Well, yes, but most of us aren’t born with a huge savings account to pay cash for college, cars, houses or even less expensive things like furniture or appliances. And then there’s those other not-so-fun expenses, like utility bills, car repairs, medical emergencies, and other things that we also don’t normally have a pile of money at our disposal to pay for. With a thoughtful combination of borrowing and saving, you can become a richer Nevadan. Here's how.
I know, none of us like to hear that. Though if the great recession taught us anything (especially in Nevada!) it’s that we can’t all live in big homes and drive fancy cars if we don’t have the means to support that lifestyle. At Greater Nevada we offer members the Balance Financial Fitness program, which includes online tools for money management, like budgeting. There are lots of other tools like that out there, so pick one that works for you and take the time to make a simple budget. Understanding what you can and can’t afford right now is a major step to building wealth. The whole idea is that you’ll be set to comfortably afford those things you want a little later down the road.
Make Sure You Have Good Debt
Assuming you’re like me and the majority of the population, you have to borrow money for things you need, whether it’s an education to get a better job, a car to get you to and from work, or even a wedding and honeymoon for the love of your life. The trick to getting loans is to pay the least amount so you’re able to slowly but surely build a solid savings at the same time. Here are the top ways to do that:
- Build and maintain good credit. If you have no history of repaying debt, or worse—a bad history of it, it will be harder to find a loan and you will most likely pay more to get it. As mentioned in one of our previous blogs about credit scores, there are several steps you can take to avoid or even remedy this.
- Don’t over pay for loans. We’ve all been there. You see that car, boat, house, or whatever that you absolutely must have and before you know it you’re signing all the paperwork to become the proud owner. Besides making sure you are actually getting a good price on the item you’re buying, be sure you’re getting the best loan, too. Talk to your credit union or bank about getting pre-approved on a loan first. Knowing how much money you can borrow and what your interest rate and payments will be are powerful tools when deciding what to buy. Being pre-approved can also give you better negotiating power, because sellers are usually more eager to work with buyers who have the means to pay.
- Make sure you have the right loan. It’s easy to hand over your credit card when that big car repair bill comes in or you find that perfect living room set. But before you pay with high-interest rate plastic, think about a low-rate personal loan from your bank or credit union. If you’re a homeowner, you might also consider a home equity line of credit, which could provide some additional cost-saving benefits. In either case, work with a trusted lender who will make sure you are getting the right loan and not over-extending yourself financially.
- Pay down your debt as fast as you can. The best way to manage debt so that you are only borrowing when you need to and building wealth at the same time is to pay things down as quickly as you can. A good tip is to pay off your smaller debts first. For instance, instead of paying extra on your car or home loan, get those high interest rate credit card bills paid off first.
- It costs money to make money. Sometimes borrowing money is the only way to start or grow a business, or invest in something like an income property. This type of borrowing takes some serious planning, because there are usually significant risks involved, as well. In any case, the point is that borrowing money is not a bad thing. You just need to be smart about it.
Build a Savings Account
If you’re living within your means and have borrowed money sensibly, then you should have more money left over each month to build a savings account, which I admit is not as much fun as that extra cash to go out more, take better vacations, or step up your wardrobe. So here’s a little incentive. Saving as little as $200 a month at an interest rate of .05 percent, you’ll have an extra $5,000 in about two years, enough to cover small emergencies and down payments. Want to build that up faster? Save $850 a month by cutting expenses and/or getting a part time job and you’ll have $10,000 extra in about one year! Feel free to use our savings calculator to develop your own personal savings plan.
Use Savings to Invest
Here’s where the magic really starts. Once you have money that you can invest for a longer time, like in a certificate of deposit, you start making money even faster because you usually earn more and start to experience the wonders of compounding interest. This is also called having your money work for you. For instance, let’s say you take that $10,000 in savings and put it in a 5-year certificate of deposit earning 1.25%. By doing nothing but letting your money sit there, you earn an additional $641 on top of your original $10,000. Imagine if you continue to save extra money on top of that.
Congratulations! You’re Richer Already
You made and are following a budget to live within your means, you’re borrowing wisely, and you’re saving regularly and investing when you can. If that’s the case, even with little emergencies in between, you should be well on your way to living a richer, not to mention more stress-free life.