How to Pay Off Your Debt Quickly and Start Building Wealth Today?
Building wealth isn’t about having extra thousands of dollars sitting around for the next vacation, neither is it about becoming a millionaire – which you can if you want to- but most importantly, it’s about having your financial independence for the rest of your life.
This means financial comfort, including staying out of debt and having enough wealth to face any emergency and living comfortably.
The tips below will ensure you’re on your way to building wealth.
Ready? Let’s jump right in!
- 1. Change Your Mindset
- 2. Save Money
- 3. Put $1,000 in a Beginner Emergency Fund
- 4. Budget
- 5. Make More Money
- 6. Pay off your debt
- 7. Choose Your Partner Carefully
- 8. Be Aware of Bad Money Habits
- 9. Start Investing
- 10. Break The Large Goal Into Smaller Chunks
- 11. Eliminate Your Self-Limiting Beliefs
- 12. Have Multiple Sources Of Income
- 13. Start An Online Business
- 14. Social Media
- 15. Self-Publish
- 16. Invest In Real Estate
1. Change Your Mindset
They say it’s not difficult to make a million dollars, but it’s difficult to believe you can make it. Changing your mindset is the first thing to do in order to become wealthy.
#1. Money Can Buy Happiness
Many people think that money is evil. The truth is, the love of money is the root of all kinds of evil. Instead, view it this way; money can feed the hungry and save lives.
And if you think that money can’t buy happiness, then maybe you don’t know where to shop! Because once you learn how to use your money to buy experiences and help others, then you’ll find happiness.
#2. Surround Yourself With People Who Look Like Your Future, Not Like Your Past
We are an average of the five people we spend most of our time with. So, make sure you surround yourself with people who share your value and are going to inspire you to become wealthier.
2. Save Money
You can earn as much as you want, but if you don’t know how to save money, you can end up in debt. This is the case of those who won the lottery or the athletes who manage to blow off their money in a short time.
They simply weren’t familiar with the idea of saving money.
Here are some ideas to help you save money:
#1. Live Below Your Means
When their income increases, people tend to upgrade their lives. They buy a bigger house in a better neighborhood, a more expensive car, a new fancy wardrobe… this upgrade means more expenses down the road because of what it takes to maintain the new lifestyle.
They end up spending more, saving little, and even getting in debt. Whatever your income is, always make sure your expenses are much less than what you earn.
#2. Live In a Smaller House
This goes with the previous point. A smaller house won’t just cost you less, but will also discourage you from buying more stuff to fill it.
#3. Hanging out With Friends and Family Shouldn’t Cost a Fortune
Instead of eating out, pack your lunch and go with your family to a beach or a park.
3. Put $1,000 in a Beginner Emergency Fund
Make saving $1,000 a goal and do whatever it takes to reach that goal. Work extra hours or have a garage sale if you have to.
This saving account should be set aside and never touched except for emergencies so you can avoid getting into unnecessary debt and paying high-interest rates.
However, you should have a clear definition of what makes up an emergency. A vacation or a new sofa isn’t exactly an emergency.
Some people might find this hard, especially when they’re not used to the idea of having money in their bank accounts for a long period of time. In such cases, a change of mindset is important to be able to save money.
Some people think that money is evil and therefore, you should never accumulate any. The truth is the love of money is the root of all kinds of evil, and not money itself. If anything, money is what feeds the hungry and saves lives.
If you can manage to save for an emergency fund, you’ll be able to save for purchases and eventually for wealth building.
Budgeting is the best way to be in control of your finances and stop wondering where the money went.
This will allow you to make better decisions when it comes to spending your money, and most importantly, will also allow you to save money by allocating some money every month or week for savings.
#1. Zero-Based Budget
The easiest method for budgeting is the zero-based budget. This means spending your income all the way down to zero before you even get paid. This includes giving and saving.
At the bottom of the page, after deducting all your expenses, your balance should equal zero. If it doesn’t, you need to go back and adjust your expenses.
When allocating money to savings, keep in mind that the most important goal is to have an emergency fund. After doing that, the money should go towards paying off your debt and last.
After paying off your debt, the money should go to fill an emergency fund of three to six months of expenses.
#2. Envelopes Budgeting
The thing about paying off with a check or with a debit card is you don’t know how much money you’re spending on things such as grocery, shopping, gas… and thus you don’t have an idea of how much is left in your grocery budget.
A cash-based envelope system, on the other hand, allows you to know exactly, how much is left of your budget.
