I’ve migrated everything over to that website and from now on all my posts will be found on that website. I’m still updating and making changes to the site so it may have a few kinks that still need to be worked out. For the time being I will leave this website as is, but my goal is to build http://www.kevinkuo.com into a personal website.

I apologize for the inconvenience!

Please make sure to change your bookmarks to http://www.chesterstips.com .

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What’s an Ideal State?
The Ideal State is a state in which one is free from almost all external and internal influences and pressures that may influence one’s thoughts or actions.  The reason I say almost all instead of all is because it is almost impossible to be completely free from all influences.  While you won’t be able to eliminate the impact of gravity or other natural forces from affecting you, it is possible to eliminate both the internal and external barriers that may be keeping you from living life to the fullest.

Perhaps the best way to describe what the Ideal State feels like is the feeling you get when you know you’re right about something.  Whether it’s hitting a shot that you know, without a doubt, is going to go in, or making a wager that you are sure will be right, it is a feeling marked by unparalleled confidence, power and certainty.

Finding your Ideal State is akin to finding the sweet spot on a tennis racket; if you’re not familiar with tennis, the sweet spot is the area on the racket that would give you the most powerful shot.  When you hit a ball with the sweet spot of the racket, it will fly off the racket with a beautiful sound that indicates that you’ve hit the ball with the best part of your racket.  Much like the sweet spot, when you reach your ideal state everything you do will feel more effective and powerful; your decisions will be clearer and your resolve stronger.  Achieving your ideal state will give you the focus most often characterized with successful people.

If you’ve ever watched an interview of a successful person you may be surprised, or perhaps turned off, by the individual’s confidence.  Successful people tend to come off as intense and perhaps overbearing at times.  The reason why is that most successful people have achieved their Ideal State and have learned to forge their own path despite the fears and negative influences that they may have received and continue to receive.

I’ve identified three steps that I followed and continue to follow in my daily life in order to achieve this Ideal State.  Reaching this state is a daily discipline and requires continued practice and training.  But once achieved, each successive attempt will become easier. Like most things, if practiced enough, it will become a habit.

Step #1 - Eliminate Distracting and Negative Influences

The number one barrier to reaching your Ideal State are the distracting and negative voices from those around you.  Co-workers, peers, and family members often try, whether directly or indirectly, to influence you in a way that suits their needs and desires.  Many times this involves placing limiting beliefs or fears upon you that your peers or family members have placed upon themselves.  They want you to adopt their worldview because it reinforces their way of thinking.  Such relationships may be based on "preventing" rather than "encouraging."

A good example of this type of relationship is the relationship between Asian parents and their children.  While this may hold true for other cultures, I will limit my example to Asian parents, because I have had the most experience with them.

The majority of Asian parents see their children as investments, one that will bear fruit as they mature; children are considered by Asian parents to be a living, versatile and constantly growing 401K or IRA account–the more you put in the more you should get out.  It’s no wonder why there are so many high achieving Asian American children, their parents groom them towards this path.  They sacrifice their own immediate happiness and pleasure in order to give their children more opportunities, a better education and ultimately, what they believe, to be a better life.

Sound great? Well generally it is, except that this all comes with a catch.  The actions of most Asian parents are motivated by their own desires to be protected and nurtured by their children when they are no longer able to do that themselves.  Children are retirement insurance; they are also a means of achieving respectable social status.  In Asian society, if your children are doctors then you are praised as having raised "good" kids; however, woe onto the parent who raises a child that strives to become a painter–he or she will become the laugh of the dinner party.

It used to be expected that children would take care of their parents after they reached a certain age.  Though this version of filial piety is still practiced in many Asian countries, it is becoming increasingly common for children to go off and live their own lives and leave their parents to take care of themselves.

When I was living in China, most of the students I met said they had a similar type of relationship with their parents.  Those that were hard working and smart enough to go to a good university were expected to be wealthy and famous, the version of success most Chinese parents value.  With the One Child Policy, most parents put all their eggs in one basket leaving the child often exceedingly pampered and groomed to becoming the next greatest thing on earth.

Asian parents usually tell their children that they are advising them what to do for their own good.  "Be a doctor, lawyer, or engineer etc, you will thank me later."  For those that readily and willingly comply, the rewards are great; but for those that don’t, the path leading away from your parents’ wishes can be a long, lonely and painful one.

Ever since I was little, my parents pushed me towards certain paths and tried to convince me to adopt their opinions and beliefs about the world.  I was taught to accept that certain types of work were acceptable while other types were not.  The typical stereotype is that there are only three viable professions for the budding Asian youth: medicine, law, and engineering.  The vast majority of Asian Americans can be placed in one of those three categories or in the closely related category of business.  Something like art or nonprofit work would usually be looked down upon as pointless, overly risky and ultimately a "stupid" choice.

If the majority of Asian Americans are either doctors, lawyers, engineers or business people does that mean that most Asian Americans just happen to like only one of the four choices?

Nope, not a chance.

The real reason is that most Asian American kids are so influenced and controlled by their parents’ thoughts, opinions and fears that they are unable to discover their own interests and pursue them.  Such people never achieve their Ideal State because they are too mired in the distracting and negative voices that surround them.

The first step to achieving your ideal state is to eliminate all the distracting and negative voices that are affecting your ability to make independent decisions.  If that requires you to tell people honestly how you feel about their influence on your life, then that’s what you need to do; it may require that you distance yourself from certain people but it will be worth it in the end.

By eliminating the distractions and negative influences in your life you will begin to hear your own voice and develop a taste for the freedom that comes with being in your Ideal State.

Like the example with Asian Americans show, the path is not easy and many may not support you, but successful living is about taking responsibility for your own thoughts and actions.  If you live everyday according to the dictates and suggestions of those around you, how will you ever know what it feels like to be successful? Even if you do happen to achieve some kind of success, whether financial or goal oriented, can you still consider it a success if you weren’t the motivating force behind it?

Achieving your Ideal State involves pushing away all the voices that are telling you what you should do or who you should be and instead insisting on yourself.

Step #2 - Identify Your Internal Thoughts and Fears

The second step to achieving your Ideal State is identifying your internal thoughts and fears.  Aside from the external influences that threaten to distract and derail you from finding your own independent voice, there is also the possibility that you may be harboring negative internal thoughts that are limiting the development of independent thoughts and actions.

Many people carry the fears they developed during their childhood into adulthood.  As a child I was afraid of being rejected by people; I made it a habit never to ask for something that there was a good chance I would be refused.  This became a problem as  I grew older and realized how important it is to seek the help and assistance of others, even if that means having to ask them and risk the possibility of rejection.

