Real Estate News

Steps To Building Wealth


Written By: Blanche Evans
Wednesday, June 20, 2018

Its never too late to secure your financial future. At BuildingWealth.org, a public service offered by the Dallas Federal Reserve, you can learn how to reach your life goals by budgeting, saving and investing, building credit and controlling debt.

When you understand the difference between assets and liabilities, you know that owning a home, contributing to a retirement plan, and creating savings are all assets in the making because they increase in value or provide a return. Automobiles, clothing, smartphones and furniture are not assets because they depreciate in value. Liabilities are debts that you owe to credit card companies, mortgage lenders, hospitals, etc.

It doesnt make sense to go into debt to buy possessions that arent assets, unless it serves a necessity like a car that gets you to and from work. Thats why lenders look at your credit history to see how sensibly you spend money and if your finances fall within their income-to-debt guidelines. You dont want them finding that all your free income goes to eating out and mall shopping. No matter how much money you make, you shouldnt have more than 42 percent of your income going to pay liabilities and that should include credit card debt, rent, car payments, student loans, etc.

So the first step is creating a budget that enables you to save money. Track your spending and see where money is wasted so you can cut back and create savings. If your company offers a 401K plan, contribute as much as you comfortably can. Give yourself a goal to eat out once a week instead of five times a week. Youll be surprised at how quickly youll build savings.

Owning a home is one of the foundations of wealth. With rare exceptions, the longer you own your home, the more equity, or ownership youll have. Equity is created three ways - when your home rises in market value, when you pay down or pay off your liability, and when you make repairs and improvements that raise the value of the home.

Home ownership is like a forced savings account. Until you sell the home, youre not going to touch the equity youve built unless you take on a liability by refinancing your mortgage to make improvements.

To figure out what you need to do to buy a home of your own, you should create a budget and a gameplan and then calculate how long it will take you to save the amount you need. If you want to save 20,000, that will give you a 10 percent downpayment on a 200,000 home. Saving 200 a month, youll be able to buy a home in just over eight years, but its likely that youll save much more per month as your income increases, your spending habits improve, and your investments start to show returns.

All it takes is time and money.



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