Can $10,000 Make You a Millionaire?

Lots of people dream about becoming a millionaire and “living the dream”, but only a relative few do anything about it. Today roughly 8.5% of American households are millionaires. While that’s up significantly from the 3.5% in 1996, I personally would like it to be much much higher. That’s why I’m writing this blog. To help make more millionaires and help people enjoy more freedom in their life.

Quite a few people have a warped view of wealth. They either believe they will never have it, or they believe it is bad. Both of those views of wealth are broken. Attaining wealth is a good and worthy goal. And guess what, wealthy people can help more people than poor people can. So if you have a choice of being wealthy or not being wealthy, why not choose wealth?

Now, in talking with many of my friends, I’ve realized that quite a few are just stuck. The idea of being wealthy or being a millionaire is a bit unrealistic to them, as it was for me until I turned 26. At 26, the lights came on, and I set off to become a millionaire. Now, 20 years later after I made it, I’ve come to understand that sometimes all people need is a little prod, a little knowledge, and a plan.

Too many of us spend our income wasting it away on frivolous things. I’ve been as guilty as anyone, but fortunately, I put a ton of money back as well. I started investing at 26. $500 a month into mutual funds and dabbling in stocks like Intel, Dell, Nvidia, and others. I made some decent money for a young guy making $40,000 a year, but I should have and could have done better.

I’m a numbers nerd, so understanding how it all works comes pretty easy for me. Now I want to make it a bit easier for you. Let’s get started.

A Spending Plan (a.k.a. Budgeting)

If you want to build wealth, you have to get your spending under control. Planning your spending intimidates a lot of people. That’s why “budgeting” is such a dirty word for a lot of people.

Now you can do a complicated spending plan if you want to, but a simple one can help get you on track for building wealth. You can count the pennies and nickles later to fine tune your spending plan.

Break your money down into 4 categories.

  1. Living Money: Money that you need to support your basic lifestyle. This includes housing whether you are renting or buying a house, food, utilities, car, insurance, clothing, education, and medical.
  2. Play Money: This includes the things you do to make life enjoyable. Date nights, gym memberships, hobbies, vacations, a four wheeler, a boat, etc. Generally you could call this “the perks of life” category. You have to have some play money in your life of you’ll dry up and become miserable. However, you have to be balanced as well. Put too much money in this category and you’re wealth plans could be toast. Quite a few formerly rich people have put too much money in this category only to see all of their wealth go up in smoke. Don’t make that mistake as you are trying to build your wealth.
  3. Wealth Money: Now as you can guess, this is the most important category for someone wanting to become a millionaire. This is the category that is going to determine if you become a millionaire, and if so, how fast. The more money you can get into this category on your spending plan the better. We use this category in a couple of ways. If you’re in debt, you need to get out as quickly as possibly. Debt will rob you of your ability to build wealth. We use this category to accelerate paying off your house if you want to do that. Third, we use this category for investing. That’s what most of this post is about. Wealth Money.
  4. Other Money: This is anything that doesn’t fit cleanly in one of the other categories. It includes things like birthday gifts, church tithes if you attend a church, Christmas presents, and things like that. Generally things in this category aren’t required to do and the amounts may vary quite a bit. You have wiggle room to adjust things a lot in this category as long as you don’t leave off your mom or spouse’s birthday.

Now I’m not going to cover the spending plan in today’s post. I’m going to only focus on the wealth money part of your spending plan. If you want to be wealthy, you have to put as much money into this part of your spending plan as fast as you can. Wealth can be built really fast if you’re a .com startup like facebook, or it can be built over time. The most common way to build wealth is over time through good financial decisions and investments.

Wealth Money

Wealth Money. So many people miss building wealth because they are busy spending their money on lattes, cable and new cars when they could be building wealth. I like to keep things simple…well, that’s exactly not true. I like complicated things, but sometimes things can be simple. We just over complicate them. Building wealth doesn’t have to be complicated. In fact, it really isn’t complicated. What do I mean?