When we cannot control our thoughts, we become enslaved by them.  External influences have the power to threaten and affect our way of thinking only insofar as they connect with an internal thought or fear that we respond to.  As children we are told not to touch the hot stove because we will get burned and it will hurt; we are also encouraged not to take risks because risks could result in unnecessary pain and why would anyone want pain?

After hearing these fears and admonitions enough times, they begin to seep into our own subconscious and we begin to act based upon them.  The fear of feeling pain and getting rejected, while perhaps useful during childhood to prevent unnecessary pain, can be limiting in adulthood.  If we are unable to experience challenges and overcome them, we will never grow.

Take for example the fear of getting rejected.  Initially children are quite open about their desires; that’s why babies apparently cry so much, it is there way of getting what they want.  However, as we mature mentally and emotionally, we begin to learn that sometimes asking for the things we want results in an unfavorable reaction like a parent scolding their child.

Once we become conditioned to avoid asking for things in order to avoid incurring the wrath or displeasure of others, we become unable to act when we really need to.  Paralysis sits in and the palms grow sweaty as the girl or boy of your dreams is sitting right next to you waiting for you to ask them out.  But we can’t because our own thoughts and fears such as the fear of being rejected, not liked or even worse, laughed at, are so strong that we become paralyzed.

Assessing your internal thoughts involves deeply examining your thought processes and trying to discover which are limiting and then striving to overcome them.  Examine any conditioned thought that begins with "I can’t," "This is crazy" or "I should not do this because…" and write them down along with what you think these thoughts might be preventing you from doing.

For example, right now, my fear of failure and uncertainty are the two thoughts that I have identified  which  preventing me pursuing my dream of becoming a professional film maker.

Step #3 - Take Action

The final step in achieving your ideal state is taking action.  After you’ve identified the external and internal influences, the next step is to take action and eliminate those influences.  Getting through the first two steps is challenging and quite an accomplishment, however devoid of action, the first two steps will not result in any change of behavior.

One of the reasons I decided to quit my most recent job as a reporter was because I felt that I needed to take action after realizing that the environment was very unhealthy for me and ultimately leading down a path unrelated to my goals and dreams.  I was being influenced by my parents’ wishes and my own fears of insecurity with work and money.  Now that the decision has been made I feel a sense of freedom that I’ve never felt before.  It is the freedom of knowing that my decisions will not be motivated by my own fears or the fears of those around me; instead, they will be motivated primarily by my free will.

Achieving your Ideal State is vital to becoming a successful person.  It means that you must strip away all the fears that you have placed before yourself and the fears of others that have been bearing down upon you.  The road to achieving your Ideal State is a difficult one, but in the end I believe it is one that will yield lasting dividends.

The limiting thoughts that are ingrained in us throughout our childhood are like training wheels, they serve their purpose up to a certain point but after that it is up to us to remove them.  Only when you learn how to live by our own decisions and thoughts, can you truly be free and successful.  Success, is not just about the end goal; it is also about the path and the journey that leads to our desired end goal.  We can only begin to embark on that journey when we’ve stripped away the thoughts and fears that have been placed upon us by others and we begin to challenge ourselves and overcome those barriers to reach our Ideal State.

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Your patience is greatly appreciated.

One important lesson that I’ve learned so far that deals directly with success is the value of planning ahead.

Yesterday I had the opportunity to meet with my friends from college which was an added bonus. But because I did not leave early enough, by the time I left my hotel and reached the airport, it was ten minutes before departure.

Normally arriving an hr before a domestic departure is enough time, but yesterday I not only had to check in, but I had to return the rental car and navigate the unfamiliar terrain of San Francisco. I made a few wrong turns which resulted in me arriving late and then missing the plane. It was a hassle and costly to make arrangements to fly out today, but there was nothing I could do after the mistake was made.

Always plan ahead. That’s what I learned from this experience. Give yourself more time than you think you’ll need because something could always happen and often will happen that you don’t factor in. Plus if you plan ahead and nothing you planned for happens, at least you accounted for it and won’t have your overall plans affected.

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Friday was my last day at work. I am now officially unemployed.

There is something that is at once both freeing and frightening about my new found place in society. On my way home, one thought kept running through my mind, "How am I going to support myself?" Though I don’t have everything figured out just yet, the metaphorical wheels of my brain are now spinning faster than ever before.

Being unemployed isn’t such a bad thing, if you have a source of cash flow. Investment properties, royalties, side businesses or dividends, are all sources of income that can either substitute or even replace a regular paycheck. But what happens if you don’t have any extra source of cash flow and no paycheck? What do you do?

Two things:
1. Learn to Save Smartly.
2. Find another job or start creating additional income sources.

For this post, I will focus on the first point: the importance of and how to save smartly.

What does it mean to Save Smartly?

Most personal finance books cite saving as an absolute must in order to build long term wealth; this, for most people, is a no brainer. However, I would argue that saving, by itself, is not enough. Learning how to save and understanding what is worth saving is equally important.

There are two things that you can generally save that will directly impact your financial situation: time and money. Both are important, but under tight pinches, it is common to think only about the dollar sign behind every purchase rather than seeing how each particular purchase adds to or subtracts from your overall wealth.

The concept of saving smartly came to mind when I witnessed my father last week spend over ten hours trying to fix the plumbing for our kitchen sink. Ten hours! The worst part was that he didn’t actually fix it, the pipes still leak.

My father is an example of someone who is incredibly frugal, but to the point of excess. He doesn’t save smartly because in many cases he values saving money or saving time.

Rule #1 for Saving Smartly: Time > Money

This is isn’t a revolutionary idea, but I’m surprised by how many people I know who don’t realize the implications of this rule.

In economics, there is a basic rule to determine whether a product is worth buying or an endeavor worth taking up.

It says when marginal benefit is greater than marginal cost then the action or product in question is worth it.

Put simply: if what you get out > what you put in then it is worth your time or money.

But according to Rule #1 for Saving Smartly Time > Money so if the dollar amount you equate with your time is greater than the money you need to spend to get something done, pay the money.

My father has the bad habit of trying to solve all problems on his own, especially when the alternative would cost money. In my opinion the time he spends is worth much more than the money he would have to spend to fix the pipe. Since we all have a limited amount of time in this world, I tend to believe that, in most cases, spending money over spending time is worthwhile.

