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Consumers are well well aware of the mounting pressure of debt, however, when asked whether people should budget, only 25% said yes in a recent poll. The same poll did reveal that 67% of the test group used a budget, which seems like an anomaly, but it’s actually human nature to hope for the best. Unfortunately, this doesn’t always translate well to our finances. While we should free up our income to have more cash available to invest, we find ourselves thinking that we’re better able to manage debt than others. A simple refresher in terms of the way we view money will change this.
Start Viewing Your Ability To Earn As An Asset
When asked what their biggest assets are, consumers are quick to list items such as investments, properties, and vehicles. However, these are secondary to our ability to generate an income. Once you understand the value of your earning ability, the 30-40 years that you have to generate an income to pay for the other assets will seem like a really short time to accumulate enough wealth for the years where you’re unable to continue working a regular job. This requires two actions: the first is protection and the second is diversification. Insurance companies can help with protection, as there are multiple products on the market that are designed to protect your income. Diversification requires a concerted effort to generate multiple streams of income in order to ease the pressure off of the salary. Passive income should be the biggest focus, as it requires little effort from you. Examples of these include interest and dividends from investments or a side hustle that requires minimal input.
Get Smart About Debt
While getting out of debt is a worthwhile pursuit, there are going to be times where you may need to access the credit card or take out a loan. In these instances, you’re going to want to make sure that you have the best interest rate – or 0% rate if you can – over the best term. In order to get the best deal on credit, it’s important that you’re in a position to be able to negotiate. Save up that deposit, boost your creditworthiness and overall financial profile, and make it hard for the financial institution to offer you anything less than their best rates.
Think Of Your Money As Wealth Building Tool
The fastest way to free up cash in order to build wealth is to spend less than you make. Whether this is done by increasing your earnings or decreasing your spending, freeing up cash is important to create a buffer. Wealthy people get into a position of wealth and stay there because they understand the importance of living below their means. This means that short-term pleasure should never derail the long-term goal.
For those looking to increase their wealth, money can be a valuable commodity if used well. Building wealth means knowing how to make the most of any financial situation.