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article, Becky Anderson, Budget, business, cnn money, cost-cutting, economy, how to, invest, investment, Mark Shapiro, money, NetWorth, one million, Personal finance, saving, United States
This is in everyone’s to-do list: make money, at least a million or close to it. From CNN Money, this article talks about five people who made the money with the basics of saving, investing and lastly, cost-cutting.
1. The ENTREPRENEUR
Anne Marie Ramos, 51, Palm City, Fla.
Occupation: Co-owner of a dry-cleaning franchise
Net worth: $2.4 million
The strategy: Frustrated with the limitations of operating a dry-cleaning store that they rented, Ramos and her husband, Angel, started their own franchise, ZIPS, in 2006 with a dozen operators in the region. Being part of a franchise has allowed the couple, who also own five rental properties, to grow their business quickly. For example, the stores pool marketing expenses, allowing for a bigger advertising budget, which has resulted in increased foot traffic.
The payoff: In the first year of the franchise, Ramos says her store’s revenue grew 20% compared with when it was run independently. She says sales have continued to rise annually since. And by pooling purchasing, the franchise also lowered her costs.
2. The CONSERVATIVE
Syed Abbas, 49, Ambler, Pa.
Occupation: IT Manager
Net worth: $1.7 million
The strategy: Abbas and his wife, Saleha, cut losses in a couple of ways. By sticking with low-cost funds — 0.2% to 0.3% of assets vs. the industry average of more than 1% — they reduce what they lose to fees. “Given that, I am able to save more money,” Abbas says. “This allows me to be less aggressive.” The couple, who save 20% of their income, keep only about 50% of their portfolio in equities. (Many planners say a 50-year-old should have closer to 65% in stocks.)
The payoff: In the past seven years their portfolio gained about 5% a year. They would have done slightly better with more stocks. But bad years like 2008 — when a 65% stock/35% bond strategy lost more than 21%, vs. a 14%-decline for a 50/50 approach — would have been much more discomfiting.
3. The LANDLORDS
Becky Anderson, 37, Portland, Ore.
Occupation: Data analyst
Net worth: $1.4 million
The strategy: Anderson and her husband, Greg Close, make improvements to their five rental properties with the express intent of being able to charge higher rents. In the past they worked on aesthetic upgrades like landscaping, but found that those projects typically didn’t pay off. “Tenants would usually ruin it anyway, and that would frustrate us,” she says. So now they’ll add a bedroom or bath and do the work themselves to keep costs low.
The payoff: Turning a two-bedroom, one-bath house they own in Portland into a 4BR/2BA pushed the monthly rent to $1,600, from $1,000.
4. The BIG SAVER
Mark Shapiro, 38, Fairfax, Va.
Occupation: Software engineer
Net worth: $975,000
The strategy: Shapiro finds it useful to think about saving in round numbers. “It’s psychologically easy to be consistent this way,” he says. For example, if at the end of the month, Shapiro has $627 left over after expenses and his regular savings, he picks a round-number amount of this “extra” money to sock away — say, $500 — and spends the rest however he likes. How does this help? Says behavioral finance expert Meir Statman: “It’s a good rule to have rules by which you save.”
The payoff: Shapiro allows himself to splurge occasionally and to go on trips with his “left-over” money. “Save first,” he says, “and then, after you’ve hit your savings targets, you can start spending on discretionary things.”
5. The BUDGET QUEEN
Margaret King, 65, Philadelphia
Occupation: Head of a think tank
Net worth: $850,000
The strategy: Since she was a graduate student, King has followed a budgeting formula that allowed her to maximize free cash for investing: 10% for travel, 3% to gifts for friends and family, and 57% to necessities like utilities, food, and housing. The rest went to savings, investments, and paying down the principal on her mortgage.
The payoff: It took King just 12 years to retire her home loan a decade ago. The extra she contributed varied based on her income, but she made sure to pay at least 15% more than what she owed each month, “Now that I have freed that money up, I can put more into my investment accounts,” she says.
Article and photos from CNN Money, How I made $1 million.