Wealthbuilding: A Consumers Guide to Making Profitable and Comfortable Investment Decisions
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The powerful take-away from this example is that actions that reduce your debt or increase your assets i. Please note that this does not mean that going out and taking on a debt and paying it off is a good thing; if you already have debt, then it is good to pay it off. One of the most important things you can do to improve your personal income statement is to continue to keep your expenses low, pay down your debt, and seek returns on your money commiserate with your level of risk tolerance see example below.
Cut out non-essential expenses Pay off high-interest, non-tax deductible debt i. Build an emergency fund of months of expenses. Some of the steps can be done simultaneously e. As for building up your month emergency fund or immediately paying off high-interest non-deductible debt, the answer depends on your current financial situation. If you have a good support system i. There are two general methods to paying off debt: pay down balances with the highest interest rate first also known as the avalanche method or pay off loans with the lowest balance first also known as the snowball method.
For example, assume I had the following debt profile:. If I use the avalanche method to paid off my debt in order of descending interest rate i.
Even though I would likely pay more in interest with the snowball method, I would likely feel more forward momentum by paying off my small balances first, increasing the chance that I actually follow through in paying off all of my debts. I can tell you from personal experience that paying off your debts is simply exhilarating and liberating! When should you consider your personal income statement to be in good shape? Here are a few criteria:.
Building wealth is the ultimate goal of financial planning. While most people struggle living paycheck to paycheck creating positive cash flow and some are able to pay down debt and save towards retirement creating net income , only a few take the necessary steps to truly build their wealth. Unlike the cash flow and income statement, which represent flows, the balance sheet i. The size of this pool is determined by your Assets things you own that have value - Liabilities i.
Take a look at the chart below which shows median wealth in the US for different age and educational attainment cohorts. People have different goals for growing their net worth. Some want to be able to retire comfortably and not run out of money before they die. There are tons and tons of books out there on increasing your wealth and the ones I have read are quite good. With that said, I do want to leave a few tidbits for wealth-building that you can take away without having to read several-hundred-page books:.
A car is a depreciating asset often with a matching liability debt where you incur interest charges and have to pay large transfer taxes at the time of purchase. Cars also require a great deal of maintenance and on-going costs to operate.
This is my fancy way of saying that cars are expensive things that people tend to take loans out for even though they depreciate and are expensive to maintain and operate. If you are going to buy a car, consider getting a pre-owned vehicle where someone else has incurred much of the depreciation. As you can see in the chart below, cars depreciate very rapidly in the early years and most lose half their value by year 5. I am a fan of owning real estate. As you can from the chart below, there is a generally positive relationship between highest level of educational attainment and median earnings while those with more education are also less likely to be unemployed.
If you are thinking about going to grad school, then I would be very calculating in choosing a program. Learnvest has put together a pretty easy calculator to determine the ROI of grad school here.
Tristan Walker is All In
Another way to consider whether grad school is worth is to consider the payback period for your tuition and lost wages. Despite their high costs, MBAs from top schools have a payback period of only years. Starting and growing a successful business can grow your net worth significantly and you can do this without having to leave your day job. Even a modestly successful web-based business can generate significant cash flow, provide tax benefits, and be worth times your annual revenue. Some of the tax benefits of operating a business are using pre-tax dollars to pay for qualified expenses that serve a business need i.
The method for valuing businesses can be especially lucrative for your net worth. Business valuations use a variety methods including a revenue multiple, a discounted cash flow analysis, or comparables. For a modest web-based business, a revenue multiple is the most likely basis for valuation. But we do know subconscious processing can be very effective. Our emotional processing also comes from our subconscious. The best of our subconscious feelings rise to awareness in our conscious mind.
We have an astounding ability to process challenges by sleeping on them. Doing so often produces clear, reasonable and useful answers. Our subconscious thoughts can be positive or negative, help us or hurt us. Once we become aware of the subconscious thought our conscious mind takes control. At least it should.
We have to take charge and think it through. Only by thinking can we make the right decision for the best result. By having the discipline to think we train our mind and create a powerful investing tool. Conscious action shows investor thinking. Investors use their conscious, attentive, aware, vigilant and watchful mind.
Budgeting money management
That mind holds our powerful thought processor, decision maker and knowledge store. When considering an investment, investors first, check the facts! If the facts and rational review do not give reasons to go ahead, stop. Say no! Successful investors have positive thoughts about themselves.
Like all people who learn and grow, they increase their emotional awareness. That increases understanding of themselves and the world. They combine understanding emotions and their mental outlook with the mechanics and knowledge of investing. All superior investors learn these basic skills.
Wealthbuilding: A Consumer's Guide to Making Profitable and Comfortable Investment Decisions [Lisa A. Cohen, Beverly D. Flaxington] on giuliettasprint.konfer.eu [EPUB] Wealthbuilding: A Consumer's Guide to Making Profitable and Comfortable Investment. Decisions by Lisa A. Cohen. Book file PDF easily for everyone.
Using this positive thinking process produces a continual increase in mind strength. That experience grows awareness which generates more opportunity and better investing results. Best news of all, both our subconscious and conscious minds learn and grow with training. Knowing and understanding our silent mental processing partner, gives us an investing edge. To make that edge happen, we let both knowledge and experience train our brain.
The process to know your stock market self continues through your investor life. Like self-knowledge it has a need to know but no pass or fail. To succeed, be both honest and realistic with yourself. Know yourself and be ready to use your strengths. Be ready to cope and deal with your weakness.
And be able to manage your tendencies. Combining knowledge and awareness of self gives you a great advantage as an investor.
After developing the needed self-knowledge you can look outside of yourself. Look to successful investors for examples. Look at the best and ignore the rest. The best investors do share traits. The best investors use facts, not feelings or hunches. As disciplined but flexible thinkers, they follow their plan.
At the same time they stay open to new or different thoughts. Receptive to new or different information, they adapt while always being risk-averse. As a group they display excellent cost control. Take time to learn the investor mind, stock market success and you.