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As publisher of GetFolio.com, I often get emails from young investors who are eagerly looking to the stock market to make their fortunes. If you are an undercapitalized investor looking to get rich but cannot afford proper diversification, here is an alternative. While this alternative may not make you a millionaire, it will surely guarantee you an excellent retirement.  I think this plan is as solid and true as the concept of becoming rich through compound interest, but much more exciting.
 
Your outlook about money:
For the purpose of this exercise, I am going to assume that you are 25 years old, have just graduated from college, and gotten a job earning $30,000 a year. I am also going to assume that you understand and agree with the concept of savings.  After all, there are always ways to spend your entire income, regardless of how much you make. 

As a person earning $30K a year, you are probably finding out that 30K a year is simply not enough. After moving into a snazzy apartment, buying a car, a giant TV, lap top, high fashion clothes, a watch, etc., you are probably finding out you are spending your money faster than you are earning it.  Not only have you spent it, but chances are, you now also owe money on your credit card. After all, $30K is really only about $1,875 a month after taxes.

The above probably sums up most people's the economic realities. The fact is that unless you make a conscious effort to recognize what really is important, your income will never be enough, regardless of how much you make.

I personally can afford just about anything I want, but the things I want are not related to money. I wear jeans and sneakers, drive an older model car, and no longer have a large wish list of material things to buy. There are tons of articles, and psychological research that clearly tie the quest for money to unfulfilled emotional needs. So, the sooner you make that connection, the sooner you will be on your way to getting ahead. The fact is that rich people generally have little need to buy high priced products. Money gives you choices, and peace of mind, and that's the beauty of money.
 

Borrowing money:
Probably the biggest trap of modern times is the generally accepted 15-30 year mortgage. I consider it a trap, because of the simple fact that very few people actually stay in one house to the maturity of their mortgage.  In a modern society where people change jobs every 3-5 years, most people end up selling houses, moving to another state, and applying for new mortgages all over again.

I personally do  not understand why the banking system does not offer an ongoing 30 year mortgage that is tied to your personal credit and uses your house as collateral. If a person has a good credit history, why can't he get a Personal Line Of Credit which will be good all over the US?  After all, the majority of banks have branches in most states, so why not?  Could it be because banks would lose a major revenue source, if people got what they deserve? I think so.

They say your house is your most important asset. Unfortunately, under the current banking system, it becomes your biggest liability.  What's a better way you ask? I will tell you. Let's assume that after 5 years of living smart, you have managed to save $50,000. If you are like most people, you find a real estate agent who shows you houses you can afford. You are now faced with putting a $50,000 down payment on a $250,000 home, and paying a $1,500 monthly mortgage.

The above is probably what 90% of the population does, and it is a dumb idea.  If you are like most people, chances are that in the next 3-5 years, you will either get relocated to another job in another state, get fired, or go through a period of economic depression.  Believe me, in the average 7 year cycle, everything that can happen, does happen.  So what's a better alterative?

Remember what I said about borrowing money. To get ahead, you must avoid all long term borrowing plans. Don't buy a $250,000 house, instead buy a cheaper $100,000 house, and plan to pay it off in 3 years. Instead of paying tons of interest and getting stuck in a house trap, use your ability to pay $1,500 a month to build your principal. After putting your $50,000 as a down payment, you will only mortgage $50,000.  At $1,500 a month, you will be able to pay it off in 3-4 short years, and build up your nest egg to $100,000.  In addition, your house may appreciate in the 3-4 year period, and you may actually grow your nest egg to $120,000.  What then you ask?  You sell the house, start the process over, and this time, you put $120,000 on perhaps a $200,000 house.

Now, if you ask me, the above is simple, logical, and can be easily implemented by anyone. Repeat the process 5 times, and you will have saved a fortune.

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