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Banking, Credit Cards, Financial Freedom, Investing, Retirement, Saving, Wealth

Avoid paying interest and get rich

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If you use a credit card, you don’t want to be rich. – Mark Cuban star of “Shark Tank”

According to CNBC, Americans have an average credit card balance of $6,375 and owe a record breaking $1 trillion in credit card debt, which is the most ever recorded in history.

Investing that money instead could net you anywhere from $50,000 to $200,000, depending on how long you invest it and getting a return on investment of around 9%.

And that does not include an employer match or if you invest more. You could save and invest your way to a small fortune thanks to compound interest.

Here are some ways to avoid paying interest.

MAKE IT AUTOMATIC

I’m sure to many of your out there this is not new advice. However, how many people are actually doing this is another story.

Setting your bills up on automatic payments is a great way to avoid missing payments.

Credit card companies can levy a hefty fee for missed payments. The most recent I read was $38! Forget that. I rather use that money for gas or some other function. Anything is better than paying fees.

In addition, credit card companies can ratchet up your interest rate to 29.99% for missing a single payment!

That means almost near perfect timing of paying all bills.

The closest you can get to doing this is to make all your payments automatic.

Set up everything you can on autopay.

You can put the gym membership, cell phone, utilities and insurance payments on a credit card. Then set up automatic payments with your bank to pay that credit card off at the end of every month and you’re done.

PAY DOWN YOUR DEBTS

Paying off high interest debt is a must on the road to wealth.

Every dollar you spend towards interest cannot work for you compounding interest instead.

Think about it. If you pay $700 per month servicing debt and pay 50% of that in interest, that money is gone. Dust in the wind my friend.

If you can do the polar opposite, investing the entire $700 and earning interest instead, you have a clear path to building wealth over time.

That is the equivalent of $8,400 a year you are investing as opposed to using that amount to pay debt in which $4,200 goes to principal and the other $4,200 in interest and that money you never see again.

CONSIDER BANKING WITH A CREDIT UNION

If you read my posts, about the Unbanking of America and New Banking Rules: clear a check payment in a day, then you understand where I’m coming from.

Many may not know this, but credit unions are not allowed to charge more than 18% on loans or credit cards (unless you default).

The savings gain alone from not having to pay some credit companies 22-27% interest is huge!

You could save anywhere from $50-150 bucks or more per month with a lower interest rate. That’s another $600-1,800 per year!

Just something to consider.

REFINANCE YOUR MORTGAGE

If you can lower the interest rate on your mortgage, you can save $100’s or $1,000’s of dollars a year.

In addition, if you can change your repayment period from 30 years to 20, 15, or 10, then you can save a ton of money.  Maybe not tons of money monthly or right away, but over the life of the loan.

For example, a $250,000 mortgage at a 3.92% rate over 30 years will cost $425,533. You reduce that to 15 years and total output is $331,058. That is a difference of upwards of $100,000!

If you take that $100,000 and put that into index funds, you could have anywhere from $600,000 to $1 million dollars over 30 years with a minimum 6% return on investment.

Many folks will buy at least 2-3 homes in their lifetimes. If every new purchase resets your debt-free mortgage clock by 30 years, then you are likely to spend most of your working years in debt.

I hate to be the bearer of bad news, but this is actually the norm for most people.

You do not want to be normal. You want to be different and extraordinary because that gets results.

If more folks put down 10-20% and got 15 year mortgages, you would be better off in the long run.

Paying on one item for 30 years is a long time.

A lot can happen in 30 years. Heck, a lot can happen even in 10 years!

Retire that debt ASAP or as fast as you can.

You can build an in-law suite, swimming pool, and remodel the kitchen after the debt is gone and the home is paid off.

People used to have mortgage burning parties, after paying off their home. Let’s try to bring that back shall we.

I have recently read in the news personal finance experts expressing their concerns over mortgage payments that Americans are making.

Most wanted the debt paid just before you retire. Others said get rid of it in your 40’s. Like around age 45. Why you ask? Since, this is the point where you are halfway through your career, it is best to spend the second half of it working toward building capital to fund your nest egg.

That is excellent advice.

Basically, you spend the first 20 years paying off all you owe, and the last 20 years building up your retirement accounts you will need in your golden years.

SUMMING IT UP

All you have to do is follow these four steps and you can avoid paying interest or at least a whole lot less of it.