Take $10,000 for example. It’s a simple number. It intimidates a lot of people. Have you ever held $10,000 cash in your hand? Try it. It’s pretty cool. Once you hold it, $10,000 doesn’t seem like a big number anymore.

Now, if you take $10,000 as your base investment number, what happens is pretty interesting.

  • $10,000 over 20 years becomes $67,275
  • $10,000 over 30 years turns into $175,000
  • $10,000 over 40 years turns into $452,000
  • $10,000 over 50 years turns into $1,173,000
  • $10,000 over 60 years turns into $3,044,000
  • $10,000 over 70 years turns into $7,897,000

These numbers are all based on a 10% rate of return which is an acceptable and available rate of return in the mutual fund and stock market. With the right investment, you can beat 10% and build even more wealth. I like using the 10% number because its simple to calculate, understand and readily available. Let’s go with it.

Now, you may be saying “Where do I get $10,000?” or “Are you kidding? I’m 45. No way I’m going to be wealthy. You just proved it to me.” Scrap those thoughts. Wealthy people all have one thing in common. When they run into problems, they figure out a way to deal with them. So what if you don’t have $10,000 right now, figure out how to get it. So what if your 45, find a way to increase your income and make up for lost time. Heck. Colonel Sanders started KFC in his 60s. Most people are retiring in their 60s. He was just getting started! $10,000 isn’t that much money when you break it down. $10,000 spread out over 1 year is $833.33 a month. Now how can you find $833.33 a month? There are tons of ways. At $10 an hour, it’s only 80 more hours of work a month. 20 hours a week. Or if you work at Costco and make $15 per hour, it’s 56 hours. Find a way. Don’t stop looking until you find a way.

As part of your spending plan, put as much money as you can into that wealth money category. In fact, scale everything back that you can until you hit a really good wealthy money number. If you can’t get to $10,000 year, start with what you can, then work towards $10,000 year as fast as you can. Once you hit $10,000, see if you can multiply it. Can you get to $20,000? Always up your goal. The more wealth money you can sock away, the faster it will grow. The bigger it will grow. Your first stop on this journey is the millionaire milestone. Once you do that, you’ll dream even bigger. You can do it.

Now, your homework. Play with your own wealth money numbers. Take that $10,000 and multiply it. What if you did that every year for 30 years? Well, I’ve already done the work for you and I’m including it in this post. Dream big! The more wealth you create the more good things you can do in this world, and guess what, it’s a lot more fun too when you have some wealth. I love traveling and I’ve got a long bucket list of places I want to go.

20, 30, 40 Year $10,000 Investments @ 10% Charts PDF

20, 30, 40 Year $10,000 Investments @ 10% Excel Spreadsheet

You can play with your own investment planning with this investing calculator at Bankrate.com or this more colorful and simple investing calculator at SmartAsset.com .

You’ve Got Your $10,000 Investment Money

Congratulations. You’ve figured out how to get your hands on $10,000 to invest. Now what do you do with it? You invest it. Where you say? Great question.

You can invest in a multiple of ways, but if its your first $10,000, you should probably play it a little bit safer. Stay away from single stocks. Mutual Funds are a better investment for you. Your first investments should go into your 401k or a Roth investment usually through your workplace. Even inside of those investment tools, you want to make sure you pick the right investments. Again, you’re looking for investing returns of 10% or higher for over 10 years.

Outside of your workplace, you can invest through an financial advisor or you can go direct to some of the best mutual providers like Janus, Fidelity, Oppenheimer or Vanguard. They have research tools that help you select funds. Again, you want funds that return 10% or more over the long haul. That’s averaging 10% growth per year over 10 years or longer. You can also use Morningstar.com to help you with your research.