All you need to do is to set a budget and when you get paid, withdraw the money from the bank and put the allocated amount to envelopes for each category of expenses.
Once the money runs out, you can’t buy anything more until next month.
Of course, there are some expenses that should be paid right out of your bank account such as payments for your retirement account and utility bills.
But for expenses such as food, gas, and entertainment, the cash-based envelope system can solve your overspending problem.
5. Make More Money
Improving your income is important. However, you’ll also need to have multiple sources of income, as some might say, “making sure their eggs aren’t all in one basket.”.
Wealthy people go to great lengths to make sure they have money coming in from all directions.
#1. Become a Job Jumper
The average raise an employee can expect is about 3%. Something that might not be enough for you to accumulate wealth, given that a regular job is generally our biggest source of income.
However, those who change their jobs at least once every two years are making 50% more over their lifetime compared to those who stay at the same job for a long period of time.
#2. Improve Your Skills
Start networking and taking-in side projects. Most importantly, learn and read more in your field. Read every book that can help you improve your skills, and start attending workshops in your field.
If you’re not sure what sort of skills you need to improve, look for a job you dream of landing and read the job requirements.
If there’s any skill you’re lacking or a skill you think you didn’t master well enough, then that’s a good place to start.
#3. Multiple Sources of Income
It doesn’t have to be tons of money, it can be something that will make you financially secure and independent in case you lost your job. Having multiple sources of income is your way to wealth building.
You can start small by having a part-time job at the weekend, freelancing, making your own product, selling things on Esty, and Amazon Handmade… but you can also go big and start investing in real estate and the stock markets.
#4. Make Sure You Have More Assets Than Liabilities
A real asset isn’t your house or your car, it’s what makes cash flows in your pocket. This can be your regular job or any other source of income.
A liability, on the other hand, is what makes cash, flows out of your pocket. If you’re spending too much repairing and maintaining your house and car, then they’re a liability and not an asset.
It’s better to downsize your house and have a rental property that is going to allow cash to flow into your pocket, than having a big house that is taking cash out of your pocket.
6. Pay off your debt
Interests can accumulate in no time and makes it almost impossible to pay them off, let alone to pay the actual debt.
Here are some ways to pay off your debt and stay away from it.
#1. Change Your Perspective
78% of US workers live paycheck to paycheck. This means that 4 people out of five are living on a razor’s edge. And the problem here is two: overspending and debt. Banks has been doing a great job selling people the idea that debt is a service offered to consumers to help them live the life they have dreamed of and feel special.
The truth is, debt is a product, well marketed. In fact, the gross revenue for the entire credit card industry was more than $163 billion in 2016 alone.
Changing your perspective about debt and recognizing how destructive it can be is important is you ever want to get rid of it for good.
#2. Quit Borrowing More Money
The first step to paying off your debt is to stop borrowing. You can’t get out of a hole if you keep digging.
This includes credit cards too. It’s amazing how people became so dependent on their plastic cards that the mere idea of living without one, is scaring some to death.
For many people, the credit card has even replaced the emergency fund concept, and that’s one reason why people aren’t able to reach financial independence.
#3. Sell Something
We have filled our houses with stuff we never used or we don’t need altogether.
Sell whatever you can on eBay and Craigslist. If it’s something you’re using but you can do without, ask yourself this “do I need it more than I need to be out of debt?”.
#4. Pay off Your Credit Card Debt and Stop Using Them
If you have too much debt on your credit card, look into doing a balance transfer to a card with an introductory rate of 0% APR. Some cards offer this rate for as long as 21 months.
That’s almost two years to work on the balance without having to pay interest. Then make sure you pay off the entire balance as soon as possible.
#5. Pay Off All Debt Using the Debt Snowball
List all of your debts (except your primary mortgage) from the smallest to the largest based on payoff balance and start paying off the smallest debt all the way down to the largest.
Pay the minimum payments on all your debt except for the smallest ones, and throw every dollar you can at it until it’s paid off and out of your list.
This, even if won’t save you on interest, is going to give you the motivation, every time you cross the best off the list, to keep going and paying off more debt.
7. Choose Your Partner Carefully
In a household where one loves to spend, saving money and becoming wealthy might not happen any sooner, either that or lots of fights will take place. This might cause lots of stress and lead to divorce.
That’s why it’s important for you to be on the same page with your partner when it comes to managing finances. Money can be an uncomfortable topic, but it’s something that needs to be discussed.
Below are some questions you can ask your partner:
• How much you earn?
