A business owner said the way to build wealth includes not having these three things:
A car payment
Credit card debt
A mortgage payment
He believes the fewer expenses you have weighing you down, the higher your chances of building wealth.
Is he right?
Well, he’s not wrong.
Though there are many ways to build wealth through leveraging credit (e.g., real estate), juggling a car payment and credit card debt are not ways to build wealth.
Credit Card Debt
Credit card debt is one of the most (if not the most) expensive debt types you can have.
The interest rates are astronomically high and are here to profit off your inability to afford the things you buy.
Instead of paying credit card interest because you’re buying things that exceed your budget, you could spend less, saving and investing money to build wealth for yourself and your family.
Before using your credit card, ask yourself, “Can I afford to pay off the balance by the end of the month if necessary?”
If not, rethink the purchase.
Of course, there are times when holding a credit card balance is necessary because you’re experiencing a financial emergency or inconvenience.
But your credit card bill shouldn’t have a balance because you’re consistently buying things you don’t need.
Non-essentials frequently fill up the credit card statements for American consumers; too many are paying countless high-interest fees on pointless sh*t they don’t need.
Car Payments Are Cash Drainers
Around 85% of Americans manage a car payment.
Lending Tree says the average car payment for new vehicles is around $725 monthly.
Why do this?
Unless you’re on track with retirement, have a fully funded emergency fund, and don’t have any other debts, it’s best to opt out of the $800 car payment or car payment period.
The Less You Have, The More You Have
Simple Fact: When you have fewer monthly expenses tying you down, you increase the amount of money you keep.
Many add additional expenses to their monthly budgets, and it’s easy to do.
Chopping expenses down monthly makes things appear more affordable.
But the more expenses you add to your monthly budget, the more you need to bring in to maintain that running monthly budget.
People with fewer expenses have fewer financial obligations, creating more freedom.
If they lose an income source, their anxiety levels are non-existent or mediocre because they don’t have a lot of monthly expenses weighing down their budget.
Instead, they can coast and take their time replacing their income source because they don’t need a replacement immediately.
The pro of having fewer expenses is how much money you get to keep month over month, which helps you build nest eggs for when you need them most (e.g., retirement, sabbaticals, job or income loss situations, financial crisis, etc.)
Can You Build Wealth Renting?
Some believe you can’t build wealth if you rent all your life.
But you can prioritize investing if you consistently live below your means. If you continuously increase your income, this will expedite the process.
Still, getting into real estate is a proven way to build wealth.
If you don’t want to own a physical property, consider exploring digital real estate to allocate part of your portfolio to this asset class.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.