Find a solid growth stock mutual fund at 10% or more and there you go. You’re off to the races. Oh, and one more thing. Don’t freak out if the stock market and your mutual fund drops. You leave your money in. The people that freak out and pull their money out, lose. Only take money out at retirement (59 1/2 years old) and preferably only when the market is up.

Working. Making Money. Building Wealth.

Work. 95% of eligible Americans do it.

I started working for minimum wage at age 13. Before that, I worked for my Dad helping out on his job sites. Sweeping floors, carrying trash, but I always wanted to hammer or saw something too. Apparently power tools aren’t for kids under 10 years old. For my mom, it was working at the convenience stores she managed re-stocking shelves, and yes once again, taking out the trash. Oh, and re-stocking the cold drinks in the cooler. That should have been called torture! My hands got so cold!

Eventually, I graduated up from family jobs to a real job at the local grocery store sacking groceries. I still think that was one of the most fun jobs I’ve had. Sacking groceries, checkout lines, sweeping and mopping floors, restocking shelves, and helping people to their car with their groceries. Once again, it paid minimum wage or close to it.

After graduating from high school, it was time for college, and I was a bit more ambitious with what I wanted to earn in compensation. I moved up from minimum wage to $7 per hour while working for RPS (Roadway Package Systems), and then it happened. I landed a $15 per hour summer job with P.I.E. freight company! My world was rocked. I was making $600 a week! Along with that jump came a shift in my expectations and what was possible with my income. As a young man and college student, I had reached a break through!

So many of us go through a similar experience of working and making money. Thinking in terms of single dollar increment raises. A $1 per hour raise blows us away! After I got out of college and landed my first engineering job, that’s exactly the world I lived in. Once I knew I could earn $15 per hour, I knew one day I could do it again, and I did. But sadly, I couldn’t imagine anything much more than that. $15 per hour is roughly $30,000 on a 40 hour a week job. $20 per hour is $40,000 per year. $30 is $60,000 per year. Hourly Rate x 2000 hours of work.

So ask yourself this question, how much money do you want make for your 2000 hours of work per year? $40,000? $60,000? What about $100,000? What about $250,000? More?

The idea of making $250,000 per year may sound ridiculous to many people who read this article, but it is doable. Lots of people are doing it. Why not you?

We can all work to make money, but working doesn’t have to be the only way we make money. Many people make money by developing multiple income streams. They start with a typical job, and develop supplemental income streams

Making More Money

So you want to make more money? I applaud you. Don’t settle for the status quo, every day routine. Expand yourself.

  1. Grow yourself. If you want to make more money, you have to grow yourself. You have to make yourself more valuable by learning and increasing the value you offer.
  2. Look for opportunities at work. Can you contribute at work on a higher level? Sometimes opportunities are right around the corner. Don’t wait for opportunity to find you, go looking for it.
  3. Be excellent. Do the best work you possibly can. Sloppy work won’t get you very far, and it definitely won’t make a you a highly valuable and top paid employee. Be excellent. Do excellent work, and money will flow your way.
  4. Might be time for a job change. Many people get stuck in a lower paying job because they get comfortable. You work the same hours whether you get paid $30,000 or $120,000. Why stay with a company that can’t pay you or won’t pay you more for your work? Think about this. If you make, $60,000 a year, that’s like working 2 years for $30,000 a year! Land a $120,000 a year job and thats 4 years at $30,000 or 2 years at $60,000. Don’t get stuck in a low paying comfortable job.
  5. Develop income streams outside your typical JOB. Developing multiple income streams can let you keep your day job and make extra money to help build wealth faster. You can start with side work, a hobby, or even a small business on the side. Millions of people are doing what is called an MLM (Multi-Level Marketing) or Direct Sales. While MLM has a bad stigma in the United States, millions of people are successful in using to make money to supplement or even replace their entire income.
  6. Rental Properties. Rental properties and real estate are historically a great income stream. Whether you’re flipping properties or buying a few rentals, you can make money in real estate. Starting with a low cost townhome rental can get you going or even renting out a room in your house. AirBNB makes it easy to find short term renters or if you like stability and a little more security, look for a longer term renter.

