The person who wants to be rich saves a lot from an early age, chooses a mix of investments that suits his or her age, lifestyle and attitude to risk and lets time and compound interest work its magic. There are steps you can take to make sure that you are maximizing and protecting your gains at the same time. Without these steps, you are destined to experience the gain-loss cycle, which in the end, is like spinning your wheels in the mud.

1 – Planning for the Long Haul

You are responsible for where you are in your life. Where you are today is determined by the choices you made in the past. So if you want to be better off in ten, twenty or thirty years, start planning now. All successful people have a clear vision of what they are working towards. People who don’t, just bumble along.

If you are just starting out, put off getting married until you become financially independent, with little or no debt, and have your investments in place. Study and admire successful people and try to emulate them. And if your parents aren’t successful, don’t do what they did.

2 – Pick the Right Job and Career

Obviously, the more you earn the more you can salt away. When considering where you want to work, look at what the top executive makes to get an idea of your earnings potential with that employer. Investigate and understand how your employment circumstances affect your wealth building strategy. Identify your biggest expense and manage it without having to make more money.

Remember, these days you are not limited to making a living by your physical labor. The only limit you have on yourself now is your own imagination – your ideas are the most valuable thing you possess. Finally, pick a profession you love and you’ll never have to work a day in your life.

3 – Change the Way You Think About Money

Realize that more money is not going to solve your problems. The problem isn’t the size of your checkbook, it is the way you were taught to use money. The gap between the rich and poor is getting wider because the rich understand money and how to use it.

Think of money as a seed; learn how to plant it to produce the best harvest. When you do this, you will rule your finances, not the other way around. Each dollar you save is a dollar working for you, not you working for the dollar. Over the course of time, the goal is to make your money work hard and make more money for you.

4 – Debt Equals Bondage

Debt is very expensive. Every dollar spent paying interest on your debt is money lost. The average investment earns about 13 percent over time, that’s also just about what you pay out in debt interest! Pay off your debts as fast as you can – aim to increase your monthly payments by 10%. Start with your smallest debt. Once that debt is paid off you can turn the payments you were making toward a larger debt, sometimes doubling the rate at which you are able to pay off that bigger debt.

Living above your means – on the bank’s money – is foolish and is likely to set you firmly on the road to financial ruin. Pay cash whenever possible and use debt very sparingly.

5 – Make a Budget and Stick to It

Today you should sit down and find the monthly expenses that truly don’t mean as much to you as building wealth does. See how you can eliminate some of your spending to pay off your debt or put in savings in order to maximize your cash flow faster. Wealth building actually begins with debt reduction and strict management.

6 – Get into the Habit of Saving

The biggest single potential influence on wealth is what economists call the propensity to save. Obviously if you spend everything you earn, you build no wealth. But with the magic of time and compound interest, you increase your potential to become wealthy.

Many people suffer from the “not enough” mentality; namely that if they aren’t putting away large sums of money, they will never get rich. Develop a habit of saving, and steering clear of debt; that’s all it takes to set you on the road to becoming a millionaire. Ideally, you should be saving 15% to 20% of your monthly income, and this percentage should increase, as you get older.

Become disciplined in your saving; save on a regular schedule. One of the least painful methods of regular saving is to authorize a monthly bank debit into a high-growth money-market account or growth fund.

7 – Think Before You Spend

Develop an understanding of the power of small amounts. Try this idea –– save all the receipts you get for everything you buy in a month, from dinners out right down to that latté you bought this morning. Figure what you can do without and put that money into a savings account.

Making more money doesn’t make a difference. Most people think an increase in income means they can spend more. Drawing up a monthly budget and sticking to it is a great deterrent against falling into the trap of willy-nilly spending. Remember, with each dollar you save, you are buying yourself freedom. When you think about it like that, you see how spending $20 here and $40 there can make a huge difference. Since money has the ability to work in your place, the more of it you employ, the faster and larger it will grow.

8 – Invest Wisely

A survey of America’s affluent (those who make over $225,000 a year or own $3,000,000 in assets) revealed that 27-30% of all the income the wealthy earned went into investments and savings. That isn’t a result of being rich––that is why they are rich.

True wisdom in investing is a difficult subject, since investment wisdom is obvious mostly in hindsight. Some people invest in a single activity they know well. Often this is a recipe for financial success, since deep knowledge and strong focus work pretty well. Just make sure the investment is in something that actually makes money. The standard approach to investing is to have a variety of investments like cash, bonds, equities and real estate with a wide geographic dispersion. This is because different types of investments do well and badly at different times.

