Hello and welcome back for Part 3 of our 3 Part blog series on building wealth on a small salary. If you’re ready to get some more excellent advice on how to build wealth, even if you’re not making a huge amount of income, get comfortable and let’s get going! Enjoy.
Staying out of debt, or paying down your debt as quickly as possible, should be one of the most important goals in your financial life. “Bad debt”, like credit card debt that charges very high interest rates, should be at the very top of your priority list to pay off because it will keep you from making progress on your other financial goals.
While paying down debt is important, it’s also important to have an emergency fund set up so that, if something happens, you don’t go further into debt to pay it. Car repairs are great example. No one really plans for a major car repair expense and, if you don’t have money set aside to pay for it, it can ruin any financial planning that you’ve made.
Experts believe that, when you’re paying down debt, it’s best to use 50% of the money that you have to pay down your debt on an emergency fund instead. So, for example, if you have $400 a month to pay down your debt, you should use $200 to pay that debt off and the other $200 should be put into your emergency fund until it’s equal to six months’ worth of pay. (12 months is actually better.)
Once your debt is paid off you should then keep your credit cards open but use them extremely sparingly and pay off any charges immediately when the bill comes due. This will help to keep your credit score high and keep those accounts from being closed for non-use by the card issuer, something that can actually lower your credit score.
Next is, however possible, to increase your earnings. There are basically two ways to increase your net worth: spending less and saving more is the first, and the second is to earn more money.
One of the best ways to do this is to find part-time work. This second “income stream” can be used to help you pay off your debt, put more money into a retirement account or, if those goals are being met, can be used for fun things like vacation, new clothes and so forth. (But only if your other financial goals are being met.)
This can also include looking for investment opportunities that might come your way. Owning a second home that you rent out, if it’s financially feasible, is a great way to increase your financial streams and build equity at the same time. Selling things on eBay that you buy at garage sales, finding part-time work online in your particular industry and many other opportunities exist to increase your income, especially if you have some spare time during your day to do it.
Our final bit of advice for building wealth on a small income is to consider consulting a financial expert. While you’re already doing yourself a big favor by reading these blogs and doing research on your own, the fact is that sitting down with a financial expert can be extremely helpful in giving you some perspective and helping you to see the “big picture”.
Simply put, when it comes to finances there are a lot of emotions involved, and having a little bit of professional accountability, and an outside opinion, will help you to look at your finances much more objectively.
We hope you’ve enjoyed this 3 Part series and that the advice and information was helpful. We also hope that you now realize that it is possible to build wealth even if you aren’t earning income like a Rockefeller if you just put your mind to doing it, create good financial habits and stick to your plan consistently.
Of course if you have questions you can always contact us via email and we’ll get back to you ASAP with advice and answers.