If you want to build wealth, multiple income streams will help you do it. I waited a bit longer than I should have to create my own multiple income streams, but I’m working hard to put them in place now. We have purchased 2 rental properties over the last 2 years. Now I’m engaged with Wealth Generators , a good MLM based around investing and helping people build wealth. They’ve created some investing tools, financial training and money management tools to help everyday people succeed with money. It’s right up my personal finance and wealth building alley. For more information on Wealth Generators, drop me an email. tony @ tonybradshaw.com

If you want to go the MLM route, there are tons of good companies like Melaleuca, Advocare, Kyani and others. If you are interested in one of these programs, I’ll be glad to connect you to some very awesome people. Drop me an email. tony @ tonybradshaw.com

How much more do you want to make per year and put towards your wealth building? $6,000 per year? $10,000 per year? $100,000 or more perhaps? It’s all up to you and what you choose do. The more money you can sock away into your passive investments or building your income streams, the faster you will become a millionaire and the more people you will be able to help with the wealth you’ve built.

 

 

What’s Your Net Worth?

Have you ever asked yourself that question? What’s your net worth? If you haven’t, then you probably should. Your net worth is a good way to tell if you are winning with your finances or not, and it’s kinda fun to do.

What is “Net Worth”?

Have you ever played organized sports? Baseball? Football? Basketball? Soccer? Something else? No matter what game you’re playing, there’s usually a score involved. That’s how everyone knows who is winning and who is losing. And make no mistake, the goal is to win. However, so many of us don’t have a goal for our finances, and as a consequence, we end up losing the game of money. We don’t know what the score is, and we don’t know what the goal is. It’s sad. It doesn’t have to be that way.

Your net worth is a financial calculation you can and should do annually to keep score on your finances. It takes your current assets (things you own) and subtracts your liabilities to give you your “net worth score”. Your assets are the things you own like cash, investments, cars, homes, boats, jewelry, and if you’re in the southern United States, probably a collection of guns. Your liabilities are your debts and money you owe. Subtracting your liabilities from your assets gives you your balance or net worth. If you are in heavy debt, it is quite possible to have a “negative net worth” meaning your finances are worth less than “0” and so is your net worth. While that sounds absolutely horrible, it’s better to know what the score is than to not know. Otherwise, you won’t know if you’re losing the game and what you need to change to “change the score”.

It’s important to check your net worth. I recommend calculating it and tracking it at least annually. This can help to hold you accountable on how you are handling your finances. It’s way too easy to make a lot of money and end up with very little progress by comparison to your net worth.

Way too many people make huge amounts of money and live the rich lifestyle, but never accumulate any wealth. Why? One of the reasons is they didn’t keep watch on their net worth. It doesn’t mean anything if you make a lot of money, but fail to manage it well. It doesn’t make a difference if you make $500,000 a year of $500,000 a month, if you don’t grow your net worth. I know it sounds crazy, but you can make $500,000 month or more and still have a net worth of $0 if you spend all your money and go into debt.

Knowing your net worth can give you a goal to aim at. Do you want to be a millionaire? Do you want to be a multimillionaire? How do you know how close you are to your goal? How do you know how far you are away from your goal? Knowing your net worth can inspire you to stay on track with your financial goals.

I really like this tool from CalcXML for calculating your net worth to help calculate your net worth.

Growing Your Net Worth

As you track and grow your net worth, it’s important you do the right things with your money. Just stuffing it into a savings account isn’t going to cut it. You need to look for good investments that help you grow your net worth. Rental property investments, mutual funds, well selected stock investments, and even small business opportunities like franchises can all be good ways to increase your net worth outside of the traditional J-O-B.