For example, if a typical plumbing job costs $400 and my father spends ten hours trying to fix it, his hourly rate is $40/hr. In my opinion his time is worth much more than $40/hr given the saleability of the invention he is currently working on. Rather than spending time on fixing a leak that a much more experienced professional could do in much less time, he should by focusing his efforts on doing something that he does best and will yield a much greater monetary return for his time.

If you compare how much money you would be saving versus how much money you might gain by the fruits of your own labor, then it’s easier to get a better picture of what’s the more cost effective choice.

Rule #2 for Saving Smartly: Buy for the Long Term

The other day I went to a reunion party hosted by one of my mother’s college classmates. The host was a successful small businessman who developed software for stock traders. After dinner he spent some time sharing his life story and tips for success with us young people so that we could learn from his past experiences. I’ll save his tips for another post, but let me point out one interesting recommendation that he gave me before I left his home.

He said, "Whenever you buy furniture, buy one that you won’t have to replace." The man then went around his house and showed me different tables and chairs that he purchased decades ago but still keeps. Though he’s moved into progressively larger homes, he has kept the same furniture with each move.

The lesson I learned from his advice is this: When making a large purchase, Buy For The Long Term.

My only experience buying furniture so far has been stuff I’ve bought for the room in my parents’ house and my college dorm. Most of the stuff I’ve bought has been from Ikea, which tend to have a very short life span. If you’re going to invest in a desk that you hope to use for years to come, rather than try and save a few hundred dollars on a cheaper desk, spend those extra hundred dollars to get a desk that will last.

Another good example of purchasing for the long term would be my experience purchasing a laptop. When I bought my laptop for college, I made sure to do extensive research into different companies’ models. I compared cost, durability, usability and warranty policies. I focused on three different models, the Dell Latitude, IBM Thinkpad and the Sony Vaio. I liked Sony Vaio’s because they looked cool. But in terms of durability and warranty, it didn’t compare with the Thinkpad. The Dell Latitude was the cheapest of the three but after seeing a couple of my friends lose their data to motherboard malfunction in their Dell laptops I decided that it wasn’t worth the couple hundred I would save. In the end, I chose the IBM Thinkpad T40. Even though it cost approximately $400-500 dollars more, I am still using it four years later and it’s still running smoothly and I’ve never had any loss of data or other serious problems.

When I make big purchases now, I tend to think long term because when you have less to spend it’s better to spend a bit more on something that you can use for years to come. Before I bought my laptop I had decided that I would use it at least five years. This made it much easier to decide which laptop model to pick. The only model that I was confident could last the duration of five years was the IBM Thinkpad.

Although it may cost you more in the short term, spending the extra dollars for something that will last a long time is worth it. In the end it’s cheaper on your wallet and on your time.

Rule #3 for Saving Smartly: Always Ask for a Discount

One of the most valuable experiences I’ve had abroad was learning to bargain in China. Unlike most first-world countries where people buy things mainly online or in retail stores, in China, many purchases are made at marketplaces where various small vendors gather to sell their goods. In China, it is almost expected that you ask for a discount, especially if you are a foreigner, because they will automatically mark up the prices to increase their profits.

I’ve seen a shirt sold for USD $50 to one person, only to be sold to another person for half the price minutes later. In China, if you don’t haggle, you will be ripped off.

But the same applies in many places in America or other first world countries where marketplace shopping is less common. I was reading a personal finance book a few weeks back that had a story about a man who learned to always ask for the best deal by learning the seven golden words, "Is That The Best You Can do?" and developing the habit of always repeating that phrase whenever making a deal. As a result of these seven golden words, he was able to make deals and get discounts that most people would never think possible.

A month ago, I was shopping around for gyms and I called up NY Health and Racquet Club to find out more about their membership plans and prices. The salesperson was very kind but wouldn’t give me a direct answer when I asked him about the price. Instead he wanted me to come in to see the facilities and then we could talk about pricing. I told him I’d look into it.

A few days later, the same guy called me again; I didn’t pick up. He left a message quoting a monthly membership price as well as a sign up fee. I called him back and told him it was too high and said I’d continue looking around.

He called again a few days later and gave me an even lower price and was said that he was willing to drop the sign up charge. This time I was interested.

What I learned from the experience was that you should always ask for a discount. Worse case scenario is that they refuse; the best case scenario is that you save money. Which would you rather have? Personally, I’d be willing to take the rejection if that means I can potentially save some money without any added effort.

Saving Smartly is a discipline that needs to be practiced regularly in order to become apart of your daily life. But once you develop the habit, it’s hard to break and it will help you on your way to becoming a financially independent and wealth individual.

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There is no three step method to success and if there is I don’t want it. The pursuit of success for me is a deeply personal journey, one that is laden with personal challenges and obstacles. My version of successful living won’t be the same as yours, but that’s a good thing.

For some, the word "success" conjures up feelings of achievement and power; people who feel this way have usually experienced some form of success in the past and enjoyed it. Perhaps you were the star of your baseball team, one of the top students in your class, a top performer in your office or other organization. People who taste success, usually want more.

Then there are those who hear the word "success" and cringe. It may leave you feeling inadequate or perhaps even vapid and empty, like someone who is perceived to live only for money. You won’t read a book titled "The Seven Steps to Success" because it rubs you the wrong way and seems cheap. Perhaps you’re right.

But before you embrace or reject the notion of success, let me share with you some conventional definitions of success, with a small ’s’, and my definition of Success, with a big ‘S’.

Defining success (with a little ’s’)

According to the dictionary.com’s definition, success is:
1. the favorable or prosperous termination of attempts or endeavors.
2. the attainment of wealth, position, honors, or the like.

The second definition was surprising to me because it’s so common to hear nowadays that "success is not about being wealthy or famous." And yet the second definition in the entry says precisely the opposite!

Despite the growing number of people who define success as more than just wealth and fame, for our culture and society as a whole, success still is and probably will always be very much about how much you make and how well known you are.

Henry David Thoreau , a famous 19th Century American transcendentalist philosopher, thinker and writer said, "success usually comes to those who are too busy to be looking for it." The definition that Thoreau used was probably similar to dictionary.com’s first definition.

Another popular definition of success is the one that Earl Nightingale , a well known motivational speaker during his time, defines in his phenomenally popular radio piece, "The Strangest Secret."

Earl Nightingale defines success as: the progressive realization of a worthy goal or ideal.

I like this definition because it isn’t only focused on the end goal, but on the journey as well. Often times we think of success as a goal to be obtained or an object to be won, not realizing that success is a process and a journey.

