There are a few strategies I will be using to building wealth and I will be laying them out for all to see. I have just begun this journey so these strategies are only about a year old but have already been working and improving our net worth. I believe it is very important to have a plan and execute that plan to accomplish whatever goals you wish to achieve. These are pretty basic and for the most part general knowledge but it may help to see what I’m doing to achieve my goals.
- Cutting Expenses – This one is the first listed Item for a reason, I believe it is the most important on this whole list due to the fact that we absolutely need to live below our means in order to accumulate funds that can be allocated towards debt or investments. If we are not diligent in cutting expenses than our money may be going to waste on things we don’t need (cable, restaurants, newest clothes, etc.). Cutting expenses can be done by almost anyone even if its just going out to eat one less time a month, which can save up to $50 for 2 people depending on the restaurant for one example. That $50 can add up to $600 a year which can be turned into $30 a year in income for life by investing into a stock with a 5% dividend(I like to look at things as future income for life). It doesn’t sound like much but it wont be that hard to eat at home one extra meal a month for the whole year.
- Paying Down Debt – A huge step in increasing wealth is eliminating debt completely in fact some people define financial freedom by being completely debt free. Our personal situation with debt needs to change I think we have way too much which means we are paying too much interest which could be going towards creating income for life rather than paying interest out. If we were able to eliminate consumer debt we would be able to put $150 more towards investments or $1,800 a year that could create $90 a year for life with a 5% dividend.
- Dividend Growth Portfolio – This one is the golden ticket for me, I am a strong believer in having a dividend growth portfolio. It all starts with the snowball effect theory, which is defined as something that starts small but builds on itself at an increasing rate.(picture an actual snowball getting larger as it rolls down a hill) Albert Einstein has infamously named the power of compounding interest “the eighth wonder of the world”. dividend growth is truly a power to behold as long as your reinvesting the dividends back into more dividend growth stock. A tool I love to play with is located at dividend ladder‘s site, there you can type in some realistic numbers and just watch the numbers increase at an incredible rate as time goes on. We are still young so I plan on staying disciplined with contributing to our portfolio and watching it grow as time goes on.
- Peer to Peer Lending – For greater returns right now I plan on contributing some funds to my Prosper account. I have a very new account(opened one month ago) so I have not even received a single payment yet but Ive done enough research to expect anywhere from 7% to to 13% in seasoned returns. Seasoned returns are notes purchased more than 10 months ago, the reason its important to consider seasoned returns is because there will be losses like with almost any investment and that has to be accounted for when calculating total return. The reason for even doing peer to peer lending is so I can diversify my strategy but it also will have the compounding effects of applying all interest back into more notes.
To sum it up I will basically be cutting expenses, eliminating debt and creating passive income to achieve financial independence. Now the hardest part in this whole journey will be to have the discipline and commitment to execute the plan.