by Stephen Reed | Accounting News, Financial goals, News, Newsletter
Key Takeaways:
- Keeping a gap between income and spending, even as income grows, is the foundational habit behind long-term wealth building.
- High-interest debt quietly drains money that could otherwise go toward saving and investing — paying it down is one of the best moves you can make.
- About 25% of workers miss out on their full employer 401(k) match; reviewing your full benefits package yearly can uncover more free money.
- Investing beyond a 401(k) — through an IRA or brokerage account — spreads your money across more than one place to grow.
- Avoiding comparison to others’ visible spending helps redirect money toward what actually builds financial security.
Many millionaires are quiet about their wealth. They keep things simple with modest homes, older cars, and middle-class incomes. What typically sets them apart is what they do with their money to build long-term wealth.
While a huge salary or a lucky windfall would kickstart your wealth-building into high gear, a handful of consistent, long-term habits can help middle-class workers quietly build substantial wealth. Here is what that looks like.
Live Below Your Means
This habit is the foundation of building wealth. It doesn’t mean living as cheaply as possible. It means making money moves with intention. It means leaving a cushion between what you earn and what you spend. Instead of automatically upgrading your lifestyle with every raise, put at least some of that extra income toward saving and investments.
That gap between income and spending is the game. You can enjoy your money while still making sure some of it is working for your future.
Be Careful with Debt
When it comes to building wealth, the monster under the bed is debt. It’s always lurking in the background, quietly draining resources that could be used for saving and investing – and high-interest debt has the sharpest teeth.
Every dollar going toward interest on a credit card is a dollar that can’t go toward saving and investing because part of your paycheck is already committed before it hits your bank account. If you’re carrying high-interest debt, paying it down is one of the best investments you can make.
Keep in mind that not all debt is equal. A mortgage on a house you can afford is different from a stack of credit card balances at 20% interest.
Take Advantage of All Employer Benefits
Roughly 25% of workers leave behind free money by failing to claim their employer 401(k) match. Middle-class workers focused on building wealth know to tap into this free money by taking full advantage of the employer match.
They look beyond 401(k)s, too. A health savings account (HSA), flexible spending account (FSA), employee stock purchase plan, tuition assistance, life insurance, or other workplace benefits could potentially save you money.
Instead of signing up during open enrollment and then never looking at it again, take an afternoon to review your benefits package each year. It’s a worthwhile time investment.
Invest Beyond 401(k)
A 401(k) is a great start to investing, but it shouldn’t be your whole plan. If you’re focused on building wealth, you should aim to have money working in more than one place. If you have money left after your regular expenses and investing in an employer-sponsored 401(k) plan, consider additional investing opportunities.
This could mean contributing to an IRA or investing in a low-cost index fund in a regular brokerage account. The trick is to just start somewhere. Even relatively small amounts can grow significantly over time.
Stop Comparing and Practice Contentment
We live in a culture that rewards spending you can see. Possessions are markers of success. New cars, new phones, grand vacations, and all of it posted on social media. It’s easy to start feeling like you’re woefully behind when you measure your reality against everyone’s highlight reels. But what you can’t see are their bank accounts, their debts, or their retirement savings.
Quietly building wealth looks pretty ordinary and even boring from the outside. But practicing contentment doesn’t mean you can’t ever enjoy your money. It means being smart with it. It means investing in what actually brings you joy instead of chasing status symbols. A paid-off mortgage and a strong retirement account aren’t easily showcased on social media, but they’ll lead to a life where money stops being a source of stress.
Building lasting wealth means being comfortable with financial progress that no one else can see. Over time, ordinary decisions can add up to an extraordinary amount of financial security.
by Daniel Kittell | Accounting News, Debt, Financial goals, News
With inflation at an all-time high since the 1980s, more Americans are living paycheck to paycheck and sinking further into debt. If you’re trying to get out of debt, you’re not alone. Creating a plan is possible, and you don’t need to start off with a bang. Here are some practical steps you can start today to help set you on the path to becoming debt free.
Decide on a Debt Payoff Strategy
Here are a few proven approaches to boosting the speed of your debt payoff:
- Debt snowball: This strategy focuses on paying off your smallest debt first while continuing to pay the minimum monthly amount on all others. Once your first debt is paid off, you roll the amount you had been paying on that debt into payments on the next largest debt. You continue this method until your last and largest debt is paid off. This approach can be effective if small wins motivate you to keep going.
