Let’s face it: most of us have debt. The PEW Charitable Trust reports about 80% of us do, and, sadly, most of us also believe debt is a necessity.
While certain debt may be a necessity, such as a mortgage, ALL debt should be considered temporary. And there is still plenty you can do to build your wealth. Think you need to make the big bucks for this to be true? You don’t!
The American Consumer Council put together a short video with financial planner Kim Curtis on how to pay off debt while building wealth:
Here’s what to do:
1.Know the Difference Between “Good” Debt and “Bad” Debt
A general rule of thumb when it comes to debt is this: if the value goes down over time, avoid that debt.
Debt where that value usually increases includes: mortgages, student loans, business loans and real estate loans.
2. Set SMART Goals
Don’t just set goals, set SMART goals. SMART stands for specific, measurable, attainable, relevant and timely.
Example: have $1,000 emergency fund in my savings account in 3 months.
When setting your goals, start off with short-term goals. As you hit those goals, you can start building bigger goals.
3. Have a Spending Plan
It’s time to create a budget if you haven’t already. You need to figure out what money you need to pay bills, what you can save and how much spending money you have leftover.
There’s a good chance you can cut that spending budget over time. Make it a goal each week to cut spending by a certain dollar amount. This might mean giving up the morning Starbucks, but it will start to add up.
4. Have an Emergency Fund
Most people wind up in debt because they don’t have an emergency fund. You can start off with a small goal, and then build from there. When you hit $500, aim for $1,000. Keep doubling it until you’re comfortable. A good end goal is to be able to sustain yourself for 3 months without income.
Don’t forget to track your progress! Once you start hitting monthly goals, look at yearly and beyond.