Success with a Big ‘S’

In contrast to success (with a small ’s’), I define Success (with a big ‘S’) as the progressive realization of your life’s passion. According to Earl Nightingale’s definition, success can be the progressive realization of any worth goal or ideal, but it may not necessarily be a passion.

Passion is the major difference between Success and success. People who are pursuing their passion and realizing goals related to their passion come alive with an intensity that only a few people ever experience. Individuals who find Success live on a level most people could not imagine. Their lives spin with excitement, challenge and vibrancy; they do not tire easily and can continue doing what they’re doing until the day they die. Albert Einstein was Successful and so was Thomas Edison. Passion was the cornerstone of their success.

For the Successful, life is a game and a very fun and enjoyable one at that.

While you can pick any worthy goal or ideal and be successful, to be Successful, you need to find your passion amidst the numerous goals and ideals in the world. As you may have guessed, the challenge in pursuing the path towards Success, is first identifying your true passion.

Passion is sometimes referred to as calling and I would, for the most part, say that the word is a fair substitute. Calling refers to something supernaturally imposed, something inborn and natural, which is unique for each person.

While success is great, finding Success is amazing. It is a life statement, one that has the weight of certainty and a bit of mystery to it, because there is no formula or model to follow. When you’ve found Success, it is something so unique and special to you that no one could ever hope to copy it. But that’s precisely what makes it amazing.

I won’t attempt to draw a list of people who I think are Successful simply because Success (with a big ‘S’) is unique for each individual because every one has their own particular passion. I also think that such lists don’t serve their purpose in the end because often times we will look at Successful people and simply try to mimic them in our desire to also be Successful.

Let me say it again: Success is an individual journey, one that begins with finding your true life’s passion. You cannot copy the success of others anymore than you can copy other people’s passions.

But what I will say is this, when you meet someone who has achieved Success, they will radiate energy that will enthrall you; the person may feel larger than life and "super" human. In reality, there’s nothing "super" about them, it is just the fire of passion tested and strengthened over time.

Although I haven’t met many people who fit the bill, those that I have could occupy my attention for hours.

Successful (with a big ‘S’) people have that special something that most people want, but can never seem to find–passion. Though it’s a difficult journey, I believe it is one everyone is capable of.

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Although the book is a bit dense (it’s written by two PhDs), there are lots of insightful nuggets of information and statistics that I found intriguing. Since a full review would be quite lengthly, I will instead list my top three takeaways.

Note: This book was published almost ten years ago, so most of the data will be outdated, but the points they support are still valid and relevant.

1. Most Millionaires Don’t Inherit Their Wealth, They Earn It

Overall the aim of The Millionaire Next Door is to debunk general myths about wealthy Americans. One of the common myths, something that I assumed but never really verified, is that most wealthy Americans are old money, meaning they inherited their wealth through previous generations.

Following this line of thought, the most wealth Americans would be those who were here first. Who were they? The British. However, according to the book, this is not the true. Although, overall there are more millionaires among Americans of British descent (7.7 out of 21.1 million in 1998), percentage wise they rank fourth. The top three wealthiest ancestry groups in America, according to the book, are Russian, Scottish and Hungarian.

So the obvious question is, Where did all the money go?

What most likely happened was that the fortunes generated by the first generation was quickly squandered by the second and third generations. The authors of the book Thomas J. Stanley and William D. Danko state that wealth accumulation in America has more to do with the achievements of the current generation than what took place in the past.

Point: most millionaires (the book says 80%) are first generation, meaning that they build their wealth on their own rather than inherit it.

The authors estimate that approximately 22 of every households headed by someone of Russian ancestry has a net worth of $1 million or more. That’s over one in every five!

"Russians in disproportionate numbers are manager-owners of businesses. Further, this entrepreneurial spirit seems to translate from one generation of Russians to the next."

No wonder there are so many wealthy Americans of Russian ancestry. Among smaller ethnic groups, people of Israeli descent rank #1 for economic productivity. I wonder if the statistics have changed a bit in ten years. It seems the book didn’t take into account Asian immigrants, because their history in the United States is so short. Though I’d be willing to wager that Asians would rank pretty high up there as well.

As one might expect, most of America’s millionaires are self-made entrepreneurs. While this is a fact, the book doesn’t try to convince readers that becoming a successful entrepreneur is easy. According to the authors, most self-made millionaires wanted their children to pursue higher degrees and develop skills, such as law and medicine, that could be marketable in many areas. S

"In America, fewer than one in five households, or about 18 percent, is headed by a self-employed business owner or professional. But these self-employed people are four times more likely to be millionaires than those who work for others."

While the odds of success are slim, if you make it, the chances of becoming a millionaire are quite nice.

2. Millionaires Care About Overall Net worth, NOT Realized Income

The common misconception about wealth is that it is measurement of one’s annual salary. The Millionaire Next Door defines wealth as overall net worth, which is assets (investments and property) minus liabilities (expenses and debt). The book illustrates the difference between high earners and high net worth individuals by giving examples of six-figure income earners who have very small net worth.

One of the interesting examples the book mentions is Ross Perot, the billionaire guy with the big ears who some say snubbed Al Gore’s chances at beating George W. Bush in the 2000 U.S. Presidential Elections. When the book was published in the late 1990s, Perot’s estimated net worth was around $2.4 billion. Not bad. His realized income was approximately $230 million, which is 9.6% of his overall net worth. He paid only 8.5% or $19.5 million in federal income tax.

Many high earning individuals in American with low net worth, pay over 15% of their income in taxes, some as high as 25%. If you don’t think 9% makes much of a difference, for Perot 9% of his net worth would be over $200 million dollars.

The key difference between high earners and high net worth people is that high net worth people pay less in taxes as an overall percentage of their net worth. They invest more in tax free municipal bonds, tax-sheltered real estate and holding stocks for the long term, which results in untaxed unrealized gains. This allows them to build wealth faster by paying less taxes.

Since I started working in NYC, I’ve experienced first hand the chunk that Uncle Sam takes out of my monthly paycheck. 25% of my paycheck is lost to federal, state, city and other taxes such as Medicare and social security. If I were to calculate my wealth solely based on my paycheck, without additional investments, I’d lose nearly 25% of my earned income to taxes every year. Currently that’s $7500. If I didn’t invest any of my earned income and received no raises, in ten years I would have paid approximately $75,000 in taxes.

However, if I invested $7500 each year to offset the amount paid in taxes, over ten years with an average annual gains of 10%, I’d end up with over $120,000.

That’s approximately a $45,000 difference.