So many of us get stuck in the single mindset J-O-B. I’ve been fortunate to have awesome employment for over 20 years, but I still wish I had spent more time looking into developing multiple income streams. It’s only been in the last few years that I’ve begun developing multiple income streams. Traditional 401k investments have been in my toolbox for 17+ years. I began acquiring rental properties over the last 3 years. I wish I had started sooner. Now I’m looking at small business and other opportunities to grow my net worth.

$0 or Near $0 Net Worth

I have several family members that really don’t get finances and money. If fact, one of them has attended the same financial class 3 times over 15 years. That’s once every 5 years! Want to guess their net worth? -$50,000. Age 42. That’s a very bad situation to be in.

If you owe a ton of money on your house, it can take a huge chunk out of your net worth. Let’s say you have a $300,000 home, but you also owe $250,000. Your net worth is essentially $50,000. But wait, that’s not all. You owe $25,000 on a $30,000 car. You have $40,000 in student loans.

So now we have ($300,000 home + $30,000 car) minus ($250,000 house debt, $25,000 car debt, $40,000 student loan debt) for a net worth of $15,000. On the surface, this person could feel pretty good about their finances. They are living in a nice house, driving a nice car, and the student loan debts are under control. In reality, they’re very poor.

This is the reality for the average American.

Unless you have a number like net worth to keep score, it’s easy to think too broadly as “I’m poor”, “I’m doing okay”, or “I’m rich.” You can have a net worth of $30,000 or -$70,000, both are poor. It’s easy for someone who can pay all their monthly bills to think they are doing okay, but if their net worth is low, they’re really not doing okay. And some people even think they are rich because have a huge income and some nice toys, but their net worth could be $250,000. They’re not rich.

Net Worth Mindset

Developing a net worth mindset can help you keep your finances on track and headed in the right direction. It’s a simple way give you goal to help you cut out the waste. If you know you are shooting for a goal to become a millionaire that’s a net worth score of $1,000,000. It’s a lot easier to make good decisions with your finances. A good financial decision is one that gets your closer to your goal. A bad financial decision is one that keeps you from your goal.

Last night, our family went out to eat. I have 6 children. It’s expensive to eat out. It cost me $80 to eat cheeseburgers from Five Guys. On the way to Five Guys, my wife and I discussed that we can feed our family at home for $25. Eating at Five Guys did not help me build my net worth, but it sure was tasty.

Net Worth Target

I’m a believer that every American can become a millionaire, so your absolute minimum net worth goal is $1,000,000. I was a millionaire at age 40. Many people do it sooner than I did. I’ve met many people who become millionaires in their 20s and 30s.

As you get smarter and more confident in building your finances, your number should be higher. Since becoming a millionaire at 40, I now have aspirations of reaching the $10,000,000 mark and beyond.

Without being too scientific or getting caught up in the retirement planning game, set your net worth target between $1,000,000 and $10,000,000 to start. Sure some super aggressive types will want to set their goal higher. That’s okay, but the average everyday American can achieve a net worth target between $1,000,000 and $10,000,000 if they get serious about their finances now.

Make wise decisions with your money. Build your net worth. Build your wealth. Help others.

 

Millionaire or Not. You Get to Choose.

Over the past 5 months as the new chapter of my life and future continue to develop, I’ve really enjoyed talking to people more about their finances. I guess something clicked in me, and I have more passion for people’s personal finances than ever before in my life. The more people I talk to, the more I realize how much people need help with their money. Even my closest friends and past co-workers need help. Perhaps I was too busy or just too focused on my own family’s needs. Whatever the reason, something has now awakened in me, and I’m excited.

The Millionaire Goal

So now I ask, how many of you have your finances figured out? Maybe you’re doing pretty well, but let me ask you this. What’s your millionaire plan? What’s the date on which you will cross the millionaire threshold with your wealth? Seriously? Have you set a date or year? If you haven’t set your date, then the likelihood of you reaching that monumental goal is pretty slim. I was 25 when I set my goal to become a millionaire at 40 years old. I put together my plan and went to work.

