Laura Rowley Money & Happiness

I was surprised by a comment about one of my recent columns, in which I described a rule-of-thumb formula for net worth.

In it, the reader wrote, "For a 35-year-old making $80,000 to have a net worth of $280,000, they'd need some wealthy parents to have helped them along the way ... these articles are obviously written by a bunch of spoiled upper-class offspring ... ones that have no clue what it's like to start out with zero and make it on their own!"

No Silver Spoon

Well, for readers who haven't seen my previous columns, I started out with zero and made it on my own. Actually, that's not true -- I had fabulous, loving parents who had high expectations, greatly valued education, and offered a bounty of financial common sense. What they didn't have was a lot of money.

The 10th of 11 children, I started working at 14 and paid my way through a wonderful (and affordable) state university by working a couple of jobs simultaneously and landing scholarships. My parents helped with room and board.

After that, I just worked really hard. Sometimes it didn't matter -- a company for which I worked really hard laid off 500 of us one morning. It turned out to be a gift -- I started working for myself, wrote a couple books, and the rest is... well, I'm still working hard. But I'm on track to meet my financial goals.

The secret wasn't wealthy parents. It was saving a percentage of my income consistently over time beginning in my early 20s; avoiding stupid debt like credit cards; understanding what I was getting into financially, whether it was a mutual fund or a mortgage; and enjoying life while always living within my means.

Secrets Worth Sharing

With this in mind, I asked a group of experts to share the best-kept secrets of financial planning. Here are the highlights:

1. Understand what you can control, and what you can't.

"Too many investors spend time trying to predict what the market will do, where interest rates will go, or which fund manager will have the best year -- things that, ultimately, they have no control over," says Fran Kinniry, principal in Vanguard's Investment Counseling and Research Department.

"Meanwhile, they're not focused on the things they can control, such as keeping their investment costs down; maintaining a proper, balanced, tax-efficient portfolio; and taking maximum advantage of savings opportunities, such as an employer match in a 401(k)," Kinniry says. "Understanding and acting on the things you can control is the best way to prepare for long-term investment success."

2. You know more than you think.

"Don't believe you can't learn enough to be a savvy investor," says Karen Sheridan, founder of Money Mystique Asset Management in Lake Oswego, Ore. "You know more than you think you know. [Financial services company] State Street had an ad in the New York Times that actually compared investing to brain surgery. It says, ‘No one ever said investing was easy. Make one false move and you could start hemorrhaging money.' Ads like these are unconscionable."

3. Moonlight when you're young, and invest the income.

"Take on a second source of income and direct that income exclusively toward an investment vehicle," says Robert Manning, director of the Center for Consumer Finances at the Rochester Institute of Technology, and author of "Credit Card Nation: The Consequences of America's Addiction to Credit."

Whether it's freelance data-entry work or waiting tables once a week, invest the extra cash rather than spending it, or even paying off debt. "It's a step up psychologically to make yourself part of investor class rather than the debtor class," Manning says. "It's a huge opportunity to demonstrate that you're taking control of your financial life, even though you're not making much money."

4. Take a small step toward big success.

"Sometimes, clients are overwhelmed with financial tasks and expect perfection of themselves," says Candace Bahr, managing partner at Bahr Investment Group. "They may get ‘stuck' for months or even years, and ignore their financial lives."

Bahr says that even the smallest step can make a difference. "If someone spends just 15 minutes a day on their financial well-being, in the course of a year they'll have spent over two full work weeks improving their financial life. That's got to help!" Bahr suggests other small steps on her Money Clubs web site.

5. Consider a tax-managed fund.

The average equity mutual fund lost 1.8 percent a year to taxes over a 10-year period ending Dec. 31, 2005, according to a study conducted by Morningstar. Sound small? It's actually a difference of nearly 20 percent in terms of total annual return. Over the long haul, losing 20 percent of your gain each year to taxes can translate into a loss of tens or even hundreds of thousands of dollars.

One solution: tax-managed funds. "These funds come in various permutations -- and not all are good -- but they can be immensely useful tools for investors," says Christine Benz, Morningstar's Director of Mutual Fund Analysis.

Such funds, which come in many investment categories, employ a variety of tax-reduction techniques to avoid making income or capital-gains payouts, helping the investor keep a bigger portion of his or her return. (Don't choose these funds within a tax-advantaged vehicle like a 401(k).)

For higher-income savers who max out their company retirement plans, there aren't many other ways to shield investments from taxes. Individual Retirement Account contributions limits are low (or an investor's income may make him ineligible to contribute to a Roth IRA).

For an investor who wants to build an ultra-low-maintenance portfolio composed exclusively of tax-managed funds, Benz recommends Vanguard Tax-Managed Capital Appreciation (VMCAX), Vanguard Tax-Managed International (VTMGX), one of the firm's municipal-bond funds, and a municipal money market fund.

6. Don't shift your assets to your minor child.

"The Uniform Transfers to Minors Act (UTMA) is the newest four-letter word," says Joe Hurley, founder and CEO of Savingforcollege.com. "A small investment fund in your child's or grandchild's name is probably fine -- you may save some taxes by shifting the investment income onto your child's tax return. But put too much money into the UTMA and you are asking for trouble."

The potential savings are limited now that the kiddie tax has been expanded to children under the age of 18 (the cut-off used to be age 14). Even if the child's account stays below the $1,700 income threshold for triggering the tax, earnings beyond $850 require the headache of filing a federal income tax return.

"You might devise a strategy using tax-efficient mutual funds that keeps the kiddie tax at bay," says Hurley. "But the capital gains at some point come home to roost, and the tax hit may happen at the wrong time." Moreover, investments in a child's name are counted heavily against financial aid eligibility.

Most importantly, a parent loses custodial control over a UTMA when the child reaches age 18 or 21. "You don't have to look too hard to find parents who have regretted their children's decisions regarding the use of such newfound ‘wealth,'" Hurley says.

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Do you have a secret to financial success? I'd love to hear your story. Comment below, or email me at laurarowley.column@yahoo.com. For more best-kept secrets, visit my blog.