How to Build Wealth.
The first step in building a road to wealth is to recognize that debt has been holding you back from achieving your financial goals. It is also important to realize that more than likely it was your behavior that created the financial situation you are currently in.
Sometimes major disasters in life can set us back financially, such as medical bills or a job loss. But if you have not experienced such a tragedy, then you must perform a serious self analysis. It is very obvious that the first step towards getting yourself out of a hole is to stop digging.
Naplolean Hill interviewed over 500 of the worlds most successful people. He emphasized in his book Think and Grow Rich!: The Original Version, Restored and Revised
There are just five steps towards achieving your goal of financial independence:
Spend Less than you earn (budgeting)
It is very easy to spend money these days. More so than any other time in history. The important thing to remember is that the future must be taken into consideration. There will come a time when you will be too old to work as hard as you do now. Learning to budget your money will help you to begin good financial habits and work towards paying off debts, saving and investing for your future.
There are plenty of budgeting tools available out there. Everything from spreadsheets to software, tablets, budget binders, cards and even electronically. We really like the interactive on line budgeting system by the Mvelopes company. To see a video demo click the link, then choose the “Quick Tour” tab.
Establish an emergency fund
We all have those times in our lives when things come up that we just didn’t expect. As a general rule, having $1500 set aside in an high yield savings account is a good goal to set. If something major happens such as the transmission on your car going out, $1000 to $1500 should cover it. And Heaven forbid you ever need to pay a deductible on your car or home policy, you have it available.
Some people advise that as long as you have any debt, you should use your emergency fund money to pay down the debts, and soley rely on a credit card as an emergency fund. They advise this on the premise that since the interest you are earning on your emergency fund is almost always lower than the interest on your debt, you are paying too much interest.
Our philosophy is that the first step in paying off your debt is to change your behavior of using credit cards. If you use a credit card as your emergency fund it is all too easy to just allow it to grow and grow and grow as all kinds of extra “emergencies” arise. Until you have the discipline to manage your credit card wisely you must learn to live on a cash only basis. Only tap into the credit card as an emergency fund if your current one is insufficient to mitigate the emergency.
When your morale is beaten down by debt burdens…………having a little bit of a savings account helps give you a mental boost.
Pay off debts using the Accelerated Debt Payoff Calculator
Most financial consultants give the advice of paying off the highest interest rate loan first. The truth of the matter is, when paying down debt, you need to first concentrate on the payment that you can recoup the quickest. We need to go for the debt that will yield us the fastest results.
Guidelines
Follow these simple steps of placing your debt payoff priorities into the debt payoff calculator:
- Divide the payment of each debt into the debt balance (i.e. $6000 car loan / $300 payment )
- Record the division answer for each debt – Do this for all of your debts
- Place the debts in the Accelerated Debt Payoff Calculator in the order of each division answer. The smallest division answer will go first in the calculator (because this is the debt payment you will recover the quickest) and the largest number will go last.
- Target the priority debt first (concentrated attacks just like military forces!)
- Add any extra monthly amount you can consistently afford to commit to your payoff plan.
- Pay only the minimum to all other debts
- Feel free to come back to our website and modify your debt reduction plan often.
As you come across any extra money such as tax returns, overtime, side jobs or whatever else, only make extra payments to the targeted debt.
Save your Money
Once you are completely free of consumer debt, take a portion of the payment and add it to your mortgage payments. Take the balance and place it in an aggressive paying money market account. Money magazine prints a section every month that tells you where to find the best savings rates.
Your goal should now be to save up at least three months of living expenses (preferably six months) in case you fall prey to unemployment. If you were making substatial debt debt payments, then you should be far beyond the coveted 10% of your income monthly savings goal. Read more about saving….
Start Investing
Read, Read, Read. Dig into everything you can about various types of investments to place your hard earned money into. Avoid risky or overly aggressive investments at first. Even low yield/low risks investments are more worth while than stuffing your money underneath your mattress, because inflation eats the value right out of it as each year goes by.
Be weary of scams! Just as hard as you are working to payoff debt, plan, save and invest, someone is working just as hard to figure out how to con you out of your money.