Today we are switching gears in the Ask The Experts series to discuss building wealth. I posed the following question to my personal finance blogger friends:
What does building wealth mean to you? What advice would you give to someone on how to start building wealth? What tools do you use and recommend to accomplish this?
You’ll hear from four more bloggers today and then tomorrow I’ll round out the series and close it out. In case you missed it, be sure and go back to read Part 1, Part 2 and Part 3 of the Ask The Experts series on getting out of debt & building wealth!
Building wealth is dizzyingly easy, for anyone who’s disciplined enough to commit to doing it. The whole thing can be distilled down to four words: Buy assets, sell liabilities. Do this often enough, and you can’t help but build wealth.
Sure, that’s theoretical, but what does it mean in practice? It means understanding that every financial decision you make can enrich or impoverish you, however minutely. You can spend $2000 on a vacation, or you can spend it on 100 shares of an undervalued stock. That’s not to say that you should never buy anything consumable, or defer all your gratification, but rather that you should always be conscious of where you’re putting your money. Don’t spend a couple hundred dollars clubbing every weekend, then wonder months later why you’re not getting ahead.
That being said, you have to crawl before you walk. The first thing is to get your net worth up to zero. If you’re carrying consumer debt – like a credit card balance that’s growing at 14% annually – live a spartan lifestyle in the short term until you can get out from under that debt. Spend your spare hours working a second job and eating ramen noodles. Brief, sharp pain is far better than enduring dull pain.
Then, educate yourself. Understand why a fixed-rate mortgage beats an adjustable-rate one (which in turn, beats renting.) Don’t trust your employer’s accounts payable person to handle your 401(k) for you without your input. If you can, turn your proficiency into a business and set up a limited liability company. Not to make this sound like an informercial, but we distilled everything you need to know about this into a single volume. http://amzn.to/cRd8md
Name: Todd R. Tresidder
Website: Financial Mentor
Budgets are like diets – they don’t work. The reason is simple: they require you to do the
opposite of what you want to do. Unless you have the discipline of a celibate monk living
in a brothel you won’t succeed for more than a short period of time.
The solution is simple… the Un-budget. Here are the rules…
•Record every penny that passes through your hands. You can use an app on your smartphone, or a small tablet in your purse (like my wife uses), or you can just get a receipt for everything and write notes on other receipts when none is available (parking meters, tips, etc.)
Now for the critically important step that makes this process really effective…
You manually enter each individual expense item into any accounting software you choose while simultaneously asking yourself the following two questions…
1. Is this taking me toward my goals or away from my goals?
2. Is this getting me the highest and best value for my money?
That’s it! That’s all you have to do.
If you follow this process for a minimum of 90 days it will permanently change your spending patterns and save you way more money than any conventional budgeting process.
The reason it works so effectively is because it takes you toward what you want. Most budgets try to enforce discipline against what you want which is why they fail. Instead, this process helps you clarify what you want and how your spending pattern supports those goals.
After just a few weeks of regular practice you will notice you start asking the questions at the point of purchase which begins to automatically shift your spending patterns without any discipline or sacrifice. Once you have that habit ingrained you are home free and heading toward your financial goals. My retirement calculator can help you determine your desired savings goals based on your current savings and monthly deposits.
Website: Don’t Quit Your Day Job…
To me, building wealth means making small, smart decisions over and over again.
One way to make good decisions is through automation. Automation doesn’t necessarily mean to use computers – but it may mean that every paycheck you automatically deposit some funds in different accounts (even if you do it manually). It all starts with your paycheck… If you can use a tool like direct deposit to direct money into different accounts, you’re already ahead of the game. What should you automatically be doing (not necessarily in this order!) every paycheck?
- Saving money in an emergency fund (if you haven’t already)
- Saving money for retirement
- Paying down debt
If you are looking to start building wealth, know that in finances (as in life) there are no shortcuts. If you make good decisions over a sufficiently long period of time you’ll come out on top. A few hundred dollars a month seems like no big deal, but through compounding interest and the hands-off nature of the system, you’ll eventually be in good shape.
Of course, there are some tools that can help you out, even if they aren’t completely necessary. As I mentioned, direct deposit is a nice paycheck feature to have – talk to your HR department (or boss, if you don’t have an HR department) if direct deposit isn’t available. A budgeting tool also helps if you can’t get your finances in order – Mint.com offers a free tool to manage your spending.
To summarize: make good decisions for a long time and wealth will be yours!