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Last year, American household debt hit a record high of $14.6 trillion. That is a truly astounding and historic number: $14,600,000,000,000.00.
If you are struggling with debt, you aren’t alone. However, there are things you can do about it.Now is the time to start focusing on your financial future. If you want to build wealth and create financial stability, this is the guide for you.
Keep reading to learn several critical tips.
1. Pay Yourself First
The best way to secure your financial future is to think about the future. Keeping a budget allows you to track where your money goes. It’s easy to spend more money when you don’t keep up with how much you are spending.
Ideally, 10% to 20% (or more) of your income should go toward investments. It is critical to pull out your investment funds from your paycheck before in lands in your account—or if that isn’t possible, immediately after it lands.
This way, you won’t be tempted to spend it and the value of your investments will be able to grow on auto-pilot each month.
Essential things like rent, food, mortgage, utility bills, and transportation should then make up about 50% of your spending.
Around 30% of your spending can then go toward discretional spending, or if necessary, paying off debt.
2. Buy Assets that Kick Off Cash
To increase financial stability, you’ll don’t just want to accumulate assets that can go up and down in value, like stocks or crypto. What is more valuable is to own assets that produce cash flow. The reason for this?
Your bills are due monthly so you need monthly cash flow coming in from passive investments to cover your lifestyle.
To do this, consider investing in cash flow producing assets, like rental real estate, high yield dividend stocks, or peer-to-peer lending, for example. You could also stake your crypto to earn cash flow, but be aware that you won’t control your keys if you store your crypto on an exchange—so that decision comes with risk.
3. Trade Low Quality Assets for High Quality Assets
If you already own some assets while you’re reading this article, you’re going to want to take an assessment of them.
High quality assets should have the potential to go up in price substantially over time and they should produce cash flow. Ideally, they should be accompanied by tax benefits as well.
For example, if you inherit an asset like a house that isn’t in great condition or located in a desirable neighborhood, you might want to consider selling an inherited house and using those funds to buy a property that will produce stronger monthly cash flow for you—potentially with lower repair costs.
Or, if you own an car worth $40K, you might want to trade it in for a functional car that costs $20K and use the remaining $20K to buy high yield dividend stocks.
The point is, you should aim to own high quality assets that kick off cash flow, even if it’s only a small amount at first.
4. Make Extra Principal Payments on Your Debts
To better your personal finance, it’s important to pay off your debts. Through budgeting, learn how much you can comfortably spend and save each month.
After that, you can focus on getting rid of your debts. Paying off credit card debt, student loans, and other forms of owing money can help you avoid the cycle of future debts.
In order to pay off your debt more rapidly, try to make extra principal payments. Principal payments pay down the loan amount on which you are paying interest each month.
The reason to do this is that it will shorten your loan timeline and reduce the amount of interest that you owe to the lender, thereby getting you out of debt faster.
5. Create an Asset Map
Good money habits can help you break free financially. One good money habit is to create an asset map. An asset map is simple a document that details everything you own of value, where it is held, and if relevant, how much cash flow it produces for you each month.
If you don’t have many (or any) assets at this time, then you’re asset map is going to be very simple. However, don’t forget that anything you own of value should be included, including but not limited to:
- Cash held in savings and checking accounts
- Assets like stocks, bonds, real estate, crypto, gold, silver, etc.
- Vehicle(s)
- Expensive furniture you could resell
- Valuable art you could resell
- Etc.
The point of creating an asset map is to put your attention on your finances and help you to set goals, because where energy goes, results flow.
Secure Your Financial Future Now
It’s never too early to secure your financial future.
Creating financial stability involves starting and following a budget that can help you live below your means. Pay off your debts as aggressively as possible and acquire cash flow producing assets.
Doing these things will help you build wealth and save you from dealing with financial stress. For more articles on personal finance, check out the Finance Section of this site.