Here’s a valuable nugget about wealth building from the book:

To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow)

3. Millionaires Drive, Eat and Dress Cheaply– They Also Budget Their Expenses

The Millionaire Next Door states that over 62.4 percent of millionaires surveyed knew how much their family spends each year for food, clothing and shelter.

Do you know how much you spend per year on those things ?

The average millionaire paid less than $140 for shoes, $235 for a wrist watch and $399 for a new suit.

How much do you spend, on average, for shoes, clothes and watches?

What about for your newest car?

The typical millionaire paid only $24,800 for his most recent automobile. 30% spent $19,500 or less. What’s interesting is that the average American spent more than $21,000 for their most recent vehicle.

Most people don’t know how much they spend on durable goods, and for a long time I didn’t either. Growing up it was easy to not think about it because my parents paid for everything. But as soon as I began to support myself, it didn’t take me long to realize how quickly my purchases added up.

Budgeting has proved invaluable in helping me to save consistently. In my previous post, How to Become Rich With Patience I explained in detail how I graduated with $10,000 in savings by budgeting my income from part time jobs, internships and scholarships. Without the help of my trusty excel spreadsheet and a determination to save a specific amount of money every month, I would have graduated with much less.

Budgeting and saving are active choices of the will, while spending is usually passive. It’s easy to not count the dollars when you go out to eat with friends, but they add up quickly. After reading through The Millionaire Next Door I believe there are three general disciplines that the wealthy have over the non wealthy and they are: the discipline of earning money, saving money and investing money consistently.

If there’s anything to be learned from this book it’s that the combination of those three skills can yield a $1,000,000+ net worth and long term wealth.

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Originally I thought about entitling the post, "Choosing the Right Path to Achieving Your Dreams," until I realized that there is no "right" path. Life is a tricky game in which we are offered many options and paths to take but aren’t told which ones will lead us where we want to go.

While there may not be one "right" path, I believe you can decide between what is the best path for you to achieve your desired goals and dreams.

One of my hobbies is reading success stories. I do it because it encourages me to move forward with my dreams bit by bit in a consistent way. From all the success stories that I’ve digested in my life so far, I’ve noticed two basic patterns: there is a direct and an indirect route.

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The direct route tends to be taken by those who charge full force towards their dream despite the obvious risks and obstacles, while those who take the indirect route, tend to be more pragmatic and strategic in fulfilling their dreams.

While I wouldn’t say one approach is better than the other, I think some people are better suited for the direct approach while others for the indirect. It is a matter of personality and attitude more than anything else. This is an example of a situation in which an understanding of your Myers-Brigss type can be extremely helpful.

For example, being an Extroverted, Intuitive, Feeling and Perceiving type, I am much more suited to decisions drawn from my intuition. While I do analyze data when I am making decisions about investments, I would say, most of the time, I weigh my intuitive sense higher than analytical indicators. People who are Thinking and Judging types may find that they lean more heavily towards data analysis when making decisions.

Both work, it’s just a matter of picking what is most natural for you.

Choose the Most Natural Path Towards Your Dreams

Your unique personality is one of the hardest variables to grapple with when trying to glean advice from your peers and elders. No one can tell you what’s best to do for you because they have no way of accounting for your unique personality.

Picking the most natural path in pursuing your dreams involves first examining the type of person you are when you eliminate all external influences–this is your ideal state.

My ideal state is evaluating a situation quickly and then running head first into the challenge. That’s how I am wired. My mother often comments on how I’ve changed so much since I was a toddler, when I would hold carefully onto the railing as I climbed down the stairs in our home. Compared to my sister, who apparently made an art out of tumbling down stairs, I was the slow and steady one.

My parents always chide me for making "rash" decisions, for "not thinking enough" before acting. For a long time, I felt extremely guilty about my supposedly poor habits, until I started thinking that maybe I just work best this way.

Some people learn by doing, others learn by watching and still others learn by osmosis. (I was always jealous of the osmosis kids in school.) I personally learn by doing. While I like reading and learning through books, I tend to learn faster by getting my hands dirty and doing whatever it is I�??m trying to do.

The most natural path for me is the direct one. Barreling towards my goal with all the energy, drive and passion I can muster up.

But you may be different; it may fit your personality better to find a more indirect approach to getting where you want to go. Perhaps you want to be an artist, but are currently stuck working in a 9-5 job which you need to pay the bills. An indirect route would be to stay at the job while you pursue your art in your free time. While the direct route may involve you quitting your job and spending most of your time doing your art and finding a means of supporting yourself part time.

Or perhaps you are dreaming of working on your own business, but don�??t want to wait until your 35 and have the resources and �??experience�?? to do it. If you�??re like me, I would say just do it. Don�??t bother waiting for people to tell you that it is now okay to follow your dream; that person may never come. If you are used to taking risks and leaping head first, then forget the fears and just bite the bullet.

Ignoring The Nagging Voice of Fear

The most formidable obstacle an individual faces in achieving their dreams is fear; fear of failure, of lack of resources or talent.

Some people can manage their fears better if they strategize around them while others do better by just facing them dead on. However, in the end, everyone will face the nagging voice of fear in one form or another.

Even if you’ve managed to overcome your own fears, you may find yourself paralyzed be the fears of your friends and family. No one wants to see you fail, especially not the people close to you. They will take it upon themselves to encourage you to take the safe path.

The only problem is, safe is a relative term. What is safe for one person may not be safe for another; likewise, what is risky for one person may not be risky for another.

The direct path, while it sounds riskier, is no less risky than the indirect path. If you thrive by tackling challenges head on, then by taking a more round about means of getting where you want to go, you risk losing momentum and focus. On the other hand, if you are more a step by step problem solver, jumping into something head first could be very risky because you may not know how best to respond to the situation after you leap into it.

If you�??re waiting for someone to tell you to start that business when everything seems to be screaming �??just do it�?? then maybe you should just do it. Look back into your past and try to identify instances where you�??ve made big decisions and examine how you approached them. Did you leap into them or did you tackle them in a step by step, piecemeal fashion? Was the outcome what you wanted or did you wish you did something differently? I�??m a big believer in looking at our past actions because they often reveal a wealth of insightful information on how we make decisions.

When people give you advice they tend to project their fears on you. This can be helpful if you are very similar to the person you are speaking with, but it can also be potentially disastrous. Inappropriate advice is worse than no advice at all.

Ask people for advice, but always remember that you are your best judge.

Whether you take the direct route to your dreams or the indirect route is up to you. But before you decide make sure you examine your own personality and problem solving style as well as your past actions. What you discover may surprise you.

