How To Live On A Budget | Credit & Budget Solutions

THREE KEYS TO FINANCIAL FREEDOM

by Jordan Nicckels under Money Management, Paying Off Debt

I believe the most important first step is
to learn to live within your income. In
today’s society, this may seem like a unique
concept. It didn’t used to be that way..
In fact, prior to the advent of credit cards
in the 1950s, living within one’s income was
not unusual. About the only credit available
was a home mortgage and a car loan. The terms
of these loans weren’t as liberal as today.
There was no 30-year mortgage. You couldn’t
finance a car for more than three years. Sure
there were store charges, but they weren’t
revolving charges. They had to be paid for
at the end of the month.

Homeowners made do with what they had.
Appliances, cars, etc., were repaired rather
than replaced. If they couldn’t afford to
buy what they needed or wanted, they waited
until they could. Many Americans think only
of the present rather than their future needs
when spending their income. The feeling is
if we can pay our debt service each month on
time everything is fine. So we continue to
create new debt until we can’t afford any
more debt. Unfortunately, some go past this
point without a thought of the consequences
until we are in deep trouble.

Most consumers don’t realize is by having
credit debt, including a mortgage, they are
seriously jeopardizing their ability to create
retirement wealth. The fact is many Americans
are only two paychecks away from financial
failure because of their spending habits.

The next step is to pay yourself first by
paying off all your debts, including your
mortgage, before investing or even saving.
This is probably an unfathomable concept to
a financial planner. Paying off a credit card
with a 15% APR is the same as receiving an
equivalent return of 15% from an investment.
In addition, this return is guaranteed. Ask
your stockbroker to insure the percentage of
return on any stock he recommends.

Using the model of the average American family
that I use in my seminars, I show that this
family would realize a 37.13% return on their
money by investing in their debt of $169,340
before any other type of investment.

Furthermore, let’s assume this same family
invests 10% of their monthly gross income
($427) to eliminate their debts first
rather than investing it in an investment
vehicle yielding a 10% return. The long term
result by investing in their debts first is
they would build a retirement nest egg of
1.8 million dollars over the same period it
would have taken them to pay off their
mortgage in the normal way. The person who
invests first would accumulate about 600
thousand dollars, 1.2 million dollars less.
Both families established a six month
contingency fund.

After all your debts are eliminated, the
money you were using to pay your debts is
now available for any purpose you choose.
To become debt free can take from 5 to 10
years, many years before the time required
to pay off the mortgage alone. What also is
important to understand is that by freeing
yourself from debt you are not at risk to
financial misfortunes such as a loss of income.
You probably could survive on unemployment
compensation if necessary or savings.

The last step is to create wealth by investing
your money in low risk investments over a long
period of time. A debt free 60-year-old may
have insufficient time to build real wealth.

However, without debt even the 60-year-old still
can enjoy a debt free lifestyle. On the other hand,
a young person could conceivably amass over
$1,000,000 in retirement wealth. One million
dollars is the nest egg amount USA Today said
that the average baby boomer earning $50,000
annually today will need to retire to enjoy
the same lifestyle they had before retirement.

I recommend you invest for the long term using
dollar cost averaging. This means you invest
the same amount of money each month no matter
if stocks are rising or falling. It may be wise
to invest in an indexed mutual fund such as the
Standard & Poors 500 which usually has a higher
return than stocks that you might choose.

My purpose is not to give investment advice since
that isn’t my area of expertise. What I’m attempting
to do is provide some basic thoughts so you don’t
have to become an investment wizard.

The return by following these three steps will
astonish you.

Think about how much extra income you would have
when you have eliminated your debt payments. I
suggest you add up the amount of money you spend
each month on debt payments. This exercise might
encourage you to really consider a debt free
lifestyle. Without debts your life could be be
less stressful. Your marriage and family life
might be more enjoyable. You then could build
wealth for a happy, comfortable lifestyle.

Begin now then to eliminate all of your debts
before saving or investing. Then create a nice
retirement nest egg by investing the money you
were putting towards debt payments in conservative,
low risk investment stocks, bonds, etc.

Don’t forget most Americans believe that “everything
will just work out.” It doesn’t happen that way.
It’s up to you take action to build real wealth and
to achieve financial freedom.

About the author:

Author: Blanchard Warren

Eliminate all of your debt to build a retirement
nest egg and retirement wealth.

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