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The last step is to create wealth by investing your money in low risk investments over a long period of time. A young person could conceivably amass over $1,[link widoczny dla zalogowanych],000,000 in retirement wealth.
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.
Using the model of the average American family that I use in my seminars,[link widoczny dla zalogowanych], I show that this family would realize a 37.13% return on their money by investing in their debt of $169,[link widoczny dla zalogowanych],340 before any other type of investment.
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 what the stock market is doing. It may be wise to invest in an indexed mutual fund such as the Standard & Poors 500.
After all your debts are eliminated,[link widoczny dla zalogowanych], the money you were using to pay your debts is now available for any purpose you chose. 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.
Homeowners made do with what they had. Appliances,[link widoczny dla zalogowanych], cars, etc. were repaired rather than replaced. If they couldn't afford to buy what they needed or wanted,[link widoczny dla zalogowanych], 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.
I believe the most important first step is to learn to live within your income. In today's society,[link widoczny dla zalogowanych], this may seem like an unique concept. It didn't used to be that way. In fact,[link widoczny dla zalogowanych],[link widoczny dla zalogowanych], 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.
One million dollars is the nest egg amount USA Today said that the average baby boomer earning $50,[link widoczny dla zalogowanych],000 annually today will need to retire to enjoy the same lifestyle they had before retirement.
Most consumers don't realize is by having credit debt,[link widoczny dla zalogowanych], including a mortgage,[link widoczny dla zalogowanych], 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 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 life style. Without debts your life could be less stressful. Your marriage and family life might be more enjoyable. You then could build wealth for a happy,[link widoczny dla zalogowanych],[link widoczny dla zalogowanych], comfortable lifestyle.
Furthermore,[link widoczny dla zalogowanych], 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 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,[link widoczny dla zalogowanych], 1.2 million dollars less.
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.
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 investments.
The next step is to pay yourself first by paying off all your debts,[link widoczny dla zalogowanych], including your mortgage,[link widoczny dla zalogowanych], 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.