The strategies and ideas presented here are not intended to make the wealthy wealthier, although they may. Rather, the intent is to offer strategies and concepts for the average wage earner.
- Don’t Be the Soviet Union
During the Cold War, the United States was at the apex of its economic power. This economic power, this wealth, allowed the U.S. to become the most formidable military power in the world. The Soviet Union, with its much less robust economy, tried to keep up, and the result was the fall of the Soviet Union. What does this have to do with building wealth? The trappings of wealth, like the trappings of power, are costly. You cannot build wealth by flaunting what you do not have. You cannot spend your way into wealth. If you are one of those folks who want to appear wealthy, you will never achieve wealth. Put your ego aside, live within your means and work hard until you realize your goals.
- Never Buy a New Vehicle
Buying a used vehicle can save you thousands of dollars and buying a new one can cost you thousands. Even if you get a great deal on a new car, paying dealer cost for example, you will still lose at least a grand or two by driving it off the lot. Once you take delivery, that vehicle is an instant “used car” and worth substantially less than your purchase price. If feeding your ego is more important than feeding your piggy bank, then sure, go ahead and buy that new car. Still, it makes more sense to buy the used one and let someone else take that initial depreciation hit.
- When You Look in the Mirror See the Future
Too many of us live in the present. Some of us live in the past (think Springsteen’s “Glory Days”). One of the principal tenants of building wealth is to stay focused on the future. It is much easier to invest in your future if you maintain your focus on where you want to be financially in ten, twenty or thirty years. Keep your eyes on the prize.
- Develop Wealth Building Habits
There is a significant difference between saving money and investing money. Savings is a means to an end and that end is investing. If you just “save”, you will never achieve wealth. However, you must begin the journey to wealth by saving in order for you to have money to invest. Make saving a habit, better yet, an addiction. Establish a realistic goal. Regardless of the investment vehicle you choose, saving is the first step to investment. Decide how much you need to save to begin investing in stock, your own business, mutual funds, precious metals or an apartment building. How you choose to invest your savings is not as important as having savings to invest. Establish the goal, establish the habit of saving to meet that goal, and then invest those savings to build wealth.
- Avoid Unnecessary Debt
Debt is a dream-killer. It is particularly important to avoid unnecessary credit card debt. Credit cards are a necessity in today’s world, but you should also consider debit cards or pre-paid cards as a means of limiting credit card debt. There is no interest expense with debit and pre-paid cards, and they confine you to spending your own money. However, there may be fees associated with debit and pre-paid cards, and you must factor that into your decision. Typically, they meet all the expectations you have for a credit card without the debt. Of course, paying your credit card bill in full each billing cycle is the best solution.
Here is an easy to grasp explanation of why you need to understand how debt impacts your investment goals. For example, if you are the average cardholder, you are paying about 13% interest. If you compare this to the S&P 500 for 2012, the return was 13.4%. Clearly, you are only making headway toward building wealth if you are paying less interest on your debt than you are earning on your investment.
- The American Dream
Home ownership was once the centerpiece of most American investment portfolios. Owning a home was the American dream. For the moment, that ship has sailed. Home ownership now has more in common with boat ownership and you know what they say about boats. A boat is a hole in the water, lined with fiberglass, into which you throw money. Renting makes sometimes makes mire sense. In certain situations it is typically less costly than the combined total of mortgage payment, insurance, property taxes and maintenance expense.
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