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I have this habit of asking lots of people for advice when I am trying to make a decision in my own life. I think this has to do with my own fear of failure, of making an irrevocable mistake that will cause my whole life to come crashing down before my eyes.

Sounds a bit dramatic, I know. But it’s true. I have an overactive imagination.

Ever since I got into the habit of speaking to people older and wiser than me for advice, getting advice before making a decision has become second nature. While it’s great to hear other people’s input, most of the time it’s not applicable to you; honest people will tell you straight out, "I’m sorry but I don’t know what to tell you," or "I can only give you my story, but in the end you have to decide for yourself."

Ain’t that grand. In the end, we have to make our own decisions.

This can be nerve wracking for some; I know it is for me. But it’s an inevitable reality for those who want to live successfully, we must learn to make our own decisions.

Why is it so difficult to trust our intuition when making decisions ?

This one’s easy. Laziness and fear. The two account for the majority of passive decision making. My own weakness is the fear of failure.

As a kid I played a lot of video and computer games. I was particularly into Real Time Strategy based games such as Starcraft and Warcraft. The goal was to defeat your opponents by destroying all their buildings or units. In order to accomplish this, you could either build an army greater than your opponents, out fight your opponents with superior control of your units, or you could simply choke off their ability to expand and get more resources.

The reason I mention video games is because I’ve found that in my own experience I am far more bold as a gamer than as a human being in real life; I’m guessing this is true for most people out there. As a gamer, my goal was to find the most strategic use of resources, buildings and units to outplay my opponent. I strove to succeed at every game, but occasionally I did fail, but it wasn’t the end of the world because I could always play again.

Sometimes I’d make a move only to realize that it was a poor decision; occasionally those decisions cost me the game. Watching a replay of the game afterwards I’d often kick myself for making a mistake. But after I kicked myself, I could always take note of my mistakes and apply it to the next game. There was always the promise of another chance.

Unfortunately, the real world has no reset button and there is certainly no promise of a round two. Most people realize this and that’s why few take the same risks in the real world as they do in the virtual one.

In the real world, the way people get around taking risks is by mitigating their own personal responsibility. I have been guilty of this myself on a number of occasions.

It’s Easy To Take Risks When The Stakes Are Low

Growing up with Asian parents, I was taught to obey my parents because they knew what was best for me; obedience was expected, like saying please and thank you. Since I enjoyed being difficult as a child, I often rebelled against my parents’ wishes. When the stakes were low, it was easy to do what I wanted.

The irony is that as I got older I became more of a conformist. I realized that as an adult the stakes were higher. I would no longer be protected by my parents from my own failures. If I fumbled and dropped the ball, that might be the end of the game.

Choosing a college, picking a major and deciding on what type of job to start off with are good examples of decisions which people are often thrown into without much time to consult themselves. Societal, peer and parental pressure weigh in to direct us towards a path that is respectable, safe and secure.

After a few years of this type of conditioning, we forget the sound of our own inner voice. It may be saying "Stop, don’t continue down this path," but we may never hear it because the sound or feeling is no longer recognizable.

Listening To Your Intuition By Eliminating The Other Voices

In general, there is nothing wrong with a respectable, safe and secure path, if that path is the one dreams of going down. But how many people actually allow themselves to think whether or not the choice they are making is their own?

Even when we think we are making our own decisions, we may, in fact, not be. How many times have you made a decision only to take it back sometime later? How easily do you change your mind based on the given circumstances or situation? How often do you second question yourself?

In college, most of my decisions seemed to be abrupt and not well thought out. The problem was there were too many things on my checklist.

I was trying to accomplish too many things at the same time and these restrictions ended up clouding my judgment and prevented me from making sound decisions.

It’s easier to focus on one or two points when making a decision rather than trying to filter options out with a ten point checklist.

When looking for jobs out of college, I was trying to find work that would pay well, be interesting, allow for growth potential and also have a great work environment. Instead of looking for a decent paying day job that would allow me to pursue my real passion for writing and film, I was foolishly trying to find work that would, by my selection criteria, lead me down a career path that I had no intention of pursuing.

I often find myself complicating my life with more options and possibilities than I need. The more options I have open, the harder it is for me to concentrate on the one or two options that are really worth considering.

When there’s too many things to choose from, your intuition gets overpowered by your conscious mind. But the fortunate thing is that while the voice inside of you that resists certain choices and embraces others, never really goes away. It continues to ask questions, to cast doubt on poor decisions and steer you in the direction that is best for you.

Trusting your intuition takes not only a quieting of the heart and mind, but it also requires an elimination of options and choices that fill our lives with excess clutter. Stripping down to the bare essentials of a full spiritual life, such as passion and joy, is often enough to sustain us in all areas, including the more practical areas.

If you find your intuition telling you that something needs to go, sit down and write down a list of all the conditions and restrictions that you are putting on your life. Eliminate each one by one until you come to the bare essentials, the areas which you cannot compromise on.

Those are the bare essentials you need to live a full and successful life.

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In Part I of this series we discussed the difference between a Smart Stock Investor and a speculator as well as first steps for a newbie investor interested in learning more about the stock market.

In this article I will explain how Smart Stock Investing can lead to a substantial increase of your annual income as well as five tips on how to pick stocks that will add to your income in the long term.

If you’re like the typical entry level college student you probably make somewhere around $30,000 to $35,000 a year pre tax. Let’s assume an approximate $30,000 annual salary with an after tax income of around $2000/month.

$2000
- $900 for rent
- $600 for food and entertainment
- $100 for school loans
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$400 in savings per month

Assuming the above figures for expenses, you would save approximately $400/month, which is a 20% monthly savings rate. In one year that will add up to $4800. Not bad!

Note: the more you save, the easier it is to recieve a higher return from your investment.

For example, let’s say our goal is to have an annual gain of $3,000, which is 10% of $30,000. If you save $4,800 in your first year, you would need a 63% annual return on investment in order to hit the $3,000 goal. While possible, it’s very, very difficult.

However, after three years of savings you might have close to $15,000. $3,000 of $15,000 is only 20%; while still high, it is much more realistic than 63% returns. After five years, at the same savings rate, assuming no increase in salary (which isn’t realistic), you would have nearly $25,000 saved. $3,000 of $25,000 is approximately 12%.

12% is a very achievable figure and it would also make for a very nice raise.

Choosing businesses to invest in that would yield an overall return of 12% is not easy. It’s more probable to pick a few good companies that will yield an average annual gain of around 10-12%. However, it is important to remember that like any kind of an investment, there is no guarantee everything will go as planned. In any given year, a company that is poised to achieve big gains can suddenly find themselves hit with an unexpected natural disaster or other calamity that would affect operations and impact their bottom line.

