Last night on the subway I was reflecting on the purpose of this blog. The blog serves a lot of aims, its a side business for us, a chance to share our views, but ultimately its about improving the lives of the people who read it. So, I wanted to share what many consider to be 5 rock solid tips for helping you build wealth.
1) Own your own home:
Home ownership helps you build wealth in at least three ways. First, real estate is an asset with a healthy long term track record. Second, typically mortgage interest and real estate property tax are deductible. Third, mortgage payments usually help you build equity and are therefore a form of forced savings. Owing real estate is such a good idea, I’ve told all my friends. Repeatedly. They’re sick of it.
2) Set goals, prioritize and focus:
We figured out in the first year of our relationship that if you set goals, prioritize and focus your financial goals are far more likely to be achieved. I’ll repeat this. If you set goals, prioritize and focus, you WILL achieve your financial goals. To illustrate this with an example, we’ve set and met three major financial goals totaling $65,000 in the 4 years of our relationship.
We are not the only person to make this point, best selling finance author Dave Ramsay does as well.
3) Invest in stocks:
Over the long run, owners come out ahead under our system of democratic capitalism. To get maximum return on your money, you have to have some exposure to common stocks. Why? Making money on the appreciation and on the dividends will help improve your bottom line.
I recommend that you hit the books, figure out how to value companies and buy stocks. Don’t buy just any stock. Its got to be a company with a long term track record of making money, preferably lots of money. Other stuff like management, industry, company size, etc. are all important. But, profitability is the main thing.
4) Don’t spend more than you earn:
This is a no-brainer. Right, if you have 100 dollars, but rack up debts of $500 on your credit card, then you’re in the red. Doing this over the long term is a recipe for bankruptcy. But if you got 100 bucks and only spend $80, then your bank account is healthy and you’ll be happier, more in control if your life and better prepared to take whatever challenges come at you.
5) Pay off high interest debt:
Usury sucks. Many credit card companies are usurious and attempt to engineer you into an agreement whereby your borrowing terms are stacked in favor of credit card companies. Other lenders like payday loan companies do essentially the same thing. In some of the arrangements, the borrower will be forced to pay upwards of 200% or 300% interest on their loans. Here is a hit for you: if you’ve got high interest credit card debt or payday loans, pay them off immediately. Bite the bullet, sell some stuff, beg, do what you have to, but pay these types of obligations off immediately.
Just as a side note here – many credit card companies are honest, reputable and charge reasonable rates. My wife Miel – the other author on this blog – is very good at working with these types of companies to harvest reward points, etc. That said, be careful and do your homework when dealing with these guys.
So, just to sum this posting up, these 5 things have been effective for us in the past when building wealth, they will also work for you as well.