So today, I really enjoy asking the people I meet “what’s your millionaire goal?” It’s fun talking to a young man in his 20’s and sharing my story with them and seeing the lights come on. I dare say its the first time someone in their life has talked to them about becoming a millionaire, and in many cases, probably the first time a millionaire has talked to them.

I find it sad that so many people that I speak with haven’t aspired to reach the million dollar milestone. I guess it shouldn’t surprise me considering my family and life experience. On my mother’s side of the family, my grandmother was a single mother of 5 who eeked out a meager living. My grandfather was somewhat of a small time farmer. On my father’s side, neither my grandmother or grandfather accumulated any level of wealth.

My mother and father managed to pay off their house, but unfortunately lacked any financial sophistication. They were wonderful providers for my sister and I, even managing to put us through an affordable private school and somehow managing to get me through an inexpensive college without any student loans. Quite the achievement, and I’m eternally grateful. However, wealth of any kind eluded them. The question I ask is why?

According to The Millionaire Next Door, 3.5% of American Households are millionaires. Statistically, my grandparents, my uncles, my aunts, my parents, my cousins, my neices, and my nephews all fall into the 96.5% non-millionaire statistic. Why? And why do I, and my family fall in the 3.5%? The answer is relatively simple. Well, at least part of the answer is simple. It’s a choice. Yes, I know it’s a little more complicated than that, but at the core, a 25 year old young man decided he was going to be a millionaire by the time he was 40. It was his millionaire goal.

My Millionaire Plan

At 25, I was just learning about finances. While I was always told to save, I wasn’t shown how to save. It wasn’t modeled for me. In fact, my family was very bad with money, and I need to cut mom and dad some slack. They did stretch their dollars for my sister and I to attend an affordable private school. However, that caused us a few inconveniences. Sometimes the water was cut off. At other times, the power was cut-off. I remember bounced checks trying to pay bills which of course result in returned check fees exacerbating the problem. You could say I learned a lot about what not to do.

At 25, my millionaire plan was simple. Without a mentor, I had to learn for myself. With my DIY lifestyle, I headed to the books store and picked up 6 or so financial magazines. It’s been 20 years, but the magazine I remember most is Kiplinger’s. Kiplinger’s is an investing magazine. It was an excellent learning tool for me. It’s where I learned about the stock market, mutual funds, front load funds, back load funds, management fees, etc.

Armed with my newfound information, and a semblance of a millionaire plan, I set off on my journey. As any DIY person knows, you’re going to experience and learn some things along the way. It wasn’t a perfect plan, but it was a plan. The important thing was, I got started.

My plan at 25 was simple.

  1. Learn about investing in the stock market
  2. Don’t go into debt. Debt is bad. No debt. So I started paying off all my debt as fast as possible. I paid off my computer and credit card fast, then I paid off my 5 year car loan in 3 years.
  3. Keep your expenses low. Really low. My rent was $200/mo.
  4. Invest monthly. My plan had me investing in mutual funds at $500/mo. Personally, I should have been investing $1,000/mo.
  5. Then I set aside additional money for single stock trades. I traded in tech stocks since I was more familiar with them. Cyrix, Dell, Intel, Iomega, and a few others.

By anyone’s standards, it wasn’t a perfect plan, but it got me started and it had a few core elements that should be part of any healthy financial plan.

  1. Debt is your enemy. Avoid debt.
  2. Keep your expenses low.
  3. Invest aggressively.

But I did miss a couple of items that I should have included. If I’d had a mentor, my plan would have been more complete. A more complete millionaire plan would have included things like.

  • Increase your cashflow.
  • Expand your income streams.
  • Develop passive income streams.
  • Diversify.
  • Use retirement accounts for tax benefits.

