6 Steps To Creating A Foundation For Wealth
Creating wealth isn’t as hard or complicated as you might think. It’s not so much about how much money you have, it’s more about financial planning and using knowledge and systems to leverage your money effectively. There are six very simple things you can do to start you on the path to wealth.
CHECK YOUR CREDIT REPORTS
It’s imperative that each of us get a print out of our credit report from each of the “Big 3” credit reporting agencies every year. The government has passed a law that makes our credit reports available once a year for free from AnnualCreditReport.com. This is the only site that will provide a copy of each of your credit reports at no cost to you, from each of the “Big 3,” once a year. You will not get your credit scores though; scores are computed from an algorithm that is unique to each company. Everything including your name, address, accounts, etc. should be correct. If you find any errors, make sure to contact the agency via the Internet or a letter. Once you contact the agency, they will investigate your claim. If they find the report contains errors, the agency will take the information off of your report or update it.
Tip: Nothing in life is free. Any company offering you a free credit report and/or score is more than likely trying to sell you a monthly credit monitoring service. Read the fine print.
FIGURE OUT YOUR NET WORTH
The next step is to figure out if you have a positive or negative net worth. If you’re succeed at creating wealth, it’s important to know your starting point. Your net worth is computed by listing all off your assets (things that you own that have financial value, such as your home, car, money in the bank) and subtract all your liabilities (any and all money that you owe) to find your net worth.
Tip: If you own a home, have attended college, or have credit card debt it’s a safe bet that your net worth is going to be negative. No worries. It’s important to know where you’re starting from so you can chart a path to wealth.
CREATE A SPENDING PLAN
Writing things down is good. I’m sure you have a general idea of how much money you’re expecting from jobs, financial aid, etc., but unless you do make a plan on how to spend it, the money will pass through your account, and you’ll have no idea what happened to it. Have you ever taken $20 out of the ATM and the next day you have no idea how you spent it? That’s what will happen to your income unless you create do some financial planning to spend it and cover all the things you need to spend money on. Paying yourself first is an essential key to creating wealth. Your spending plan should list income at the top. The first spending category should be Emergency Fund and the second category should be Retirement Fund. Your expenses for housing, transportation, food, and utility bills should be adjusted to make sure that you can always pay yourself first.
Tip: Making the plan before you actually have the money is the key to putting the spending plan into action and creating wealth.
MOVE YOUR MONEY
Credit unions are financial institutions that offer the same products and services as traditional banks, but they are not-for-profit. The only purpose of credit unions is to serve the community; each credit union member loans money to the other members. Credit unions tend to be smaller, offer more personalized service, and offer better rates on loans. Moving your checking and savings account to a credit union could potentially save you thousands of dollars over your lifetime.
Tip: Credit unions are part of the co-op system that allows members to take out money at more than 28,000 ATMs nationwide, making it the largest ATM system in the US, including 7-11 ATMs. Visit America’s Credit Unions to find a credit union in your area.
START AN EMERGENCY FUND
Remember when we talked about paying yourself first? This is where we’ll expand on that concept. Ever heard of Murphy’s Law? It states, “Anything that can go wrong, will go wrong.” It’s up to you to make sure that you have at least $500 in an Emergency Fund at your credit union or bank because there will always be something that you need money for unexpectedly. Having at least $500 in an account that you can have access to when times are rough might be the difference between having to borrow from a family member or take out a cash advance loan or being able to borrow from your stash and go on about life without being a hindrance to anyone. Start by opening a money market account at your credit union or bank and then add $20 a week to the account until you have at least $500.
Tip: One of the keys to creating wealth is to pay yourself first any time you get money. Put away a little at a time and don’t touch it unless it really is an emergency.
OPEN A RETIREMENT ACCOUNT
We cannot afford to let our partners or the government be responsible for our retirement. It’s imperative that we start financial planning and putting away money so we don’t have to work until we can no longer work. If you have a 401k or 403b at your job start contributing to it immediately. If you’re already contributing to it, increase how much you contribute. A few extra dollars now, through compound interest, could add several thousand more dollars to your retirement fund. If your job doesn’t offer any retirement funds, you can open an Individual Retirement Account (IRA) with no money by setting up an automatic deposit from your checking account to your retirement fund with as little as $50 per month. The process is as easy as filling out a one-page application and sending in your credit union or bank checking account information. If you’re not sure where to open an IRA, speak with a fee-only financial advisor.
Tip: Set up the account so that the money is added to the retirement account automatically every month from your checking account.
CELEBRATE EACH STEP
As you’re doing the work for creating wealth, your family, and your community it’s important to celebrate each step in the process. Once you’ve determined your net worth, reward yourself with an ice cream cone. Every time you contribute money to your Emergency Fund at your credit union, do a little dance. You should be proud of yourself. You’re taking the steps necessary to create wealth for yourself, your family, and your community.