INDONESIAKININEWS.COM - The first thing is to have a written plan for your money — aka a budget. If you want to build wealth, you have to p...
Next, get out of debt, and stay out of debt. Your most powerful wealth-building tool is your income.
And when you spend your whole life sending payments to Sallie Mae, banks and credit card companies, you end up with less money to save and invest for your future.
Where I see a lot of people screw up on their way to building wealth is they don’t live on less than they make.
Believe it or not, wealthy people don’t blow all their money on stupid stuff! From our National Study of Millionaires, the typical millionaire has never carried a credit card balance in their entire life, spends $200 or less on restaurants each month and still shops with coupons.
The myth that most millionaires live lavish lifestyles that include Ferraris in their garage and lobster dinners every night is just that — a myth.
The quickest, right way to become a millionaire is to consistently invest over a long period of time.
It’s not shocking or flashy, but it works. Don’t get distracted by market swings, trendy stocks or get-rich-quick schemes.
Once you’re debt-free (except for your home) and have an emergency fund of three to six months of expenses set aside, invest 15% of your gross income into retirement accounts like a 401(k) and Roth IRA. Do this for a few decades, and you’ll be able to live and give like no one else.
What are some of the biggest obstacles to building wealth?
In my mind, the biggest obstacle to building wealth is debt. Most people are drowning in debt and end up working their entire lives just to see everything they earn go right back out the door in the form of payments.
Your income is your greatest wealth-building tool; and, when it’s eaten up by debt, it’s almost impossible to save for the future.
What advice would you give for balancing building wealth and paying off debts?
Don’t worry about balance here. Get out of debt first, and have an emergency fund of three to six months of expenses saved before you start investing for retirement.
Think about it: When your money is tied up in debt payments, you can’t build real wealth. And if you start investing before you build up an emergency fund, you’ll wind up tapping into your investments when the unexpected happens — and potentially ruining your financial future in the process.
What are the essential elements of a successful plan to pay off debt?
The first step is making sure you’re living on a written, monthly budget. Give every dollar a name — and a job to do — before the month begins. This is the only way you’ll know for sure how much money you have to work with.
Once that’s in place, start attacking your debt using the debt snowball method. List all your debts from smallest to largest, regardless of interest rate.
Make minimum payments on all debts except the smallest — throwing as much money as you can at that one.
Once that debt is gone, take its payment and apply it to the next-smallest debt while continuing to make minimum payments on the rest.
Repeat this method as you plow your way through debt. The more you pay off, the more your freed-up money grows — like a snowball rolling downhill.
While it might appear that paying off the debt with the highest interest rate first makes the most sense mathematically, if you begin with the biggest debt, you won’t see real results for a long time.
When this happens, most people lose steam and quit before they get close to finishing.
It’s important to pay your debts in a way that keeps you motivated until you’ve wiped them all out.
Getting quick wins in the beginning will light a fire under you and give added motivation to pay off your remaining debts.
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