- Debt avalanche: This strategy tackles the debt with the highest interest rate first while continuing to pay the minimum monthly amount on all others. Just like the snowball method, once your debt with the highest interest rate is paid off, you roll that amount into payments on the debt with the next highest interest rate, and so on. This approach can be effective if you’re worried about high interest rates as it may help save money over the course of your debt repayment plan.
- Debt consolidation: This strategy involves rolling all debt into a single new one, ideally at a lower interest rate. This helps to make payments more streamlined, and could possibly shorten your payoff timeline. You can consolidate debt with balance transfer cards and personal loans. This approach can be effective if you’re overwhelmed by the number of debts and payment dates to keep track of.
- Debt management plan: This strategy involves working with a nonprofit credit counseling agency. They can set up a debt management plan to help decrease your interest rate and get you started on a repayment plan. This approach can be effective if you have substantial credit card debt and haven’t made much progress in paying it off.
Tally Your Debt
Once you have an idea of the approach you want to take in paying off your debt, you need to take a deep dive into your accounts. Gather the most recent statements from all your loans and credit cards, and make an inventory of your debts. List each debt with the following information:
- Creditor name
- Current balance
- Due date
- Minimum monthly payment
- Interest rate
- Target date for a zero balance
Once you have all that cataloged, determine your monthly total in debt payments. Note that for credit card payments, if you’re not paying them in full each month, you’ll want to specify the minimum monthly amount due.
Build a Budget
First, get precise with your income, including side hustles, seasonal work, etc. Knowing how much you’re brining in each month from all sources of income helps to paint a clear picture of the available funds to spend. Next, add up your monthly expenses. This needs to include both essential expenses (mortgage, utilities, etc.) and discretionary expenses (typically optional purchases). Once you know your monthly income and expenses, you’ll know how much you can devote to paying down debt.
One way to boost your debt repayment journey is to scale back to a bare-bones budget, focusing on just housing, food, utilities, transportation, and bills while eliminating all discretionary expenses. If you go with this budget style, remember that it’s not forever, and the end goal will be worth it.
Cut Back on Spending
Many of us can’t do a hardcore bare-bones budget, but we can find ways to cut back on spending. Check your online subscriptions, streaming services, gym memberships, etc. How can you lower these costs, or cut them out altogether? Try preparing meals at home and bringing a sack lunch to the office. Keep an eye on water and electricity usage. Try to negotiate lower rates for insurance and cell service. The more you can scale back on spending, the more “found” money you’ll have to put toward debt.
Increase Income
If you find that you’re doing everything you can to tighten your financial belt and still barely making a dent in your debt, it might be time to consider increasing your income. While taking a second job is a viable option, you could also consider taking the initiative to ask for a raise from your employer, especially if it’s been a while since your last pay bump and your work performance has been consistently on point. However, if you’re new to the company or your position, it would be wise to hold off on this approach.
Additionally, side gigs such as dog walking, driving for companies like Uber or Door Dash, babysitting, and cleaning can all help to bring in extra income, and you can work around your full-time job. Also consider selling items you already own on reselling platforms like eBay, Poshmark, Mercari, and Facebook Marketplace.
Lower Your Interest Rates
Lowering your interest rates would allow you to put more funds toward paying down debt. Here are a few approaches:
- Balance transfer: A balance transfer allows you to shift debt from one account to another, ideally one with a lower interest rate. Many balance transfer cards offer a 0% APR for a limited amount of time. Moving high-interest debt to a credit card with 0% APR can help you knock down that debt at a much fast clip than sticking with a card with a high APR.
- Consolidate debt: Debt consolidation involves combining multiple debts into a single monthly payment. Many creditors offer debt consolidation loans, which are created specifically for paying off debt. Their terms typically specify a repayment period with a fixed interest rate.
- Negotiate a lower rate with creditors: Some creditors will work with you to come up with a repayment method that might better help you meet your goal. This could be a reduced interest rate or a smaller minimum monthly payment. Not every lender will offer to help, but it’s worth the inquiry.
Debt repayment is usually a journey, not a sprint, but the steps outlined above can help to pay off debt faster. The sooner you start, the sooner you’ll be debt free.
