Steps To Building Wealth

By
Real Estate Agent with RE/MAX

It's 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 doesn't make sense to go into debt to buy possessions that aren't assets, unless it serves a necessity like a car that gets you to and from work. That's 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 don't want them finding that all your free income goes to eating out and mall shopping. No matter how much money you make, you shouldn't 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. You'll be surprised at how quickly you'll 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 you'll 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, you're not going to touch the equity you've 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, you'll be able to buy a home in just over eight years, but it's likely that you'll 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.


Written by Blanche Evans

Comments (5)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Hello Sharon, these are very good list of steps to building wealth.

Apr 01, 2021 06:19 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information thanks for sharing.  I hope you have a great day.

Apr 02, 2021 02:50 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Good morning Sharon! Excellent information to share. Thank you for posting.

Apr 05, 2021 08:34 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Unfortunately, Americans lack the discipline to follow their financial game plan as evidenced by the statistics and it also appears that voters are depending on the government to maintain their lifestyles during their retirement. 

The swing to socialism has begun and IMO even if you are able to save, invest and get a good ROI, inflation will erode your assets and taxes will take a big part of your assets. Our country is changing and after socialism, the next step is communism, so, spend all your assets during your lifetime and hopefully my dire forecast will be totally wrong. Let's hope so! Regardless, an excellent post. 

Apr 07, 2021 11:36 PM
Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great information.   Thanks for sharing and have a wonderful day!

May 13, 2021 06:12 AM