means, but do you care what they think if you're a closet millionaire?

L. Marie Joseph is the author of "First Generation White Collar: A practical guide on how to get ahead and not just get by with your money". You can follow her on Twitter at @lmariejoseph.

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