If you want to test your own financial habits against some recommended wealth-building strategies, the answers can help you start building wealth in your life. How is it possible that an ordinary couple with ordinary income has accumulated extraordinary wealth that they become a billionaire and retire at fifty?
This is the premise of David Bach’s Automatic Millionaire, one of the 12 best-selling books on personal finance. The strategy it presents is not as far-fetched as the story seems.
Instead of focusing on increasing your income, increasing your expenses, and looking rich, if you switch to saving money and invest wisely, you can become very wealthy, and sooner than you think. It’s easy to read, but it seems difficult for people to implement in today’s increasingly materialistic and credit-oriented culture.
As a regular on the Oprah Winfrey show, David Bach is no stranger to the personal finance industry, at least in America. But what sets him apart from many experts is the simple strategies he shows that anyone can do to become debt free and build wealth throughout their life.
Here are six questions you can ask yourself to start your own personal wealth building strategies and end up rich in your life.
1. Do you want to be rich?
This is not a trick question. But the real question is wondering WHY you want to be rich.
If you are clear about your goals, you wake up hungry for it to happen and are more likely to get the work done and make the sacrifices to achieve them.
two. Do you pay yourself first?
This is financial decision number one, but few of us make it, and we certainly don’t. automatically. When you earn a dollar, the first person to be paid is YOU. Paying yourself first means setting aside money for your taxes, your retirement accounts, your savings, many of which are tax-free!
The rule is to pay yourself an hour a day of your income (around 10-15%) invested automatically for life. (The average household actually saves just 10 minutes of their earnings a day, about 2%, which is both shocking and scary.)
3. Do you know your Latte Factor?
The average American and probably the European spend around $ 10 a day on incidental purchases, like buying a latte and cake before, during and / or after work, maybe a pack of sandwiches or a salad and a drink during lunch. If not, it’s a magazine or a bonus CD, buying chocolate at the gas station.
That $ 10 per day equals $ 3600 / year (assuming you will somehow have a latte factor not just on weekdays but on weekends as well). If you put it aside, it will really increase, and this will blow your mind.
Calculate it at 8% annual growth, over 35 years, which is actually a staggering $ 1,385,505, over a million dollars, for coffee. Wait five more years, and that would be a whopping $ 2,108,569.
The strategy here is to become aware of what your incidental ‘latte’ purchases are and reduce or eliminate them and instead pay yourself first with them.
Four. Do you rent or own?
If paying yourself first is your number one financial decision, then your number one investment decision is buying your own home. It is the best wealth building strategy that you can use. Homeowners have 40 to 50 times more net worth than people they rent.
A secondary strategy is to pay off your mortgage debt as soon as possible by making overpayments, thereby saving huge amounts of money on interest that would otherwise be paid. But a third of this is that once you’ve paid about half that, you use the equity to buy another property of the same value and rent it out.
For a 15-year fixed-rate mortgage, interest rates are as low as they likely will ever be, and it’s easier than ever to profit and build wealth over your lifetime. In fact, using a biweekly payment plan could save you more than six figures in interest over 15 years!
5. Do you have debts?
If you are going to work really hard to earn money, you need to make sure you have a plan to keep it! The only economy you can control is your personal finances, so reduce your debt by paying it off early and little by little. This is easier and less stressful than trying to pay large lump sums.
6. Do you return?
When your personal finances are stretched, it seems very difficult to consider any level of tithing. But it is a healthy habit and it rewards you in many ways. It is another type of wealth. When you feel happiness and fulfillment on a deeper level, you are much more open to opportunities than you would otherwise notice.
