You Can Become Rich Without Hitting Lotto

Times Staff Writer

If you think the only way to get rich is to win the lottery, you’ve got plenty of company.

A survey released last week found that more than one-fifth of all Americans viewed the lottery as the most viable route to wealth. That was especially true for people of modest means, according to the survey by Consumer Federation of America and the Financial Planner’s Assn.

It’s a widely held belief, but it’s dead wrong.

Financial experts say there are numerous ways to accumulate large sums of money -- often with little effort and a minimum of sacrifice.

“It’s not hard to accumulate a million dollars -- if you start early enough; that’s the big trick,” said Mark Wilson, a certified financial planner with Tarbox Group in Newport Beach.

In fact, at a time of the year when many Americans have vowed to lose weight, quit smoking or drink less, planners say that making those resolutions stick could be the ticket to wealth.


Just how can a New Year’s resolution help finance a financial goal?

Consider a pack-a-day smoker who wants to kick the habit. By putting $4.50 a day -- about the cost of a pack of smokes -- into a mutual fund instead of his lungs, he can accumulate $46,715 in a matter of 15 years (assuming an 8% average annual return, which is below the historical average for a diversified portfolio of stocks and bonds). That’s enough to send his toddler to a California state university.

Or if the former smoker prefers to keep saving for retirement, he would have $201,198 by the time he retires in 30 years.

Resolved to lose weight? Bring a low-cal sack lunch instead of spending $10 a day on fattening restaurant food. That can easily save $8 a day, or $40 a week. In 10 years, the lunch money will have grown to $30,000 -- enough to buy a Mini Cooper convertible.

A couple who have gotten into the habit of sharing a $10 bottle of wine each night could take a two-week trip to Greece next year by saving the $300 a month they’re guzzling away.

Of course, none of this will save you a dime if you end up frittering away the money on other things, observes Jane Bryant Quinn, author of “Smart and Simple Financial Strategies for Busy People.”

As a result, Quinn suggests that people who want to follow this program set up an automatic debit so the money is taken out of their pay or checking accounts before they have a chance to spend it.

“You won’t even know what you have cut out because money that used to trail through your fingers is just not trailing through your fingers anymore,” she said.

There are two ways to set up automatic savings: through an employer willing to take savings directly from your paycheck or through a bank, broker or mutual company that would automatically debit your checking account.

The best bet is to set up the debit through an employer that sponsors a 401(k) plan, Wilson said. The reason: Money contributed to a 401(k) plan comes out of your check before taxes are computed. The Internal Revenue Service and state tax authorities act as if the money was never earned, so less tax money is withheld from your pay and less tax is owed at year-end. That means each $100 contributed to a 401(k) reduces take-home pay by only 70% for a person who pays 30% of his income in state and federal income taxes.

The bottom line: The former smoker could sock away $175 a month instead of $135 and have the same after-tax income. By boosting his savings to account for the tax benefits, he could accumulate more than $60,000 in 15 years and more than $260,000 in 30 years.

Better yet, most employers match employee contributions to a 401(k) plan. So the smoker’s account could be 25% to 100% higher thanks to the additional savings his company kicks in.

Those who don’t have access to a 401(k) plan can set up an automatic debit with a bank, broker or mutual fund company. Although these accounts don’t have the dual benefit of matching contributions or tax savings, the benefit of putting savings on automatic pilot is real, Quinn said.

“This whole business in January of ... cutting out one little expense does not work because you spend your money on something else,” she said. “The only thing that works is making savings automatic. That works for everybody. It works all of the time.”


Kathy M. Kristof, author of “Investing 101" and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail For previous columns, visit



Building a nest egg

How much can a little sacrifice net you in the long run? If you can save $100 a month, that can turn into a pretty big nest egg, depending on your rate of return and how long you save.

*--* Years saved Size of nest egg at annual return of 3% 5% 8% 5 years $6,465 $6,801 $7,348 10 years 13,974 15,528 18,295 15 years 22,697 26,729 34,604 20 years 32,830 41,103 58,902 25 years 44,601 59,551 95,103 30 years 58,274 83,226 149,036


Source: Times research