When choosing an adviser, be very careful to check credentials and to establish the basis on which the adviser is being paid. There is no reason to pay up-front fees (loads) on investments. The better advisers will charge an explicit fee and reveal any other basis of remuneration.

Even a small amount of money, wisely invested, can produce astonishing returns over time, but don’t be foolish and fall for a get-rich-quick scheme – they never work.

9 – Give Yourself a Tax Break

Aim to lower your taxable income and hence pay less tax. There are a few perks and plans that the taxman has not yet snuffed out. A qualified tax consultant can help you here.

You stand a better chance of achieving millionaire status from running your own business than by earning a salary. The business owner gets more tax breaks and reaps the income from hard work, but the greatest reward usually comes when the business is sold. If you aren’t keen to run your own business, there is another route to wealth: exercising the stock options given to you by your employer.

10 – Keep Things in Perspective and Enjoy Life

When you understand that any power money has over you is derived from your relationship with it, you suddenly become free from the constant pressures and stress of thinking about it. Once you have made the choice to take control back of your life by building up your net worth, don’t give a second thought to the “what ifs.”

Have fun. Earn a lot, save a lot, spread your risks and don’t try to be too clever at picking individual investments or changes in market sentiment. The rules so far may seem rather old-fashioned, even boring. But it’s okay to take a small portion and invest in something fun or have an occasional small indulgence. Just don’t go overboard; those little luxuries add up.

Has the process of meeting your financial goals changed at all in the past seven years? Well, yes… and no.

It’s something we all dream of; choosing the right investments and making enough to take care of us the rest of our lives. But is it really possible in today’s economic climate? The majority of experts seem to feel it is, provided it’s done properly.

There are a couple of schools of thought on investing. Some investment groups, such as Oxford Club’s Investment U, stress developing a strategy for the long-term. Instead of wondering where the market or economy are going to go, ask yourself how to get the highest return via the least risk, how to guarantee your portfolio will continue to increase in value, and how to protect your profits as well as the principal.

The Four Pillars

Investment U calls the strategy the Four Pillars of Wealth. The basic premise is that to invest successfully, there will always be a degree of uncertainty. Makings predictions on the market can be right, or wrong, and nobody gets it right all the time. The critical solution to guesswork is what it terms asset allocation. It differs from basic diversification in that it involves distributing investments not only in various market sectors or securities, but also in different asset classes. One example is high-grade bonds, which have actually increased when the market in general has fallen. Others include real estate investment trusts (REITs), high-yield investments, inflation-adjusted treasuries and precious metals. Since different asset levels move in different directions, you can increase returns while keeping the overall volatility of your portfolio to a minimum. To learn about the basics, it’s recommended reading a book such as The Intelligent Asset Allocator, by William Bernstein.

The second pillar is knowing when to sell. Some investment services, such as Investment U, have a built-in point to do this that guarantees the protection of profits and principal. Here’s how it describes it: “We start all of our trading positions with a recommendation that you place a sell stop 25% below your execution price. As the stock rises, we raise the trailing stop. In other words, if you buy a stock at $20, your stop loss is at $15. When the stock hits $32, your stop loss (still trailing at 25%) will be at $24. As long as the stock keeps trending up, we’re happy to hang on. If the stock pulls back 25% from it’s closing high, we sell, no questions asked.”

Another element of this is that while common sense dictates that one should cut losses early on should things begin to slip, few investors actually pull the trigger. The trailing stop strategy eliminates any uncertainty. Allowing portfolios to continue to grow without taking profits is risky at best. By not selling, an investor is opening themselves up to the chance of the profits not only decreasing or even disappearing, by actually turning into losses.  Not having a sell discipline in place is investing by the seat of one’s pants, so to speak.  A trailing stop is necessary, but so is the resolve to stick to it.

How Much Is Enough?

The third pillar is how much to invest in a specific stock. Obviously, this is affected by one’s net worth, basic investment experience and risk tolerance.

Investment U recommends 3% of one’s equity portfolio – less if you wish to be conservative, a bit more if you feel aggressive. But never more than you can really afford to gamble with. In short, it doesn’t pay to be so confident in a particular stock or market that you put too much into it. While it’s true some people have made fortunes this way, that’s almost always the exception rather than the rule. To maximize profit potential, spread the risk around.

In addition, never make taxes a key priority in assembling and maintaining an investment portfolio. Don’t refuse to diversify because you steadfastly believe you can’t afford the tax hit. When you consider the alternative should a stock nosedive (Enron or United Airlines, for example), the tax suddenly becomes eminently preferable.