However, the likelihood of hitting the 12% target, while above average, is very doable if you pick businesses you understand, are profitable and growing.

Tip #1: Pick Less Expensive Stocks

Most investing gurus advise people to put their money in reliable, blue chip stocks such as GE or Walmart. This is good, sound advice for someone who has dependents and is looking to build not only a nest egg, but also a college fund for their children. People who are in the mid stage of their life and careers can’t afford to lose their hard earned savings and thus it makes sense to invest in stocks that would seem less prone to fluctuation.

If you’re following the stock market now, you may notice that even blue chip stocks are taking a beating. So this advice doesn’t always apply even for larger companies. That’s why it’s important to have a thorough checklist before making a decision to buy.

For the young investor, with limited cash available to invest, it’s better to buy more shares of less expensive stocks than a few shares of an expensive one.

Let’s say company A’s price per share is $10 and company B’s price per share is $50.
If you only have $1,000 to invest, that would give you 100 shares of company A and only 20 shares of company B.

If company A’s price per share moves from $10 to $11, your gain is (100 * $1 ) = $100.
While if company B’s price per share goes to $51, your gain would be (20 * $1 ) = $20.

The more shares you own, the more you will gain when the price goes up.

Though remember, if the stock price’s go down the same also holds true. The more stocks you own the more you will stand to lose.

Tip #2: Pick Companies Whose Products and Services You Understand

I mentioned this in Part I of this series, but it’s so important that I want to make the point again.

If you don’t know anything about technology companies, don’t buy technology companies. This is a principle that Buffet stands by and I do as well. The more you know about a company, the easier it is for you to tell whether the company will do well or not. If you don’t know how Google makes money, does it really make sense to invest in Google? Even if everyone around you says it’s a good investment?

Every business is selling one of two things: a product or a service. If you understand the company’s product or service well, or even better, if you regularly buy or use their product or service, then you are in a stronger position to make judgments about the future earning potential of the company.

For example, I once thought about investing in a number of clothing companies such as Abercrombie and Aeropostale because I heard that they were doing well. However, after some deliberation, I realized that I didn’t know enough about their products nor was a really willing to do the research necessary to get a good sense of how the company was faring in terms of their competition.

Remember: A company must sell their product or service in order to make a profit.

Your goal is to understand well not only the company’s product, but how well and to whom they will sell to.

Tip #3: Pick Companies With a Positive Cash Flow to Debt Ratio

Generally, it’s best to avoid company’s with a low cash flow to debt ratio , which is simply the amount of cash coming in divided by the amount of debt that the company has to pay off.

In order for a company to grow, it has a few options: it can sell more stock in the company (equity financing), borrow money (debt financing), or they can reinvest their profits if any. Company’s that have more debt than cash coming in tend to be less able to adapt to changing business enviornments. This can be a hindrance to growth.

Company’s that have positive cash flow demonstrate that they are able to generate working capital which they can reinvest or possibly hand out to shareholders as dividends.

Tip #4: Pick Companies Whosel Products or Services Are Relatively Price Inelastic

A product is price inelastic if its demand does not change significantly relative to a change in price. Company’s that sell products that are relatively price inelastic tend to fare better regardless of the economic climate.

Products that are relatively price inelastic tend to have no close substitutes. A good example is crude oil, even though the price is shooting through the roof, people still need to buy gas for their cars to get around.

However, a common household staple such as chicken is relatively price elastic. If chicken ever got too expensive, people could switch to eating more beef, pork or fish.

Tip #5: Pick Companies That Pay Out High Yielding Dividends

Companies that pay out dividends are a great way to build long term wealth. A good example is GE, which is right now yielding a 4.53% dividend. While no company has the obligation to pay out a dividend, GE has been paying out their dividend for over a hundred years and their dividend has been increasing for the last three decades.

To calculate how much in dividends you will get paid just multiply the dividend amount by the number of shares you own. GE’s current dividend pay out is 31 cents a share per quarter. So if I own 100 shares, I would get paid 31 dollars per quarter.

Dividends are usually paid quarterly or biannualy.

Dividends are nice because you the money goes directly into your brokerage account, which you can reinvest or use as you please. As you grow your positions in dividend paying companies, your dividend income will grow as well.

While there’s no exact formula on how best to invest your money, if you follow the tips mentioned above, you will keep your focus on companies that will add to your income and savings rather than diminsh it. Remember that investing is not a get rich quick scheme, but a long term strategy for wealth building.

In How to Get Rich With Patience Part II: The Fast Road to Seven Figures , I emphasized the importance of investing in growing and profitable companies for rapid wealth building; stocks investing is essentially business investing; each stock you buy is a piece of a business. If you invest well you can substantially increase your wealth in the long run.

For more information I would check out The Motley Fool as they have a ton of great information on how to evaluate businesses and to make good long term stock investments.

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Part I - An Introduction to Smart Stock Investing And First Steps For the Newbie Investor

I started investing in stocks over a year and a half ago just when the market was beginning to come down and a few months before the whole sub prime mortgage crisis reared its gruesome head.

At the time I knew very little about the stock market and I knew even less about the businesses that I thought about investing in, so instead of making the heart wrenching choice of what stocks to buy myself, I had my father, a long time veteran, do the decision making for me. Since then I’ve begun to venture out and make my own decisions. Some good, some not so good, but all around I’ve learned quite a bit.

For those of you who are looking to invest some money or are already invested in an IRA or 401K account but are looking to understand more about smart stock investing, this series is for you.

Smart stock investing for young people, is different than smart investing for middle aged or elderly people, because young people tend to spend more. Young professionals in their 20s and even early 30s, before marriage, tend to spend a high percentage of their monthly paycheck on things such as entertainment and food.

Here’s an article from the Washington Post that I would recommend reading; it’s dated Feburary 3rd, 2008, entitled They Work Hard, They Play Hard, But They Don’t Realize the Cost."

It’s about young professionals spending hundreds of dollars on entertainment and not even realizing it. If you find yourself often wondering where all your money goes every month you’re not the only one!

The definition of young is a pretty arbitrary one, some would say anyone in their 20s, while some would extend that into the 30s and perhaps into early 40s, but for the purposes of this article, my definiton of "young" is a person who has no family or dependents. People who have no dependents tend to spend more lavishly, because they can afford to. However, as I mentioned in my series How to Get Rich With Patience , saving smartly is one of the key components to long term wealth building.

The second crucial component to getting rich or wealth building is smart investing. Hence the title, smart stock investing.

