Hello, thank you for signing up for our newsletter. In this issue:
1) Editors Note - Making the best of a bad economy
2) Is it time to update your net worth statement? - are you on track to meet your wealth goals?
3) The Best Way I Know for Turning Debt Into Wealth
“There are two ways of being happy: We must either diminish our wants or augment our means - either may do - the result is the same and it is for each man to decide for himself and to do that which happens to be easier.”
“That some achieve great success, is proof to all that others can achieve it as well.”
Wealth-steps.com is about building wealth one step at a time and the belief that wealth can be achieved by anyone. To do this you should first define what wealth means to you then choose the goals that will allow you to achieve that definition and then create a plan to achieve those goals.
This time last year a major wrench was thrown into my wealth building plan when I found myself, along with millions of Americans, unemployed (I wrote about that here). Being a single income family you can probably understand how that complicates matters. Although I tried very hard to find a new job I have spent the majority of my time working on becoming a real estate entrepreneur.
I have gone full time into my real estate investing business and somehow have managed to make a living at it. But isn’t real estate tanking right now?... Yes, real estate is not doing good but if you think real estate is hard try the job market .
The point is that “the best laid plans…” (you know how that line goes)…plans have to be written in pencil because they will change, guaranteed. But you must have a plan, do you have yours?
The tips and suggestions found in this newsletter should help you in creating your plan, modifying it or considering things you had not before. As I continue modifying mine as my business keeps on growing, the economy remains more uncertain than ever and I keep on coming up with new and different ideas I encourage you to do the same.
I will keep you updated of my progress if you subscribe to the Wealth-Steps blog or if you want you can receive updates to the site in your email inbox. What would also be great is if you share your comments/questions/updates about building wealth, real estate investing or family finance on the site so you can help and be helped.
Thanks for reading and feel free to share this newsletter if you find it helpful,
Is it time to update your net worth statement?
Now is probably a good time of the year to see how you have been progressing in increasing your net worth. You can either calculate your net worth for the first time or if you have done it already you can update it.
You might discover that if you have money invested in the stock market, any gains you had realized earlier in the year might have disappeared again with the recent downturn. However, that could mean it’s a great opportunity to buy some solid investments whose prices have lowered. What I encourage you to do is to take a long term view of your net worth. It’s important to know where it’s at right now but also where you want it to go.
Are you investing in a way that makes long-term growth sense? Are you adding to your investments regularly? Are you working on something that will increase your net worth? Where do you want your net worth to be next year? Are you maximizing contributions to your 401(k) and/or your IRA? … Ask these type of questions when looking at your financial picture so you can get direction and focus on what is important and not only what’s immediate.
The Best Way I Know for Turning Debt Into Wealth
This method of approaching debt elimination is fairly popular yet there are a lot of people out there dealing with debt that have no put together a plan of attack to eliminate that debt. The debt-snowball technique can do just that, provide you a plan on how to consistently pay off and eliminate your debt. A debt snowball can be structured in two basic ways:
Prioritize by interest rate – You will organize your debts (excluding your mortgage) in order of increasing interest rate from lowest to highest. Lets use the following example, say you have the following debts at these interest rates:
- Payday loan at 25%
- Credit card 1 at 19%
- Credit card 2 at 10%
- Car loan at 5%
When you prioritize by interest rate you will make minimum payments on all the accounts. But on the payday loan (highest interest) you will pay as much as you can over the minimum…every cent you can find!
Because at the higher interest you spend more of your money paying interest instead of principal. With the car loan for example, because of it’s lower interest rate and time (3-5 years typically) more of your payment is going to pay principal instead of interest.
So having organized your debts like this you would make minimum payments on the other accounts and pay as much as you can on the payday loan until you pay it off. But here is why it’s called a snowball - you then take that amount that you were paying on the payday loan and then add it to the minimum payment you were making on the credit card at 10%...see how that works? Now that you have eliminated the payday loan you “found” extra money to pay towards credit card 1.
So then every account that you pay off, you would roll that money that you were paying into the next debt. By the time you get to the car loan, you would have a bunch of extra money that would allow you to pay it quicker.
Prioritize by amount owed – using the same accounts as the example above this method varies in that you would prioritize them by the amount owed regardless of the interest on each, and start making payments on the lowest amount. Something like this:
- Credit card 2 - $3,500
- Payday loan - $5,500
- Credit card 1 - $15,000
- Car loan - $23,000
So in this case you would again make minimum payments on everything but then pay as much as you can on credit card 2, since it is the lowest amount. Once paid off you roll that amount into the payday loan which is next on the list and so on.
The logic here is more psychological than mathematical. Since you are starting off with the lowest amount debt, you should pay it off quicker and this would give you a motivational boost by seeing one of your debts eliminated as soon as possible.
Which one to choose? I would recommend you prioritize by interest, because the math does not lie, highest interest accounts will cost you more, period. So I would like to see you get out of debt by paying the least amount of money as possible. But if you feel you would be encouraged by eliminating any debt first then by all means start with the lowest amount.
The good news is that either one will work. You can see the logic in these methods and how they can work but just be aware that they are not quick. Depending on how much debt you got, going through your snowball can take years, but there is light at the end of the tunnel…
How do we turn all this debt into wealth?
Ahhh…this is where it gets really exciting!
Remember all that money you were paying on your debts, and how it kept increasing as you rolled it into the next debt? Well, once you have paid them all off now you have all this money that you were used to pay in debt every month with nowhere to go because your debts are paid off. Now you can use that money to invest, buy real estate, start a business, put in the bank, pay for college and so on. And since you are debt free nobody is going to take that money away.
However, it is crucial that while you are working on paying off your debts you do it the right way. Check out the real secret for turning debt into wealth…
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