You can’t know for sure how much someone earns just from inspecting his spending habits. He might be charging his expenses to nearly maxed out credit cards.
• How much, what kind of debt do you have and how quickly it is being paid down?
Debt is a bad idea on its own. However, knowing what kind of debt the person has can tell you a lot. Student loans aren’t the same as credit card debt. The latter might indicate bad decisions when it comes to spending money.
• How much do you have saved?
Saving money and having an emergency fund is a good start to become wealthy. And however essential this is, not many people seem to be able to achieve.
• Do you keep a budget?
Being with someone who’s open to the idea of using a budget is important for the whole thing to work.
Related: How To Communicate More Effectively
8. Be Aware of Bad Money Habits
We all make bad decisions when it comes to managing our finances. But bad money habits can keep us from achieving financial independence, especially when we’re not aware of them or when we don’t know how to change those habits.
Below is a list of bad money habits that are keeping you broke:
#1. Making Minimum Payments On Credit Cards
There’s no habit worse than borrowing money with a double-digit interest rate.
To make matters even worse, making minimum payments on credit cards can make you pay double what you borrowed because of the interest charged.
If your balance is $1,000 with an interest rate of 10% and you make a minimum payment of 20% per month, you’re going to end up paying $300 in interest alone.
If you can’t quit using a credit card, make sure you pay off your balance every month.
2. Seeking Happiness In Material Things
We seem to believe that happiness is in the next item we purchase. That the purpose of saving money is to actually buy the next expensive thing.
The truth is, once you have the basic needs for a comfortable life, nothing you can buy can add much if anything at all to your happiness level.
3. Shopping Therapy and Impulse Buying
Often times, we end up regretting the decisions we’ve made when we’re sad, and it’s no different when it comes to shopping therapy and impulse buying.
You might feel a little bit better after buying something, but that feeling is momentarily and it’ll soon fade away, only to be replaced by guilt and regret.
So, when you’re feeling the blues try something more constructive.
4. Eating Out Too Often
Breaking this bad money habit can literally save you thousands of dollars every year, especially when you have a family to feed.
Eating out might seem like the right thing to do, especially on those days when you’re too tired to put something together or when you don’t have much time. It’s fine, only we’re almost always drained of energy and running out of time when we’re home back from work.
With some help and some smart planning, you can manage to put together something healthy to eat. Try cooking in larger quantities and freezing the rest for later and get yourself some help from your family.
5. Spending More Than You Earn
Lots of people think that if they’re spending more than they’re earning, then their income is not enough.
The truth is, people who don’t know how to live below their means, tend to upgrade their lives with any rise in their income, which makes the latter never enough for them.
Downsize your house, downgrade your car, and embrace minimalism, you’ll be amazed at how far your income can go once you learn how to live below your means.
The rule goes like this « If you can’t afford it twice, don’t buy it ».
6. Paying Unnecessary Fees
Fees like ATM fees and membership fees that you don’t use might seem almost insignificant, but those fees add up in no time.
7. Not Learning How to Manage Your Finances
Learning is the best investment anyone can make. It saves lots of work and effort and helps guide you to new ways to manage your money better.
Whether you want to improve your career or you want to acquire better money management skills, reading books in that field and attending workshops can help you do that and more.
8. Relying On One Income Stream
Focusing on your career and improving it, is great. But you might also consider starting a side hustle or investing in stocks and real estate or even getting a second job if you have the energy and time for that.
Having more than one income stream is a great way to feel more secure financially and be able to push yourself toward financial independence and wealth.
9. Start Investing
#1. Educate Yourself
You should spend as much time learning about investing as you spent earning the money you’re going to invest.
The goal is “not to lose your money and not to lose everything”. It’s okay to take a risk as long as it’s well studied and as long as you don’t put all your eggs in one basket.
It’s important to diversify your investment so that any single event doesn’t wipe out your wealth. (Index Funds, Mutual Funds, individual companies, retirement accounts, etc…)
#2. Emergency Fund Comes First
If an emergency fund is important to have in order to save money and stay out of debt, it’s especially important if you’re thinking of starting to invest the money you saved.
Focus on building your emergency fund to the proper size depending on the sort of emergency that might occur to you (like a broken car, house repair…).
#3. Start Early
The earlier you start investing, the more wealth you’ll accumulate. Start small, but start anyway. Whether it was mutual funds, real estate, rental properties, companies’ shares, or retirement account, there is no substitute for time.
