How to Eliminate Debt & Build Wealth
No matter how old you are or what you do for a living, building wealth for the future is essential. The traditional defined-benefit pension is fast becoming a thing of the past and Social Security payments will only go so far. Learning the skills you need to eliminate your debt and build long-term wealth is the best way to prepare for a comfortable retirement and a financially secure future.
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Instructions
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Calculate your net worth by adding your debts and adding your assets. Subtract your liabilities from your assets to determine your net worth. If you owe more than your assets are worth, you will need to concentrate on paying down your debt and freeing up the cash for savings and investment.
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Add the debts you have, noting the interest rate and outstanding balance for each. Consider your options for retiring that debt, including taking out a debt-consolidation or home-equity loan. Keep in mind that you put your home at risk with a home-equity loan, so be sure you can pay back the loan in full before making that move. You might also be able to contact your creditors and negotiate lower payments to get out of debt faster.
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Put as much as you can into paying off your debts. Take a percentage of each paycheck and dedicate it to paying off what you owe. Once you have paid off your debt, continue to take money from each paycheck, but put it toward your savings and investments.
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Contact your employer and ask if a 401k program is available. A 401k is a vehicle for building long-term wealth since you put the money in before it is taxed. That reduces your taxable income and your tax bill while at the same time helping put money aside for the future. Aim to put as much as you can into your 401k plan but always contribute at least enough to get the full company match.
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Set up an automatic monthly transfer from your bank account to a quality low-cost mutual fund. This approach means you will automatically accumulate more shares when the market is down and fewer when it is high. It also forces you to put your savings first, which helps build long-term wealth.
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Put any extra money you receive each year into your savings. If you get a raise, automatically increase the percentage going into your 401k plan. If you get a bonus, place the majority into your investment account. This helps you instill the fiscal discipline you need to build wealth and invest for the long term.
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