Consumer debt has simply become a way of life for most Americans. The availability of credit for everything from cars and furniture to gas and groceries makes it easy to live beyond our means, and the banks are more than happy to collect interest on every dime you spend. But living on credit and debt is one of the greatest obstacles to personal wealth. Here are five steps to making yourself rich without debt.
1. Take Control
If you have significant consumer debt now, take control of it immediately. Destroy your credit cards and create a plan for eliminating the debt as quickly as possible. There are four basic options for taking control of your consumer debt — pay as agreed, settle with the lender, legal bankruptcy, and constructive bankruptcy. Paying as agreed will preserve your credit score. If your score is already low, consider one of the other options.
2. Tighten Your Budget
Review every penny that you spend in a month and cut out those things that just aren’t necessary. Put the extra cash to paying off high-interest debt and save the rest. Be serious about controlling expenses — you don’t need both expanded cable and NetFlix, credit monitoring is a waste of money, and coupons can save you a fortune when shopping.
3. Save Up
Whatever you want to buy — cars, TVs, whatever — save up to buy them. Period. If you don’t have the cash for it, you don’t need it, at least not right now. Prioritize the things you want and need, and build a savings plan into your budget. Also, consider selling off stuff you “had to have” but never use to pay for new items.
4. Make Your Money Work
Savings accounts are a good place to start stashing away cash, but don’t leave your money languishing there for long. The way the rich get richer is by making their money work for them…and you should do the same. Avoid investment traps that take the control of your cash away from you and evaluate multiple options before you commit to anything. And remember — diversifying is better — don’t put all your eggs in one basket.
5. Work for Yourself
The single best way to improve your permanent financial situation is to work for yourself. Entrepreneurship means the money you earn goes into your pocket…as does a chunk of the money your employees earn for the company. You can use your savings to fund your startup. You are your own best investment!