Remember these 4 steps:

  1. Make it automatic
  2. Pay down your debts
  3. Bank with a credit union
  4. Get a 15 year mortgage

Sounds pretty simple right?

Well, you would be surprised by how many people are not doing any of the things stated above.

Therefore, if you can start doing even one of these things now, you are well on your way to building up your bank account.

And in the illustrious words of Porky the Pig, “That’s All Folks!”

 

Entrepreneurship, Financial Freedom, Financial Independence, Investing, Self-Made Millionaires, Wealth

How Benjamin Franklin used 13 virtues to get rich

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“Tell me and I forget. Teach me and I remember. Involve me and I learn.” – Benjamin Franklin 

Benjamin Franklin is not only one of America’s founding fathers (known as one of the signatories the Declaration of Independence), but also its first millionaire.

He did this by investing in what he knew. That is how he built his fortune.

You can do the same to build yours.

I listen to what people have to say, but I always make my own decisions.

I research any industry I want to know and then focus on investing in what I know. I try to put my money where my values are.

I prefer consumer staples such as food, beverage, toothpaste, cleaning supplies, tissue, and other household items.

Companies like Proctor & Gamble, Colgate-Palmolive, Kimberly-Clark. Clorox, and PepsiCo.

You can find many of these companies included in many mutual funds such as any 500 index fund like the Standard & Poor’s 500 Index (S&P 500 index), the Vanguard 500 Index Fund Investor Shares (VFINX), the Fidelity Spartan 500 Index Investor Shares (FUSEX), the Schwab S&P 500 Index Fund (SWPPX) or the   T. Rowe Price Equity Index 500 Fund (PREIX).

I figured a good way to start my wealth journey was to learn about those that became wealthy.

Benjamin Franklin also created a list of 13 virtues to develop his character. This lets me know that your character is your destiny.

Here I provide you with his checklist. See which ones you can try to emulate to help you on your road to wealth accumulation.

THE 13 VIRTUES OF BENJAMIN FRANKLIN

In 1758, Benjamin Franklin published his essay The Way to Wealth.

Although, it was written 260 years ago, the advice still is holds up, even to this day.

Below is a copy of his checklist.

SPOTLIGHT ON FRUGALITY

My personal favorite is frugality because it includes all the other virtues.

Frugality is basically the will to spend money on what is important and avoiding spending on what is not.

Frugal is not being merely cheap or miserly like Ebenezer Scrooge.  See my post on Money Lessons I Learned from Scrooge McDuck. It is about saving money on things you do not really need.

Saving money allows you to put that money to work for you.

Imagine every dollar is a little soldier. What do soldiers do? They fight.

You have to fight for your money because everyone is trying to part it from you. Don’t let them.

Invest that money and each dollar (soldier) fights for you everyday 365/24/7. Even while you sleep.

FOCUS ON FRUGALITY

In this world, you’re on your own. Benjamin Franklin knew that. So, he set out to start a business in a field he knew. He was a printing apprentice and started a printing shop. He became an expert at that one thing and did it so well that people paid him for it.

He then reinvested the profits back into his business.

That is how he grew rich.

He knew to become wealthy, he had to ignore the charlatans or hype. He had to focus on himself and his spending habits.

And that is what you must do. Ignore the hype. Forget what everyone else says or thinks. Trust your gut.

FORGET THE FANCY SET OF WHEELS

You do not need a fancy car to make you happy. Ride a bike and get some exercise. Better yet, buy an inexpensive, older Chevy where the bumper looks like it will fall off any second.

Then people will be less likely to ask you for money, if they see you riding around in a clunker because they will think your broke, but it couldn’t be further from the truth.

It’s not that you do not like nice cars or can’t necessarily afford one. It’s that you choose not to spend your money on it. Sounds pretty good right?

And watch out for the hangers on. They tend to come around when your last name is followed by an M.D. or Esquire.

FORGET THE BIG HOUSE

You do not need a mansion to live in. You know what that does? It just causes you to spend more money to heat, cool, maintain, and furnish it.

You fill the home up with stuff. No one likes an empty corner. Every inch is piled high with stuff.

How is that stuff paid for? Usually with credit.

What happens if you need that money? For instance, homes need maintenance.

Do you know what the repair bill is for a roof on a mansion? Well, you don’t want to know. One thing we do know for sure is that it costs more than what you would spend on a smaller house.

What about PMI? Private mortgage insurance is what you must pay if you put down less than a 20% down payment. And folks, that money is on top of the insurance and a monthly mortgage payment. We aren’t talking chicken feed here. It can be hundreds of dollars per month!

