Personal Finance Blog by Debit versus Credit

The Secret to Building Wealth

September 11, 2008 | Filed in: Finance 101 | 5 comments

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I’ve had many people ask me over the past several weeks what the secret is to building wealth.  Today I am going to share the answer with you.  Before I do though, I want to tell you what it’s not.  It’s not a great investing tip.  It’s not a can’t-lose business idea.  It’s not even related to how much money you bring in or how you can bring in more.  It’s simply the idea that wealth building is a state of mind and cannot coexist with poor financial choices, especially those related to debt.

Let me explain.

Many of you may be aware that I currently work in banking.  I help anywhere from 10 - 50 people in any given day and quite often they are in some sort of financial distress.  Whether their situation is as extreme as the inability to make their loan payments or as simple as not having enough cash to pay for gas for their car, they all have one thing in common.  They don’t have any cash set aside for emergencies. The fact that they haven’t put any cash into an emergency fund tells me something else about them.  They aren’t building wealth. Quite the opposite in fact.  They’re living paycheck to paycheck always saying that next time they’ll save a little, but next time never comes.

It’s a sad situation really.  It’s a never ending cycle of all talk and no action.  Just as I said earlier, it’s a state of mind.

Let me throw out a blanket statement here (which as anything might have some rare exceptions).  If you can not manage your money well enough to save six months worth of expenses in an emergency fund and keep it there, you will never be wealthy.  The emergency fund is critical in any wealth building program because it accomplishes two important goals.

1. Building an emergency fund will help keep you out of debt.
2. Building an emergency fund will get you into the habit of saving.

A Credit Card Is Not An Emergency Fund

Many people use credit cards as an extension of their paycheck.  Do not do this.  If you can not afford to live with only your paycheck then you need to cut back on expenses.  Likewise do not think of a credit card as an emergency fund.  This type of thinking will get you into debt and take away from your financial well-being every single time.  Start building an emergency fund now so you don’t have to resort to using your credit card if something goes wrong.

Start Saving Now So You Can Save Your Future

The sooner you begin on building an emergency fund the sooner you will become financially independent.  All it takes are a few good habits and some emergency reserves to avoid unnecessary debt and you will be well on your way to riches.  Don’t talk yourself out of it with excuse after excuse.  Start small if you have to, but start saving right now.  If you don’t you’ll never reach your goals and you’ll never get to go on those vacations or buy those toys that you’ve always wanted.  By setting aside money today you’ll get yourself into the habit of saving and once you’ve built up your emergency funds then the real wealth building can begin.

For some further reading on wealth building check out My 33% Savings Plan and Starting On The Road To Wealth.

Tags: building wealth, Emergency Fund

A Look Back At 2007

December 26, 2007 | Filed in: Personal Finance | No comment

It’s hard to believe that the New Year is almost here. Christmas has now come and gone (along with Hanukkah) and we’re fast approaching the end of the year 2007. For me 2007 was a great year. I began truly getting my finances in order and building wealth. I’m by no means wealthy at the end of this year, but I am a step closer to achieving my goals. How did you do? Can you look back at the past year and know that you did well with your money? Did you begin an emergency fund (or completely fund an existing emergency fund)? Did you pay down any existing debt? Did you invest any excess money in the stock market or any other financial markets? What sort of returns did you make on your money this year? If you are the type of person who likes to own individual stocks, which companies did you purchase and how did they do? What sort of returns did you make on your retirement accounts? All flavors apply here: IRA’s, 401(k)s, 403(b)s, Roth IRA’s, SEP IRA. How did you do? If you didn’t have a retirement account at the beginning of the year did you start one and fund it this year?

I realize that I’ve asked quite a few questions, and honestly I could probably ask even more, but I think that’s good enough for now. I really want to know how you all did with your finances this year. I want to know, and I want to encourage you to do even better in the upcoming year. Will you do this? I hope so. I definitely plan to.. I know I’ve still a long way to go before I reach my ultimate goal of financial independence. Enough chatter though, let me highlight some of the goals and things that I did with my finances over the course of the year 2007…

At the beginning of the year 2007 my wife and I began a short-term savings account to save up for expenses such as college tuition, vacations, and a down-payment on a house. About midway through the year we expanded our savings by creating an emergency fund money market account. We have been funding this account with $250 every single month. We also opened a mutual fund (investing in gold and other precious minerals & metals) and a brokerage account. As of the time of this writing we have managed to accumulate between these four different accounts about $7,500 dollars. Most of this I money I prefer to think of as long-term, but it’s a start and it’s a cushion just in case we ever face an emergency.

We did pretty well this year I do believe. I want to do better next year, and I think we can. I also want to start focusing a little bit more on saving for a house, and also our retirement. I plan to open and fund an IRA for both my wife and I this coming year. So again I ask, what did you accomplish this year with your finances?

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Tags: building wealth, Debt, new year, retirement