Written by: Penny Anthem staff
Building wealth is a process that takes time, dedication, and will power. I wish it were, but unfortunately it isn’t an overnight process. It isn’t easy for all (or even most) of us, but the success of being financial independent is one of the greatest freedoms anyone could obtain in my opinion.
- Build your emergency fund
In another article, we present the idea of saving $500-$1000 in an emergency fund before or during the process of paying credit card debt. Having accessible cash is pivitol. That’s because without an emergency savings, you will likely regress back into using credit cards.
- Paying off debt (with interest)
This is foremost because of interest rates. Would you agree that any investment that guarantees a 25% return is a dream? Absolutely! In fact if you find that type of investment, send me in that direction! Fact is, you won’t find it because a guaranteed return of that amount doesn’t exist…unless you’re a credit card company that is.To put it simply- Interest is the cost of borrowing money. A lender (credit card company in this example) has lent you money. The agreement is that you’ll pay them back and depending on how quickly you do that- you may have to pay interest.
When you have revolving debt with interest, a credit card balance that carries over monthly, you are losing the opportunity to put that money somewhere else- say somewhere where it can grow. On a very basic level- say I pay $200 a month on my credit card- let’s not even consider how much is going to interest- That’s $200 a month I could be saving and/or investing. This is called OPPORTUNITY COST.
A short term, but very valuable, solution is to switch to a NO INTEREST credit card.
From there pay down your debt as aggressively as you can. Check out this article by NerdWallet for best 0% interest credit cards.
3. Build a savings account that you feel comfortable with and proud of
After you have you quick $500 -$1000 saved, have paid off your debt, NOW is the time to build your savings up to 3-5 months of living expenses. This amount can seem daunting at first.
Say you your expenses are $2,000 a month. That means you should save approx. $6,000-10,000. This seems like a daunting number for most of us. Especially if you’re making minimum wage and feeling like your just getting by. The good thing is- if you’re used to spending about $200 on credit card debt, once its paid off you can take that same $200 an put it in your savings since its already accounted for in your budget.
4. Invest to grow your wealth
This is where the fun part begins! Once you a debt free, and have some savings built up- you are read to explore the world of investing. It’s the opportunity to make your money grow. You can do this as conservative or as aggressively as you feel comfortable with.
Whether you chose to invest in a product that’s backed by the FDIC or not, you should consult with a financial advisor. It’s important to work with a professional who knows your situation specifically. Disclaimer