The final pillar ties into the above point; you can avoid higher taxes by slimming initial investment expenses. According to a study done by the Vanguard Group of mutual funds, average investors relinquish 2.4% of their annual returns to taxes, more if they trade often. One example: In Oxford’s case, it chose not to buy, the Pimco Total Return Fund, the largest and best-performing bond fund in the country. Rather, it recommended the Manager’s Fremont Bond Fund, a no-load fund, which didn’t involve the typically high fees associated with Pimco. Similarly, Oxford went with the Templeton Emerging Markets Fund, which is closed-end, instead of the Templeton Developing Markets Fund, which has a 5.75% front-end load, while the Emerging Markets fund has none, and sells at an 11% discount to its net asset value. Both funds are run by the same manager, and invest exclusively in emerging markets.

Put more simply; try to avoid all investments with a front-/back-end load, surrender penalties or 12b-1 fees. Get recommendations for deep-discount brokers and keep all portfolio expenses to a minimum.

Another way to help keep the IRS at bay is to manage your portfolio in a manner that leaves nothing for it to take. This can be accomplished by sticking to higher-quality investments, which have fewer turnovers, and hence less capital gains taxes. The less you trade your core portfolio, the less tax liabilities you incur. Further, stick with investments for at least a year. Whatever you sell in less than 12 months is a short-term capital gain, taxed at the same level, as earned income. Long-term gains are taxed at a maximum rate of 20%. And any short-term trading done in your IRA is tax-exempt.

If you stop out in under a year, offset the capital gains with capital losses. The IRS permits offsetting all realized capital gains by selling any stocks that have been lemons. You can take up to $3,000 in losses against earned income.

Other tips include avoiding actively managed funds in non-retirement accounts. Managed funds usually have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. Put high-yield investments such as bonds, utilities and real estate investment trusts in your IRA, pension, 401K or other tax-deferred account. There’s no provision in the tax code to offset your dividends and interest. If you’re in the upper tax brackets, choose tax-free instead of taxable bonds. An example: A cost-efficient, taxed-managed $100,000 portfolio can be worth $419,000 more in 20 years, and those figures don’t factor in any positive investment performance.

Other Viewpoints

Investment U’s strategy is one angle. Others suggest a more conservative approach in today’s economy where a financial safety net is critical. “Long-term investments like 401Ks and savings accounts are the best way to go,” says Delores Sims, president/CEO of Legacy Bank. Unless you have an investment broker who really understands the stock market, you can lose a lot. Sticking with companies such as utilities, something safe.”

Her suggestion is to seek out an investment club, or, if none exists, start one. This way, you and your peers can study investment to learn as much as possible about the market. Investment seminars can help as well.

As far as how much to invest, Sims notes, “You should have enough in your savings account to cover three to six months of your lifestyle should anything happen. You should do nothing to change your life dramatically, but add up your fixed and variable expenses. But at the same time, you really have to sacrifice to invest, because you’re building a future for yourself and your family at the bottom line. You need to perhaps let some material things go, but you still need cash in the bank as a safeguard. It’s very difficult passing money from one generation to the next. If you don’t save, you simply cannot do it.”

In the same vein, Matthew Yale, vice president of public affairs of Ariel Mutual Funds, also says one needs to take a steady as opposed to a complicated course. “Since 1929, there’s no investment stronger than the US Stock Market in general,” he says. “But real wealth is created over the long term. Investing takes discipline and patience.”

His answer? Mutual funds. “They’re the best way to diversify, and you can do so on a minimum monthly investment,” he notes, “If you ask a professional money manager, they’ll say the same. To simply play the market with various stocks is very high-risk.”

He also doesn’t believe in making a large stake. “How much you invest isn’t as important as doing it consistently,” he explains. “Each month, you should put part of your paycheck toward investing, and you’ll build up a portfolio. One of the best benefits of mutual funds is that you don’t have to worry about the best time to buy or sell. The mutual funds manager will simply do it, after advising you why. You can simply invest at will into anything.”

Does he see any downside to mutual funds? “In all honesty, no. Even for experienced investors, they still represent the best diversification available.”

In the final analysis, building equity via investment all comes down to knowing what you’re doing. But one has to do their homework diligently first. It sounds simplistic, but with the proper knowledge and advice, it can become fairly uncomplicated.

Arn Bernstein is a freelance writer based in Philadelphia.