#4. Tax-Advantaged Investing
Tax, interest, and fees can be the biggest drain when it comes to building wealth. Choose investment vehicles that are going to allow you to minimize your tax payment.
Read more about Tax-Efficient Investing: A Beginner’s Guide
10. Break The Large Goal Into Smaller Chunks
It’s great to have a clear goal in front of you, but you’ll also need a plan to reach that goal. That plan should include smaller goals.
Making $1,000,000 in five years means that you should be making $200,000 a year. That breaks down to $16,666 per month and $4,166 per week. Based on the average 40-hour workweek, this means that you need to earn $96 per hour.
Even if your current job isn’t making you this money. The goal can still be achieved through passive income streams. This breaks your hourly requirement to $22 per hour (given that there are 8,760 hours in a year)
Now $22 per hour doesn’t sound as scary as making one million dollars overnight, right?
Million-Dollar Ideas VS. Scale Mindset
Many people are looking for a million dollars ideas in the hope of reaching their goal faster. And while some people manage to do it, it still isn’t the smartest way to reach your goal of becoming a millionaire.
A better idea would be to look for a product or a service that will generate $10 of profit and that you can sell to 100,000 people in five years. You don’t have to find 100,000 people to buy your product or service.
After coming up with your idea, all you have to do is to sell your product or service at a very low price point, and then as time goes by, create new features or new premium products and services for your eager clients.
11. Eliminate Your Self-Limiting Beliefs
They say it’s easy to make a million dollars, but it’s hard to believe you actually can do it.
Many people believe that they’re not good enough to make a million-dollar; they lack formal education, they don’t have enough savings, it’s not the right time yet… the truth is, successful people like Steve Jobs, Richard Branson, Bill Gates… never completed a degree. That didn’t stop them from becoming millionaires.
Accepting that you’re good enough to become a millionaire and believing that you deserve it, is your first step toward achieving your financial goals.
You don’t have to start convincing yourself that you can make a million-dollar overnight. All you have to do is to believe that you can meet your smaller goals. Achieving these goals will feed your confidence and help you believe that you can do more.
12. Have Multiple Sources Of Income
Having multiple sources of income is one of the fastest ways to become wealthy and reach your goal of making one million dollars.
It’s also a way to protect your income in this volatile economic environment. This applies to invest your money too. Don’t put your eggs in one basket!
13. Start An Online Business
Thanks to the ongoing success enjoyed by Jeff Bezos and his Amazon empire, online shopping is a part of our modern life. With tens of millions of engaged online shoppers, there are now more opportunities than ever to start an online business. Some of the most popular online business models include Etsy, Shopify, an affiliate website…
An online business could be the best additional stream of income to consider since it’s 100% passive once you set it up correctly. The Amazon FBA (Fulfillment by Amazon), offers a business model that can make things much easier for you. All you have to do is to ship your inventory to their fulfillment centers, and they’ll manage everything else after that.
14. Social Media
It is no secret that today, many people have become millionaires from social media by simply keeping people entertained. Websites like Youtube itself doesn’t create content. Instead, it relays on other people, i.e. you, to create content.
In order to make money with Youtube, people watching your videos need to either watch the entire 30-second ad or click on it. Each view or click is usually worth a few cents, but it all adds up over time.
With the new technology of these days, e-books have become an industry of its own that has shake bookstores like Barnes & Noble. The Amazon KDP (Kindle Direct Publishing) platform has allowed anyone with an idea and a word-processor to become a self-published author. This can be a great source of passive income.
16. Invest In Real Estate
Investing in real estate is one of the safer investments you can make. You can choose between having rental properties and flipping properties.
* Rental properties. It’s a great way to have a passive income. At some level, it can become a full-time job or you might need to hire people to manage your properties.
* Flipping properties. The return on investment can be significantly higher than renting the property. However, it’ll take more effort and planning on your part. A property flipper, is usually, someone who’s looking for a house that’s in need of repair. This is going to acquire renovating that includes materials, labor and organizing an open day.
Did I miss anything?
Now I’d like to hear from you.
Which techniques from today’s post are you going to try first?
Or maybe I didn’t mention one of your favorite techniques.
Either way, let me know by leaving a comment below right now!
Wondering what to read next?
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- 21 Success Secret of Self-Made Millionaires
- 9 Success Principles Successful People Live By
- 6 Habits of Self-Made Millionaires
- How To Transform Yourself For Success: 12 Steps To Take Today To Change Your Life
- How To Use The Compound Effect To Succeed In Life
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