What is Smart Stock Investing?

Smart stock investing is investing that minimizes losses and maximizes gain. This is an idea that legendary investor Benjamin Graham introduces in The Intelligent Investor , one of his seminal works on investing. If you want to learn about smart stock investing, here’s a place that most credible sources will advise you to start. Since it’s a bit dry for the first time investor, I will introduce in this series the key concepts of the book while using my own experiences with investing to illustrate the points more concretely.

Graham, a mentor of the legendary investor Warren E. Buffet, presents two categories of people who invest in stocks: investors and speculators. Investors, according to his definition, are people who invest in businesses for the long term without needing to constantly monitoring the company’s stock price; speculators, on the other hand, are people who buy or sell a stock based on its price at the moment; they buy as the price rises and sell when it begins to fall.

Speculators trade for short term gains, while investors invest for long term gains.

The reason I entitled this post Smart Stock Investing For Young People is because, like Graham, I want to distinguish between true investing and speculation or trading. The word investor is often used to describe anyone who puts money into a venture, be it in real estate, a stock or a small business. According to this definition, day traders and speculators can also be considered investors.

While some may consider speculators and traders investors, by our definiton, they are not smart investors.

Before I delve into steps to take for the newbie investor, let me explain three reasons why I it makes sense to be a smart stock investor and not just any day trader or speculator.

Reasons for Wanting to Be a Smart Stock Investor

1. Your investments will be rational and based on analysis and logic.

If you want to speculate, you might as well go to Atlantic City or Las Vegas, at least there you will be entertained for your money. Smart stock investing is about doing research and making sound investment decisions based on careful analysis. You will be putting your money in companies that you have studied carefully and believe will do well in the long term, which will make it easier for you to sleep at night.

2. Over time you will get better at identifying good investments from bad ones.

Smart Stock Investing is a discipline that requires constant practice; while it takes a lot of work, the more you put in the better you get. Smart stock investing is like shooting at a specific target, while speculation is akin to shooting with a blindfold on. Your goal is the same, but your methods are completely different.

3. Warren Buffet is a Smart Stock Investor and he’s the richest man in the world. No explanation necessary.

Typical Excuses For The Investing Illiterate

Whenever I try to talk to my friends, those who don’t already invest, about investing they usually give me one of the following three responses:

1. It’s too hard.
2. I don’t want to lose my money.
3. I don’t know where to begin!

Here are my responses:

1. Smart stock investing is hard, but so is working, exercising and anything else that’s beneficial in life.
2. You will minimize your losses and maximize your gains if you learn to invest smartly.
3. Three Words: Friends, Library and Internet.

How to get started as a Smart Stock Investor

When I first started investing, I gave my father my $10,000 in savings and told him, "Okay dad, tell me what to do with it." While that probably wasn’t the smartest idea, it definitely helped get my feet wet. Once I purchased those stocks, my money was locked in and I became emotionally as well as financially invested.

I tracked my stocks every day and developed the habit of reading financial news and statements. With each new development, I learned more about the pros and cons of my investment and I also began to develop new ideas for future investments.

Tip 1: Start Now

There’s never really a good time to invest, especially if you know nothing. If you’re like me, and I think many young people today are, you probably have the attention span of a three year old. Personally, I am all about the jump-in-the-deep-end approach. That’s how I learned to swim and that’s how I began my journey towards becoming a smart stock investor.

Tip 2: Pick a Cheap Online Stock Broker

Rather than regurgitating information that I know is on the Internet, let me refer you to an article by The Motley Fool a top notch website full of information about investing. I highly recommend their articles and I even suscribe to one of their monthly newsletters.

Tip 3: Set aside 10% of Your Next Paycheck

In order to get started, you need some money to work with. Whether you’re in college or in the working world, you probably have some extra spending money each month after all your bills are paid. Take some of that money, I would recommend 10% at the least, and set it aside for investing. You don’t want to invest too much right away because you’re just getting started, but you also don’t want to invest too little, because then you may have less incentive to sharpen your investing skills.

The idea is put yourself in a situtaion where you will be emotionally and mentally invested in your money. I know how easy it is to get distracted by life, work and the Internet, which is why investing not only your money, but your mind and emotions as well is important.

Tip 4: Do Your Research!

Your first investment should be in a company that you feel attached to. For example, if you really like drinking Coca Cola, think about making your investment in The Coca Cola Company. One of the keys to smart stock investing is understanding your circle of competence, a phrase which Warren Buffet uses a lot. Basically it means that you should only invest in businesses that you understand reasonably well and avoid ones you don’t.

If you don’t understand the business you invest in, you won’t be able to tell whether a recent surge in stock price is reflective of improved business or whether it’s caused by speculation. Since you’re going to invest your hard earned money in a company, a Smart Stock Investor would make sure they know their business inside and out.

If you were going to invest in Coca Cola, here are some of the things a Smart Stock Investor would do:

1. Check out Coca Cola’s website and read up on their recent news.

2. Look into the different products that Coca Cola produces. They make much, much more than just Coke; find out what they are and how well those products are doing.

3. If you’re adventurous and like numbers, check out their financial statements, at Coca Cola’s investor relations website and click on SEC Filings. Click around and read their latest annual report, also known as the 10-K.

Note: Reading financial statements is crucial to smart stock investing, but in the beginning this step may be too much for the new investor, especially if you don’t like numbers!

Tip 5: Purchase Shares

Once you’ve done the research and feel pretty good about the company, it’s time to invest. Log into your online broker’s website and go to the Stock Trading page and type in the stock’s ticker symbol. It’s usually a four letter symbol representing the stock, if you’re not sure go to Google Finance and type in your company’s name and the ticker symbol will come up.

Check the price of the stock before you make the transaction. If you divide the amount of money you will invest by the price of the stock, that will give you how many shares you can buy. For example, If I have $1000 to invest and one share of Coca Cola is $50, I can buy 20 shares.

Since this is your first stock purchase, I wouldn’t worry so much about the price; unless you have a very good feeling it will go down in the near future, trying to time the stock price to get in at the lowest point is more work than it’s worth.

Note on Commissions

Whenever you buy a stock, your broker will charge a commision fee. Usually it’s around $10, sometimes more and sometimes less. These fees can add up; so it is better to buy 20 shares at once rather than 10 shares now and 10 shares later.

Well if you’ve made it past this stage, congratulations you are now on your way to becoming a Smart Stock Investor; and hopefully a wealthy one too!

Stay tuned for Smart Stock Investing For Young People Part II !

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