10 Principles Of Building Wealth
Society tells people to live in the moment rather than think long-term. Long-term thinking is fundamental to creating wealth. Here are ten principles of building wealth.
Popular society tells you to live in the moment. Live as if there is no tomorrow. All the while, young people are never taught the basics of personal finance. These are the ten principles of building long-term wealth.
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Debt
Debt immediately takes away your net worth. From a very young age, debt is encouraged by society. It is presented as an easy solution to get the things you are told to live a good life.
Young people are told to go to college. Since young people do not have the income to attend college, they go into debt for it. Then in college, the financial institutions present them with college credit cards. Student credit cards are a way to get someone used to having access to easy credit, even if they do not understand what credit is.
People are then told to purchase a house by buying it using a mortgage rather than with cash. A mortgage is a type of debt. If you do not pay the bank, you can lose your house.
It is now common for people to use a loan to buy a car. According to CNBC, the average used car loan is $516 monthly, while the average new car loan is $725.This only makes purchasing the vehicle more expensive because you pay interest over time.
Instead of purchasing a shiny new car that will depreciate once you drive it off the car lot, you could find a used car and buy it with cash.
Society convinces people from a young age that there is nothing wrong with debt. It is often encouraged since the financial system is based on debt. The debt in the financial system must then be paid back with interest.
Earn Money
You want to earn money as soon as possible. This may seem simple, but young people are encouraged to attend college. College delays young people's ability to make money and does not always result in a higher salary.
College delays your being able to make money by a minimum of four years. College may not be the best choice unless you get a degree in a STEM-related field or an industry with demand. You can find ways to make money outside of having a college degree and do just as well, maybe even better financially, than some college graduates.
A better use of your time could be to work a regular job or to learn a trade. You can try to work your way up. You may not be able to work your way up in a job if it is a typical service job. In that case, you must become creative to earn more money since the United States is now a service economy. Thom Hartmann summarizes the economic consequences of a service economy:
“Additionally, since we moved from a manufacturing to a service economy under Reagan-Bush-Clinton-Bush we've seen manufacturing fall from about a quarter of our economy to only 11 percent of it. That means we no longer make anything of value here. Without making things, we don't create true wealth - we just move money around. You wash my car, and I'll mow your law[n] - a so-called service economy - leads to economic disintegration over time, as eventually the car will fall apart and the lawn needs to be re-seeded.”
While working your job, you could learn ways to make additional money online. That could be as a side gig, or you may have the long-term goal of starting your own online business.
You can start to practice the basics of personal finance as you earn money. You can start by following a budget. As you make money, you can then work to find new ways to make money to help you increase the amount of money each month.
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Live Below Your Means
You want to live below your means once you know how much you make each month or year from a salary or paycheck. Once you know how much it costs to live each month, you can start to live below your means. You can calculate your essential living costs to know the minimum you need. Those are the costs of the needs that are covered in the 50/30/20 budget.
Some simple way to save money is not to go out to eat or to the bar every week. You could also buy the store brand instead of the grocery or clothing store name.
The point of living below your means is that it allows you to begin to save money every month. You can then start to put that money into a high-interest savings account.
Save Money
You want to start to save money when you begin to make money. You can start by aiming to have a savings goal. A typical first financial goal is to have $10,000 in savings.
A recommended financial goal when you start is to save $10,000 in savings. The reason is this is a nice round number. It is doable. You can feel successful once you reach $10,000 as your first financial goal.
You can calculate how much your emergency fund needs to be by using NerdWallet’s Emergency Fund Calculator.
It is a good-sized goal because it can cover more minor emergencies when it comes up (unless inflation continues to get worse). It could cover essential car maintenance and getting a set of new tires. Of course, you can always increase the money you save to build your rainy day or emergency fund.
Ideally, you would put the money in a high-interest savings or money market account. The reason why you may choose a high-interest savings account is to have easier access to your money. A high-interest savings account allows for more withdrawals when you may need it compared to a money market account. A money market account often provides a higher interest rate, but you will usually be limited to five monthly withdrawals.
Once you have an emergency fund and enough money in a savings account as a financial security blanket, you can begin to invest money.
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