Keys To Wealth Building (part 4)
Managing Money Tips
I first want to thank you for reading these series of articles and I hope you are finding them beneficial. The next step in wealth building is to control the escalating debt that is burning like a wild fire. Plug all the small leaks, and you will find more money to use than you ever dreamed of. I will show you what is the key to success in life in order to control debt to build wealth.
This article is the fourth of five in a series. Did you miss the first 3? If so, the links are below.
How To Get Out of Debt Free
Know Your Personal Net-Worth
How To Fix Your Credit Score Yourself
How often do you visit the vending machine at work, or go to a restaurant for lunch? How many times a day do you drink a coke, or cold beverage, instead of just water? Most people will find between seven to forty-five dollars a week that can be saved by NOT doing any of the above habits.
Stopping at the vending machine is considered a leak of “cash” that is not budgeted to pay bills. Or going to a fast-food diner for lunch, this can be a huge windfall of money saved by simple bringing a meal from home instead. The picture I am painting is “know where every penny of your monthly income is being spent on.”
For one month, simply write down the date, and how much you spent and where or what you spent it on. For example, Monday, August 01, spent $1.10 in vending machine. So next you would write down what you spent on Tuesday, August 2, and so on, for a full thirty days.
You will be amazed at what you will discover. I know I was. I discovered that I wasted $7.65 every week at just the vending machine! That adds up to almost $29 a month. What could you do with the extra $29 a month? For some people, that would be enough to be able to keep from a bill being paid late, which cost more money in late fees. This is just one, of many leaks that must be plugged to reach your financial goal.
Another step to building wealth by debt elimination is your credit cards and manipulating the best possible payment schedule. Let us discuss as an example that you have three credit cards, plus a bank loan, all of which have balances on them. You have an American Express, a Visa and a MasterCard.
American Express – owe $3549.00 with credit line of $12,500.00.
Visa – owe $6000.00 with a credit line of $19,000.00.
MasterCard – owe $20,000.00 with a credit line of $21,000.00.
Bank loan – owe $365.36
The interest rate on the bank loan is 12%, the American Express is 9.9%. The Interest rate on Visa is 19% and the MasterCard has an interest rate of 13.9%. As you see here it is to your benefit to pay off the highest interest card first. The lowest balance is the bank loan, which can be easily paid off first. We will pay off the bank loan first, and then proceed to tackle the credit cards next.
Let us assume that your minimum payments for each card are:
American Express minimum amount – $71.00
MasterCard minimum amount due – $290.00
Visa minimum amount due – $285.00
Bank loan due – $91.36
If you were to pay the minimum amount due only for each of the credit cards, but then double the minimum toward the bank loan, the bank loan will be paid off in two months. After that payment is finished, add that amount to the payment you pay toward the Visa account. The benefit would be paying off the card that is costing you the most. You would save a tremendous amount of money that normally would have gone to pay off this high interest credit card.
If you were to pay the minimum amount due on the American Express and MasterCard but double the minimum amount due on the Visa, you would save more than half the interest you would have paid this card.
Bank loan – double minimum payment – $182.72
American Express – payment $71.00
MasterCard – payment $290.00
Visa – payment $285.00
In two payments (two months), the bank loan is now paid off. Next step: Take the $182.72 that was paying toward the bank loan and add it to the payment on the Visa, $182.72 + $285.00 = $467.72.
In twelve months, there is $300.00 owed on the Visa, after the payment of $467.72 is applied. Then $2626.00 owed on American Express, and $16520.00 on MasterCard. In this scenario, the Visa will be paid off in 13 months. Of the $467.72 for Visa, pay off Visa, which will leave you with about $160.00 to put toward the American Express. So $160.00 + $71.00 = $231.00 to pay on American Express for the 13th month. There is $2016.38 still owed on the American Express, and $15,940.00 still owed on the MasterCard.
Bank loan – paid in full
Visa – $0.00 – paid in full.
MasterCard – $290.00
American Express – $71.00 + $285.00 + $182.00 = $538.00
In four months there is only $400.00 owed on the American Express and $15070.00 owed on the MasterCard. In the next payment, pay off the American Express with $400.00, and the remaining $138.00 put toward the MasterCard. After the two credit cards are paid in full, hammer the MasterCard account with all the amounts of the other two credit cards, the $285.00 + $71.00 and the original $290.00 that was normally be paid on the MasterCard. This will be a total of $646.00. assuming you will not use the $182.00 you were using to pay off the Bank loan.
It will take two years, two months (26 months) to pay off the MasterCard at this rate.
Another way to manipulate the credit report score, be sure that the balance that must be carried over each month is less than 35% to 38% of the total credit line of the account. So in this scenario, if we were to transfer one-third of the total balance owed on the MasterCard to the Visa, $5260.00, and $3500.00 to the American Express, the outstanding balances owed on all three credit cards is now:
Visa – $5260.00
MasterCard – $7180.00
American Express – $5516.00
The credit report score will be increased due to the lower amounts owed on the credit cards. If there were more credit cards in use to disperse this total balance owed, then even better. Now that you have lowered the outstanding balances on each of your credit cards, use the payment schedule above to get your debt under control. Once the debt is all paid off, strict adherence to not using credit cards will be your new goal in life, and building wealth.
In my next Article, I will give you some incentives on creating a home-based business, for even more wealth building techniques.