Secrets of the 401(k) Millionaires

[AnneD]

8. Depends on the individual's circumstances but....

to use Maslow's hierarchy of needs.

You have to cover the basics...food, clothing, shelter (elec, gas, a way to and from the job, basic phone, day care for wee ones of educational expenses for older kids). Once these needs are met for all in the household, all else is a want that you may or may not be able to provide. Depending on the financial situation, providing a few modest wants while setting money aside to invest can be done while you stick to an 80/20 rule. For example, my daughter grew up without cable so we could have Internet and she could have dance and later music lessons. For us the magic number was $26-28k in 2001-2002 in rural New Mexico. I started out small and anytime I got a pay raise, I upped my savings deduction. Staying out of debt as much as possible helps.

You can't invest if you cannot cover the basic needs. Investing is a necessary luxury.