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You Need These 4 Steps to Get Out of Debt and then Start Building Wealth

You Need These 4 Steps to Get Out of Debt and then Start Building Wealth

You Need These 4 Steps to Get Out of Debt and then Start Building Wealth


There are fouractions to be completed together in order to get out of debt. As for building wealth you must first have a plan to and be committed to completing the steps to get out of debt first then focus onfinancial freedom. Briefly the steps you need to achieve are money mindset, reducing your expenses, knowing which debt to pay down first and investing for positive cash flow.

Step #1 Get out of debt starts with your financial education;

To become debt free your entire attitude towards and relationship withmoney, spending and investing needs to be changed to that of a millionaire mindset. Your money mindset needs to be re-conditioned for today's economy and financial education is the answer. The best advice is to attend a Millionaire Mind Intensive seminar host by T. Harv Eker. At this 3-day event you'll learn how to implement agreat money management system. If you've attend an event or read my review at Applying Wealth Education you know how simple it is to become a master money manager. This event is the start of your financial education and it will expand your mindset to start creating passive income. You will begin to recognize what has been holding you back financially and the opportunities right in front of you.

Gaining any financial education about how to get out of debt is a critical but knowing how to manage your money properly is a must have skill setfor building wealth and remaining debt free. Want to know how your money skills measure up today? Just look at your bank account and credit card debt. Before you start any get out of debt action, your first need to build a strong foundation around your money management system that can grow with your future wealth. Learn how to manage the small amounts of money first because once you are out of debt or start receiving more money there are no guarantees you will keep yourself on the plus side for very long unless you are a master money manager. After all that's how most of us got into debt in the first place, we thought we already knew what to do.

Steps #2) Get out of debtbyreducing expenses;

There are two important points about reducing your expenses. First the money you stop spending today shall go directly to paying off your debt. Second this "not spent money" will now be managed properly (with the new skills you have from step 1) to generate positive cash flow investments as part of your financial freedom plan. Either way you must start today. The money you commit to not spend is actually a payment to yourself for your future freedom of not having to work anymore.

How do you reduce your expenses? Like everyone else to start you need to know and understand where all your money is going first (that sounds like money management). My advice is to track you spending each month in detail for a few months. There are a lot of great on-line budget spreadsheets out there for free but please make the effort to tailor one to your specific spending habits, do not skip anything. The simplest way to track spending is to get a receipt for everything you buy and organize them in an envelope with this month's bills. If you don't get a receipt then just write a short note on a slip of paper of the item and it's cost. Each month organize all spent items into two piles the must have and the nice to have. Once you have your spending trend for a month you can easily pick out the items that are "need to survive" or your true necessities to live. With these necessities of life you have to ask yourself a can I save on this "life expenses"? It's okay to have necessities but reducing the cost of these "life expenses" can boost your bank account quickly. Just finding a better priced insurance company saves you $25/month or look into using coupons for shopping can reduce your expense significantly. Bottom line get a handle on reducing the costs of must haves in your life otherwise these will just keep increasing. But do not forget about the others on your spending list. These are the "nice to haves", much like the three cups of coffee a day at $5 each (that's over $5,000/yr). Do you really need 400 plus TV channels? The obvious answer is these have to go and some of these are heart breaking decisions but keeping these unnecessary habits are simply leaking money from your bank account. Now some people right now are thinking about moving onto something less truthful or maybe more exciting but they are going to miss the point. With the money management system and financial education you gained previously, you actually set aside a small amount all income for play money to spend guilt free (that's one of the rules you'll learn about). Let's see, the better the money manager you are the more fun you can have.

Reducing expenses comes down to simply find out what you are spending your money on, your habits, determine if you need it to survive and take action to eliminate the habits that are bringing down your bank account. Remember the goal is to create some positive cash flow by having less expenses in order to pay down debt faster. Make a budget for your necessities and stick to that budget. Plan to be budgeting with a surplus of cash at the end of each month to cover any unexpected emergency.

Step #3) Get out of debt by knowing which debt to pay first;

So far you have learned to manage your money better, reduced your expenses and thanks to that you have extra cash to accelerate paying off debts. But which ones first? How should I pay down debts? First and fore most you must make sure each month that the minimal payments are completed for every debt or loan. This will help to increase your credit score and to help reduce the expense of re-payments by allowing for the potentially lower interest rates. Now you can decide which debt or loan gets the extra payments.

There is a simple but important rule to follow here to get out of debt fast, you want to pay down the debt with the lowest debt to minimal payment ratio. So take the amount still owing divided by the minimal payment gives you an idea of the number of payments left. What this means is the minimal payments are paying down more principle of the loan than interest which in turn means you can eliminate that debt quicker. Think of it this way, which debt has the fewest payments left so your extra money is put to the best use first in reducing overall debt. Making the extra payment on the right loan is going to accelerate the re-payment process even more by making more cash available to pay off additional debts. Then you target the extra payments on the next lowest ratio debt to payment and this time you use the funds that would have gone towards the first debt plus your expense reduction money to pay off this next loan even faster. This debt re-payment plan will snowball and get you out of debt. Getting out of debt is not an overnight event it is going to take time and committed consistency on your behalf to gain financial freedom.

Step #4) Get out of debt by creating positive cash flow;

Many people do not realize the importance of positive cash flow investments where an asset puts money into your pocket each month as opposed to a liability (negative cash flow) which costs you money each month. Because of this people often fall into the trap of investing in things that may someday turn some a profit but until then they are paying out every month to keep this liability. That's one way to become a debt master.

Investing for money growth has two aspects, the first being the capital gains from a return on investment and the second is cash flow resulting from the positive cash returns of an investment. Both are important strategies to understand and should be a part of your financial education activities connected to step one. Saving your money and paying off debt is great but it will not make you wealthy. Building wealth means your money must be working for you to increase your bank account each day without your efforts. Sure there are low paying interest bank accounts that claim to "grow your money faster" than any other bank but that's not enough to achieve financial freedom. Do you know about the rule of 72? Basically divide your interest rate of return into 72 and the result is how many payment periods it takes for your investment to double in size. Let's see, a saving bank account at 2%/yr means 72 / 2 = 36 years for your savings to double. An investment returning say 12%/yr doubles your money in just 6years.

The differences between capital gains and positive cash flow are important to how you manage the money. First, capital gains is basically invest (buy) low and cash-out (sell) high, that's over simplified but it is a one time cash-in and cash-out scenario. As for cash flow your investment money now buys into an asset which gets small payments back over a period of time that pays off what you originally put into the invest plus more, this grows your money over time and typically you can sell off the asset at anytime if you really need the invest money back quickly. It is very important that an asset investment generate positive cash flow meaning that the income must exceed all your costs related to that asset for each month. Planning and managing an asset to remain as positive cash flow is financial education worth learning.

With these four main aspects and knowledge on how to get out of debt, plus some basic financial education you can start building your wealth today. Remember first strengthen your financial education by attending a Millionaire Mind Intensive seminar near you for a money management system that works, I am proud to provide a free scholarship to the event for you (because I know it will change your life) just follow the link below. Money management and reducing debt are the big steps so get yourself a planned budget and stick to it. Be financially smart with which debt to pay first and get the most out of your extra payments to be debt free faster and onto building wealth. Start researching how to and where to invest your money for greater growth, find a means that fits you and become a financial master in that topic because you are in control of your financial freedom.
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You Need These 4 Steps to Get Out of Debt and then Start Building Wealth Copenhagen