Many people have accomplished personal financial goals that allow them to enjoy true personal wealth. All successful people followed some general financial principles that helped them accumulate money and build wealth instead of spending money frivolously.
Here are the first three principles for generating wealth (See Part Two for more wealth-generating principles):
General Principle #1: Pay Yourself First
The vast majority of people who have achieved their financial goals say they accomplished the task by paying themselves first each payday.
By having reviewed spending practices and identifying ways to cut back on nonessential expenses, the amount to apply to building personal wealth is set aside before paying any other expenses. That money, no matter how large or small the amount, goes directly into a vehicle for savings.
In fact, the easiest way to save money toward your goals is to have direct payroll deductions so that you never see the money.
Many employers offer savings plans that allow you to define an amount of money to be removed from your paycheck and placed into a savings plan or a choice of plans. The plans may vary greatly from employer to employer, but the common thread is the money that never reaches your hands is seldom missed.
If you do not use this type of savings plan, you must practice self-discipline by placing a defined amount of money into an account where it will be held and not spent.
It is far too easy to spend money that is simply placed into your checking account. A passbook savings account is one way to hold the money until you are ready to invest it in other instruments that pay higher rates of return.
Whatever you do, don’t put that money that you’ve defined as savings into your pocket! It is too easy to spend without thinking about it if you hold the funds in cash.
General Principle #2: Pay Off Credit Card Debt
The best way to get rid of debt — credit card or otherwise — is to avoid accumulating debt in the first place. However, there are certain debts that must be incurred, and we’ll discuss them later.
It can be so easy to pull out a credit card and purchase something that you don’t really need and perhaps don’t even want. With credit card interest rates as high as 21 percent annual percentage rate (APR), your purchase can end up costing you a great deal more than the amount on the item’s price tag.
It can take years to pay off credit card debt if you pay only the minimum payment each month. The interest continues to grow and costs you more and more over time.
Strive to pay off all credit card debt, beginning with the credit card that charges the highest rate of interest. Consider transferring the balance from high-interest credit cards to credit cards that charge a lower rate of interest, making it easier to pay off the balance quickly. Get rid of any credit cards that charge annual fees.
Study the payoff plan you intend to use for getting rid of your credit card debt. At Feed the Pig (http://www.feedthepig.com), you’ll find a handy calculator to help you create a payoff plan.
Using one example, with $2,000 in debt on a card that charges 17.5 percent APR, if you stop charging anything new and the card does not charge an annual fee, payments of only $99 per month will get your balance paid in full within 24 months.
Of course, the more you can pay, the faster the debt will be reduced. Calculate different amounts, find the best payment plan for you, and place that debt=reduction payment into your monthly budget.
If you are the type of person who has five or six credit cards, choose a single low-interest-rate card and use it only in emergencies. As the other accounts are paid off, cancel the credit card accounts.
There is no need to have more than two low-interest credit cards, and you should never charge more than you can pay in full each month.
Be aware of and cautious about “teaser” offers provided by some credit card companies – often department store charge cards. An example of this type of teaser incentive is a card from a store where you shop that offers you $30 worth of free merchandise the first time you use your new charge card.
The problem with these teaser offers is that while you obtain the free merchandise, you likely also will charge additional purchases that incur interest, often high interest, and you become tempted to charge more and more. Read these types of offers carefully and understand them before you consider using these teaser offers or even before accepting the new, usually unsolicited, credit card.
Also, be aware of and cautious about “teaser” rates offered by some major credit cards. It is not unusual to receive an unsolicited offer from a company that offers an amazingly low interest rate. The questions you need to answer in your research include:
• How long do you get this great interest rate?
• How soon after the initial low interest rate ends can you cancel the card if paid in full?
• Are there any hidden expenses such as yearly fees to keep the card?
Whether these offers are good for you and your particular financial situation are factors you must determine individually. No hard and fast rule is true for everyone. The rule you must follow is that knowledge is power, so learn all about the offer before making any decision whatsoever.
Avoid adding to your credit card debt unless it is an emergency. Never make purchases for food, clothing, or incidentals with your credit card unless you know you can pay off the entire balance as soon as the bill arrives.
Make sure you are only using the credit card as a means of compiling budgeted expenses so you can write one check and avoid carrying cash or writing multiple checks.
Seek out a credit card that offers a zero percent interest rate as long as the card is paid in full each month. You may even find some credit cards that offer a zero interest rate on balances carried forward for a short period of time and no yearly fee for the card. Avoid maintaining any credit cards that carry a high interest rate or that charge a yearly fee to keep the card.
If you are offered a credit card with a purchase incentive such as free merchandise, find out if you can use the special offer and then cancel the credit card without penalty. If this is possible, you might find yourself in a position to get a really good deal on a purchase you already wanted.
Be certain, before making that purchase, that you can cancel the credit card and are not forced to keep the card after using the special incentive benefit.
If you find that you can obtain free merchandise or deeply discounted purchases on items you already have budgeted, this can be a great way to obtain something you want at less than the price you had budgeted. Just be sure to use prudence and read all the fine print before making the purchase!
General Wealth Principle #3: Invest Money in Growth Opportunities
Initially, you may want to save money in regular savings accounts. However, to make your money grow, you need to invest in the opportunities that offer the largest growth potential to maximize the increases offered by compounding.
Don’t stick your money under a mattress; instead find the best investment opportunities and put your money into these wealth-generating vehicles.
Tags: credit cards, debt, growth, INVESTING, savings, wealth