Hello LeoFinance. Today we are going to look at How we can start to build wealth. This is the first post of the series that will be uploaded every Thursday for the next 6 weeks. The goal is to help provide some information on how to start building your own personal wealth. There's nothing exciting about what we'll talk about, in fact, it's all very boring and the hardest skill required is the discipline to resist putting your money into rubbish defi magic bean projects, forex scams and other stuff where you are sold a hope.
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In this series, we will look at how anyone can start to put a plan together, set goals and achieve your goals. We're going to set the main goal to be retirement but your goals can be everything you like. These posts will not be long to keep the information bite-size and easy to digest.
1- Get Prepared
2- Emergency fund
3- Safe long term investing
4- Passive are active incomes/side hustles
5- Diversification
6- Retirement
In order to start building wealth, you need to be prepared. The reason most people fail is their set-up is wrong, they do not prepare for the epic 10-40 year journey they are about the embark on. They jump in heads first and fail and then gave up. Being prepared will help get you off to the best start. Think about an athlete, an Olympic runner for example. You only see them run 100 meters and that's it. You dont see all the thousands of hours of work and sacrifices they had made to beable to run as fast. With no training are foundations, that runner would run slower. In building wealth, this means cleaning your financial record, learning money management and learning to save. Only after you are prepared can you learn to invest and join the race.
a- Pay off all your bad debt
Starting with a clean slate is the first step to building wealth. The very first thing you should do is pay off all of the bad debt you have. This can include, loans, credit cards, store cards, car payments, electronics and many other things. An example of good debt is a mortgage that is at a good rate. With low-interest rates being easy to get over the past decade many people with mortgage rates of under 5% which is good when we consider they are building equity in a property.
Pay off any outstanding CCJ's (Im sure these are known by other names in other countries but this wants a CCJ is in the UK.
A County Court judgment (CCJ) is a court order which tells you to pay the money you owe to a debt you might have.
If you have run away from debt and been brought to court, you need to pay this off asap. Getting a CCJ will destroy your credit score, CCJ's are credit score cancer. Often these debts will not be with the company you borrowed with. When you stop making payments on debt, some companies will see you're not paying and sell your debt to a debt collection company at a reduced rate. Say you owe $10k, the debt company might pay $1k for that and then starting hunting you down. In these cases, you can often negotiate and they will offer you some deal where you set up payments and your debt is reduced to $4-5k. If you have outstanding CCJ's, pay them off like your life depended on it.
If you owe a very large sum of money, you really need to pay off as much as you can from every paycheck. This is often the hardest part for people to complete because when presented with the options of pay $200 of the credit card or invest $200 into BTC, BTC will often win. This is very bad practice because when something unexpected happens in your life and you need money/cash, you sell that BTC and never buy it back. This is not investing or building wealth, this is living on hope and will result poorly long term. Clearing off bad debt is a must, even if it takes years. There is no ifs, ands or buts about it. If you can not clear bad debt, you will always be fighting an uphill struggle.
If you have alot of debt and are overwhelmed by it, you should break it down and pay off one thing at a time. Starting with the things that have high-interest rates. Pay off the higher rates first and work your way down, when you clear off that first debt, I promise you'll feel like a weight lifted from your shoulders. Even if you owe to 6-7 places, that will be 1 less and the one with the highest interest rate.
b- Start building a credit score
If you're starting off with a clean sheet as in no bad debt or you are bad debt-free due to paying it all off, the next thing is building your credit score. Personally, I dont like credit scores because I think they are very limited and should include many others things but they are very important to your financial success. It's just one of the things that is good to have. When you work toward building your score you will be able to secure the lowest borrowing interest rates on any good debt you take on which saves you money.
The easiest way to build your card score is you use a credit card and pay off the full balance each month. You can easily set up your credit card payment each month to be the full balance and use the card to do the grocery shop once a month or fill up the car with fuel. This is money you are already spending but by doing it with a credit card, you will build your score.
We all know to never miss payments as we will get late fees but missing payments is also very bad for your credit score and your credit score is harder to rebuild if it drops, alot harder. The best way to ensure you never miss a payment is to make sure you have money in the bank, maybe change your direct debits to another date or a specific day of the week to help with this.
You should know that applying for credit or having your report checked by a company will cost you a few points each time so when you are applying to anything, make sure you are likely to get accepted. If you have a poor credit score already, applying for the bank platinum card will likely result in them declining you and you losing a few points and weakening your score further. If you have a bad score already, apply for something like a capital one card and when your score increase's after a while because you've been using your credit card once per month and paying off the full balance each month, you'll see be able to apply for one with your bank and then upgrade as and when you can from there.
If you become a millionaire someday, would you rather spend $500k to buy a house outright with the cash you could be earning 5-10% a year with or borrow $500k as a mortgage at 3-4% while still earning 5-10% on your 500k cash? No points for getting to correct answer.
Once you start to build up your credit score, you will be able to get better interest rates on loans/mortgages, better perks with credit cards and having a high credit score is its own reward.
Before you can start you build any wealth, you'll need to pay off all your bad debt and start work on building your credit score.
Like I said before, this is the hardest part. 100%, it gets easier after this stage. If you can just get started, after 4-5 paychecks, it'll feel normal. It might take years but it might take less time than you think because as you pay off debt, the interest that was once weighing down get lighter.
When I had debt, I gamified it and seen zero as game over. Each debt was a different level with a different plan, some levels were harder than others. Each week I'd take on overtime at work, I'd stand at work looking at the clock working out how much extra I would be able to pay off a loan I had. I'd spend £30 on a pair of jeans instead of £120, stopped playing poker, got a side hustle, stuff like this. By doing this you'll be learning how to manage your money better, I mean you can't pay off debt if you cant learn to manage your income against your outgoings. After your done, all that weight is off your shoulders, you will be ready to move onto the next stage and you'll be prepared. You have learned to live within your means while paying off debt and it'll be time to swap paying off debt to saving but this is for next week.
I hope you enjoyed this 1st part of the series. I am not a rich man but I have been poor, well I've never been poor because im from a rich country but I've owned a few thousand £'s on credit cards and loans at one point and I was able to do a complete 180 in 6-7 years. Went from spending more than I earn and having a debt to having no debt and investments that earn more than I can save. I also operate and run a few fund/income tokens on HE that have worked ok for investors so I think I have the experience to write such content. But just to be safe and it's sorta a given on posts like this...
SSUK