What about property taxes? It can add hundreds or thousands to a monthly mortgage payment. That’s money that’s not working for you in the bank.

You want to be investment rich, not house poor.

Every dollar that goes toward the house, can’t be working for you in an investment account.

I know they say the value of the home will go up and your equity will increase as you are making the house payments. However, let’s not forget the 2008 housing bubble.

When that bubble burst, so did most folks equity. Foreclosure notices were going out in the mail all over the country. Many lost homes. And many have still not recovered.

FORGET THE DESIGNER CLOTHES

You know those people who say dress to impress. Well, that’s fine and dandy, if you can afford it. However, if you can’t swing it, then walk by the $400 clothing rack and head to the sales rack in the back. Forget sartorial superiority. Who wants to be the best-dressed poor person?

I now see more people walking around with designer purses today than I have seen at any other time I can remember. Who’s paying for it? Mr. credit card, that’s who.

I see people opening up store cards all the time.

They have so many different color credit cards in their wallet it looks like a skittles bag exploded.

Places are handing out applications for credit cards every, single day.

You must resist. Resist the urge to spend. Credit is seductive. The temptation is too great.

So you must decide, what is more important. Buying a designer’s clothing and paying for their summer home or funding your own future.

FORGET THE EXPENSIVE WATCHES AND JEWELRY

I read about an NBA player who had bought dozens of watches. And not just any watches, but Rolexes!

Just because. Well, hey, you know bosses got to be on time.

Do you know what those things retail for? Well, last time I checked, it could be anywhere from $2500 to $40,000 and up.

The guy could have started a college fund. He could have funded an entire small city of kids $1k college scholarships.

Who needs 30 watches? Someone who wants to know the exact moment they went bankrupt I guess.

FORGET THE EXOTIC VACATIONS

So you want to travel. That’s great. But unless you can afford it or do it on someone else’s dime (like for work).

You may just have to watch the latest episodes of House Hunter or any show on the travel channel.

I once read it is a great thing to go travel and see the world as it is a great education, it will only cost you: $25,000.

I think I’ll just read a good book on world travels instead and invest that money until it earns enough interest that I can pay for the trip with cash.

Here are some of my suggestions on traveling when your travel budget is on life support.

You want to see the northern lights in Iceland? See it on a YouTube video.

You want to go skiing in Switzerland, Aspen, France or Vail? Watch a travel show until you can afford it.

You want shopping sprees in Milan, Paris, Rome, New York’s Fifth Ave, or Rodeo Drive?  Focus on buying things that will appreciate in value. Clothes, once purchased, is money that’s burnt.

I know you watch the television shows and see all the families going to Disneyland or Hawaii. However, what they don’t tell you is how much it costs to go to these places. Lots of times the studio or the network is picking up the tab.

They do it for ratings. Because who wants to watch a show about people sitting on couches all day. They want to see the lifestyles of the rich not the broke and unknown. I say just stop watching those shows.

Focus your attention on earning and working. If your head is down working, you never can look up and notice what everyone else around you are doing.

FORGET FOMO (fear of missing out). It’s a myth.

I know plenty of people that go out, spend money, buy nice cars, big homes, fly to the islands, and go to lots of parties.

However, they are not the boss. They work a 9-to-5 just like everybody else. One missed check could cause havoc on their already precarious finances.

Many people are one paycheck away from being on the sidewalk.

Don’t be like them.

Practice the 13 virtues. Be frugal. Then you can live like no one else because you will actually be rich instead of acting like you are.

FORGET PRETENDING TO HAVE MONEY

Forget pretending to be rich. The only time bluffing works when it comes to money is at the poker table.

And you know what happens when the hand is over, the bluffing stops there.

So leave the bluffing at the table and check it at the door.

Remember that scene in the comedy movie Back to School with Rodney Dangerfield. He was a wealthy guy named Thornton Melon, but always said to his son: A man without an education is nothing.

There was one scene in the film where he was talking in class about being in business and all the things a businessman is doing to make it in the real-world.

The teacher disagrees with his assessment, even though he was coming from a place of information.

When the professor asks where to build the business after scolding Melon he replies, “How about fantasyland.”

When it comes to your money you cannot afford to live in a fantasy. You have to keep your feet planted firmly on the ground and your actions based in reality.

Earn money, save it, invest it, and get rich slow.