How to Prevent Debt from Hindering Your Wealth Building

How to Use Debt to Build Wealth | Family Finance | U.S. News

Over 80% of Americans carry some form of debt.

Does this mean that more than 80% of Americans are not building wealth?

Debt can indeed be a significant obstacle to reaching financial goals.

When I graduated from college with $30,000 in debt, I realized that paying it off would require sacrifices.

For instance, I felt constrained in my ability to travel, purchase home items, buy my first house, plan a dream wedding, save for my son’s education, or invest.

Recently, I understood that while I can’t do all these things simultaneously while paying off my debt, I can start investing, which is a crucial financial goal.

WANT TO BUILD WEALTH? START INVESTING AND GROWING YOUR INCOME

It’s easy to envy celebrities and wealthy individuals who never worry about money and wonder how they got so lucky. If you’re like me and can’t sing, dance, or act, becoming a celebrity isn’t an option. You’ll need to start investing, even if you have debt! If you aim to build wealth and have ample funds to cover your expenses, investing is essential.

Common myths about investing include it being too risky, only for older individuals, or only after paying off debt. However, starting to invest early allows your money to compound and grow over time, which is how some people accumulate over $1 million by retirement. It’s not about luck; it’s about starting early and being consistent.

SQUEEZE $100 OUT OF YOUR MONTHLY BUDGET TO INVEST

Believe it or not, you can start investing with as little as $100. Look for ways to reduce your expenses to free up $100. Cut out unnecessary costs or reduce variable expenses by $10-15 each.

Then, find a reliable broker to help you invest in ETFs and mutual funds. Mutual funds consist of various individual stocks and bonds and have a set daily price and associated expenses. ETFs, on the other hand, generally have lower costs and are traded like stocks.

An easier way to invest is through your retirement fund. If your employer offers a 401(k), make sure you contribute to it, especially if they match your contributions. If not, you can open a Roth IRA or, if self-employed, a SEP IRA.

For investing outside of retirement, consider a digital brokerage like Loyal3, Betterment, or Fidelity Investments. Betterment, for instance, simplifies the process by distributing your funds into ETFs based on your goals, with low fees of around 0.15% to 0.35% for deposits of $100 or more per month. Fidelity offers a Roth IRA, over 10,000 mutual funds, and unlimited U.S. equity trades for $7.95 per month.

Consult a financial advisor to learn more about starting with investing and which strategies are best for you.

START BUILDING PASSIVE INCOME

Building passive income is another way to build wealth, even with debt. Combining active and passive income allows you to earn more while putting in less effort.

While real estate is a popular method for generating passive income, there are many other ways to establish it without significant initial investment.

You can:

  • Create and sell a product
  • Build affiliate income by referring others to products you use and like
  • Publish a book or write an ebook and earn royalties
  • Start a blog and monetize it

Although establishing passive income isn’t easy, it, like investing, takes time and effort.

Last year, I reviewed my healthcare company on my blog and mentioned their referral program. Now, I receive $100 per referral, which feels great, especially when I help people connect with excellent health coverage options.

DEBT DOESN’T STOP YOU FROM EARNING MORE OR SAVING

Don’t let debt prevent you from saving, investing, or increasing your income. While paying off debt is crucial, if you have low-interest debt and years of payments left, you might do yourself a disservice by not building wealth simultaneously.

It’s best to balance paying off debt and improving your finances for a better future.

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