As I started hitting the library for books on personal finance and investing, I had a really hard time finding books that fit my situation. I don't need advice on getting out of debt. I'm not interested in get-rich-quick schemes. I have a solid foundation and want advice on moving up to the next level.

I found The Complete Idiot's Guide to Getting Rich to be very inspiring and motivating. A good background and starting point book, although it's too general to be of any help in my quest to pick a good mutual fund.

The biggest idea I got from this book was how to numerically set my goals. One time I asked my dad how much I should save and he said, "everything you can." Well, when have I saved enough that I can slow down and enjoy a little of it today? I've plugged numbers into online retirement calculators, but by the time you futz around with the inflation and return assumptions it's hard to know if you're out in left field or not.

Once you've figured out your current monthly expenses, the author lays out a calculation of two key values: Target Portfolio Goal (TPG) and Target Savings Goal (TSG). The Target Portfolio Goal is the amount of money you would need to have to be able to retire and live off the income without touching the principal. Target Savings Goal is the amount you need to invest each year to reach the TPG by your desired retirement date.

Next the author defines 5 levels of wealth:

Level 1: You are living within your means and save enough to meet your Target Savings Goal. Your financial focus should be on maximizing your actual savings amount by either increasing your income or reducing your expenses -- portfolio return is secondary.

Level 2: The returns each year from your investment portfolio are equal to your Target Savings Goal. This means that you are accumulating double your goal each year -- on part from your savings, one part from your investment returns. Your financial focus should be equally split between maximizing savings and maximizing investment return.

When your portfolio returns are twice your Target Savings Goal, your focus to maximizing investment return alone. The final goal at this level is to have returns three times your Target Savings Goal.

Level 3: Your portfolio returns enough to cover your annual spending, inflation, and your Target Savings Goal. Employment is now optional.

Level 4: Your portfolio has grown large enough to generate a return that allows you to substantially increase your standard of living while still keeping up with inflation. Financial focus is on total return and reducing volatility.

Level 5: You have more money than you can easily spend in your lifetime. You have the option not to work, raise your standard of living, and give large charitable gifts. Once you reach this level, you need serious estate planning help.


It is possible for most people who are employed by someone else to eventually reach Level 3 by the time they retire, but to reach level 3 earlier or to reach levels 4 and 5 you pretty much have to start your own business and be successful at it.

Doing the numbers and seeing our Target Savings Goal was a real wake-up call that we needed to get back on track with budgeting and saving.