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The Road to Wealth

More Strategies for Building Personal Wealth

The Road to Wealth is the second part of an article on Building Personal Wealth.

Debt management, real estate investing basics and personal finance education are three more strategies that you need to consider on the road to wealth. See how these recommendations can fit your particular situation and how you can implement them.

From Bad Debt to Wealth - Use Good Debt… Cautiously

Building personal wealth at it’s very basic, requires that you put more in than you take out. For this reason I have made it a point in my personal wealth management to avoid debt at all costs. I talk about my debt status in my About page but that doesn’t mean I am completely debt free.

The only debt I have is mortgage debt from my investment real estate (which my tenants are paying down). I am however completely free of slave-debt: credit card, student loans, car loans, or any type of debt that was a result of consumerism. You should also develop an almost paranoid aversion to this type of debt.

If you want to move from debt to wealth you must get rid of ALL debt but consumer debt is structured in such a way that contrary to say, a mortgage, the balance owed can either stay the same, decrease ever so slightly or actually increase over time.

Nobody plays this game better than the credit card companies. Their strategy is to make it very, very easy to buy stuff now, not later.

Then what happens?...

Let’s say you rack up a balance of $5,000 at a 16% interest rate. Then you only make a $125 monthly payment. At that rate it would take you 4.8 years and $2,000 in interest to pay off the balance.

The higher the interest rate on the card the longer it will take to pay it off.

The lower the payment you make the longer it will take to pay it off.

If you keep on charging stuff to that card the longer it will take to pay it off.

See why I call it slave debt?...

the road to wealth

It is very possible to carry on this debt for a long, long time and that is exactly what these companies want!

I wrote about compound interest in the first part of this article . The thing is that the principle of compound interest also works against you in this case.

On the other hand when you use debt to create wealth - for example, buying real estate - you would get a mortgage loan, at a fixed interest rate (not variable like some credit cards) for 30 years.

It’s debt nevertheless, right?...

Yes, but the BIG difference is:

  • You bought something that should increase in value – the house should be worth more over time: ”Since record keeping began in 1968, the national median existing-home price rose every year through 2006, even during recessions and periods of sales decline. Typically, in a balanced market, home values rise at the general rate of inflation plus 1.7 percentage points” [1].
  • You have to pay for a place to live in one way or another so you might as well pay for something that you will eventually own.
  • If it’s an investment property then someone else is making the payments on the loan (a tenant)
  • The interest and property taxes you pay on this loan can be deducted from your income taxes
  • When you are done paying off this loan you now have something of value and financial security that adds to your net worth. On the other hand when you pay off the credit card you might not even still have whatever it was you bought with it in the first place.

Your personal wealth management strategy needs to include debt elimination in a way that prioritizes the elimination of consumer debt. Then, educate yourself and plan a strategy to use credit only in a way that is going to help you increase your wealth. And then plan on also eliminating that debt as aggressively as you can.

The only way to move from debt to wealth is to eliminate all debt and only then will you be on the road to wealth.

The Road to Wealth - Buy Real Estate.

Whether it be for yourself, as an investment, or both. Real estate is a proven vehicle for building wealth. I have and will continue to write a lot about the specifics of real estate investing so I just want to leave you here with the concept.

Yes, you can debate the specific rates of appreciation or return on investment of real estate vs. the stock market. But the reality still is that even in this market, real estate, if bought right and responsibly is a proven source of building wealth.

A while ago I did my research and educated myself and that is why I decided to make real estate part of my wealth building strategy. To me it made the most sense to invest in BOTH real estate and the stock market – it’s what I consider true diversification.

Real estate investing basics dictate that you buy at the right price. That takes knowledge and education just like any other type of investment. There are many vehicles you can use to protect yourself in real estate and make it a good investment. It can all be summarized in the term due diligence.

Due diligence means you have to do your homework and find out if the property that you are buying has the fundamentals of a sound investment. Decide your criteria, carefully calculate what you can afford or how much income the property can realistically generate and then go for it. Beginning real estate investing is something almost anybody can do.

Don’t wait to buy real estate, buy real estate and wait.

The Road to Wealth - Education.

In the US the median net worth for those with a college degree is three times that of those with only a high school diploma [3]. Everybody knows that in general a college education will probably get you a higher paying job.

However, do not equate more college education or a high GPA with more wealth. In the must read book, The Millionaire Mind [4] the author makes exactly this distinction. Although most of the millionaires in his book have at least a college degree he found no correlation between degree of wealth and how well they did in college (high GPA) or the fact that higher education (advanced degrees) was proportional to more wealth.

One other education option I want you to consider is self-education and more specifically personal finance education and education in the aspects of creating wealth.

Our learning institutions from high school through college do not do a good job with personal finance education. It is up to you to educate yourself in what it takes to achieve and maintain wealth. Take responsibility and realize that knowledge should never be a limitation to getting yourself on the road to wealth.

At the very least you need to understand the basics such as budgeting, simple and compound interest, net worth , loans, credit, insurance, credit scoring, mortgages, basic investing, asset allocation, mutual funds, CD’s, banking, annuities, retirement planning, IRA’s, etc.

Then little by little make an effort to understand and/or seek help in more complex concepts such as individual stocks and all its options, bonds, treasuries, ETF’s, TIPS, notes, Real Estate – REIT’s, residential, commercial – estate planning, asset protection, tax strategies, etc.

The good news is that education in all these matters is plentiful. From reading the Wall Street Journal to subscribing to a personal finance magazine, books (see references in part one ) reading the many websites out there that not only report news and information but also have detailed strategies and success stories from individuals that have traveled the road to wealth.

I always seek to learn from those that know more than I do, I recommend you do the same. Ask questions, join an investing club, network with like-minded individuals, join or create a master-mind group. The possibilities are endless…

The road to wealth is available to anybody if you follow these strategies. These are not the only ways to wealth or the best ones but they do work. It will never be one thing that is going to do it for you.

The road to wealth requires constant application and building on previous success which when sustained over a period of time will allow you to achieve your wealth goals.

If you want to get on the road to wealth:

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The Road to Wealth - References/Reccomended Reading:




4. The Millionaire Mind by Thomas J. Stanley, p.87.

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