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2 Debt 1ST Step to Wealth – Debt Control
Debt control – Your first, critical and most important step to wealth
Today, Part 2: 1st Step to Wealth – Debt Control, the 2nd of the 4 part White Top Investor lessons on Wealth Building.
Without control of debt you and your family have no hope of being wealthy. Learn this and teach your children to begin their path to financial security.
Last discussion, Part 1: 3 Wealth Building Steps, we touched on the three proven steps to wealth established over many generations by many families. Additionally, any self-made person wishing to pass on their success must give this knowledge to their children. This Part 2 of the White Top Investor lessons on Wealth Building discusses the impact of debt control on wealth building. Links to all four parts of the White Top Investor lessons on Wealth Building are at the end of this post.
Today, we further look at that 1st step, debt control.
Borrowing and debt control
– borrow the least
– pay back as fast as possible
Avoid debt when and where possible. Borrow when you must, but borrow the least. Borrowing the least means accepting loan amounts well below what the bank will actually lend you.
Borrow for growth, not consumption. Use good debt to make investments or acquire assets that have a good prospect of growing or realising greater future value.
Bad debt fuels consumption. Borrowing to consume has the effect of ballooning your costs. That can prevent you from ever achieving financial security or wealth.
Borrowing to grow – good; borrowing to consume – bad
You may want a mid winter trip to sunny climes but at what cost? Will you give up a piece of your financial future for such a trip?
Loans borrowed for consumption can only be paid off with future income. Paying with future income costs you more and hurts you for months or years ahead. It can slow or cut possible contributions to your own future security. Borrowing to consume eats your financial security.
Credit cards – a useful but dangerous alley
Credit cards are very useful. This consumer ally comes with a big risk. Used improperly, credit risks your future. Make certain that you pay any balance owed, in full, on time, each month.
Carrying credit card debt poisons your future. It is an extremely expensive and wasteful luxury that you can never afford.
Get rid of it. Credit card debt makes growing wealthy impossible. Treat it like toxic waste; something to get rid of as fast as possible.
Debit danger
Debit cards also offer potential danger. Debit cards allow spending without the psychological pain. That permits high risk behavior. Parting with cash has a real psychological ‘cost’. That helps keep money in our pocket.
Consider keeping your debit card in your pocket. That can help you to control any impulse spending tendencies.
Use cash for consumption
Pay for consumption using cash. Paying by cash does great things for your head. Paying cash lets you really feel the psychological cost of an item.
When you save and pay cash, you receive the psychological reward or satisfaction. You realised a savings goal. You will really feel and reinforce the pleasure of your hard-earned purchase. You will appreciate it more.
Student debt
Student loan? Good idea.
Investing in yourself is the best investment that you can make. Just make sure that you are investing.
Don’t spend a student loan on entertainment or for indulging yourself.
Yes, be all you can. Yes, pursue your dreams. But do so on your own dime. First, work towards getting a job.
Begin by securing the education or training needed to get a paying job.
Financing academic pursuits that offer no possible payoff or employment, takes away from your own future security.
When borrowing for an education, invest the funds well. Borrowing to invest in your education brings with it the obligation to think the process through. Do so before you begin your studies.
Will your chosen academic path pay off with employment?
Should you wish to begin your academic pursuits with a course of study that offers no reasonable prospect of employment, you are consuming your own future. The dollar and time costs are very high.
You are free to choose such a route. But do not expect financial security or wealth by doing so.
While at school, are your student expenses really at a minimum? Do you really need a spring break trip? On borrowed money? Live like a student; spend like a student. Significant lifetime payoffs reward this approach.
New peers
Peer pressure to spend? Get new peers.
Cars fall in value
Do you need a car? Why not used? Much cheaper. Choose from millions with proven performance and service records. Every color, feature, condition and quality you can imagine sits on a lot near you. Available at much lower cost.
Every year car dealers have to move a fleet of low mileage lease returns. There are many good deals among these well maintained vehicles. Choices range from economy to extreme luxury.
Just don’t use the price break of a used car to blow your wealth building plan. Shifting your purchase to a higher end or more expensive used vehicle undermines the plan.
The idea is to spend less money now; not blow the plan by acquiring more or larger depreciating assets.
Buy the house you need
House buying? Apply the same type of thinking as when looking for a car.
Don’t think of the largest house that the bank says you can afford. Rather, get what you need. If you are serious about building wealth, every choice you make, matters.
Wealth building decisions affect everything in your life
Carefully consider your housing needs as separate from your wants. You can justify any location, room, space or feature that you want. Do your choices slow your journey to financial security and wealth?
Real estate is a major asset purchase and a real investment. It is not necessarily a guaranteed or the best way to build wealth. That is not a knock on real estate. It is a caution.
Math “proving” real estate never declines has serious flaws. Give it a good hard look before you sign for that large loan.
For your own benefit, buy what you need and no more. If you are serious about building financial security and true wealth, always look long-term.
Getting rich is a full-time job that you can make fun and profitable
What are you doing to control debt? Let’s talk about it.
Next in Part 3 we discuss Wealth Building Step 2 – Save, Pay Yourself 1st
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Have a prosperous day!
Bryan
White Top Investor
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WhiteTopInvestor.com
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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact [email protected].
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Links to the White Top Investor lessons on Wealth Building
Part 1: 3 Wealth Building Steps
Part 2: 1st Step to Wealth – Debt Control
About the Author Bryan Kelly
Bryan Kelly uses White Top Investor to share his extensive investment knowledge and experience. He introduces strategies like the No-Worry Investor and the Index-Plus Layered Strategy, which encourage investor growth through personalized investment plans aligned with their unique circumstances and goals. By helping investors make money work for them and avoid common pitfalls, he aims to support the individual growth of wealth-building investors who can create secure, comfortable financial independence. With decades of experience, Bryan is committed to making stock market success accessible to anyone ready to take control of their financial future. The About page shares the story of his daughter's question that inspired the creation of White Top Investor.