While this is an extremely simplified look at becoming a millionaire, it does include everything you need to guide you. If you use this as your basic checklist and you build out it out with more detail by “filling in the blanks”, you will be on your way to becoming a millionaire.

So I leave you with this final question, on what date or year will you cross the millionaire milestone? Millionaire or not. You get to choose.

Millionaire Resources

The Millionaire Next Door

Secrets of the Millionaire Mind

Get Out of Debt. Live Free.

Well, I was thinking today about the fact that I spent 15 years from March 2001 to May 2016 working for Dave Ramsey, the debt free king, but I’ve never written anything about money or debt on my blog. What a shame! Now I’m working for Steve Down, who has a very similar story to Dave’s. After leaving Dave’s, I thought I was done with the personal finance world, but God had other plans. In early December 2016, all that changed. Now I find myself working to build a new personal finance company to help people say goodbye to debt and re-imagine wealth. Why “re-imagine wealth”? Let me tell you. For most Americans wealth is something they will never have and for other Americans wealth is evil. I’m here to tell you that both of those concepts of wealth are lies. It is my belief that you and everyone else can be wealthy. What is wealth? Wealth is having enough money to meet all of your needs and wants while leaving enough left over to help others. The path to wealth starts with good money habits, and one of those money habits is living without debt. Here is where my story began.

So you want to know how to get out of debt? You’ve come to the right place. Personal debt destroys your ability to build wealth. It’s just that simple. I was 25 when the lightbulb first came on for me. I was fresh out of college and enjoyed what I considered a good paycheck. I worked as an engineer for a local manufacturing company making more money than I had ever made before. I had risen through the compensation ranks of my high school minimum wage jobs to an amazing $13/hr manufacturing engineer. My rent was cheap…very cheap, and life was good. I had a nice reliable car, my green four door Saturn SL2 sedan. I had a 75Mhz Micron computer, a real powerhouse for the time. My other belongings included a 27” Sony TV, a Harman Kardon stereo system, a bed that I made out of wood from Home Depot, and a desk my father built for me. Life was good, or so I thought.

It was tax time, and for the first time in my life, I actually had enough money to be taxed. Along with millions of other hard working Americans, I received my annual W2. I cut open the envelope, pulled out the W2, and then stared in amazement. I was shocked not at the taxes I’d paid, but at the amount of money I had made. $39,000 give or take a little. $39,000…wow. That’s like 10x more than I’d ever made in my life annually. Where did it all go?

I looked around my apartment. I had a paid for TV. I had a financed computer. I had a paid for stereo with some kickin’ speakers. Suddenly, that bed I built and was so proud of didn’t look as good. In the driveway was my financed car with a $315/mo payment. That was my wake-up call. That was the day I realized debt steals your ability to build wealth, and I changing the way I felt, thought and acted about money. I had to discover how to get out of debt.

That’s the first step to getting out of debt. You have to have that wake-up moment where you realize that debt isn’t helping you. It’s hurting you. It’s hurting your ability to find financial security. It’s blocking your opportunity to become financially free. It’s destroying your ability to become wealthy, and it’s preventing you from helping others. Personal debt is not your friend and that’s why it’s important to know how to get out of debt.

Knowing how to get out of debt isn’t the hard part. The hard part about getting out of debt is the doing.

When I had my wake-up moment at 25, I set out on a mission to be a millionaire by age 40, and the first step in my plan was to get out of debt…fast. Unfortunately, there’s no silver bullet to getting out of debt. You didn’t get into debt overnight and you’re not going to get out of it overnight either. Getting out of debt requires a plan and hard work.

How to Get Out of Debt

  1. Create a Debt Checklist. Unfortunately, many people just pay their bills as they come in and don’t keep track of all their debts or where they stand on their balances. This is a disaster for your finances and not to mention a disaster for your health and life. The first step to getting out of debt is to make a list of all your debts including interest rates and payments. Make sure you include any student loans, your mortgage if you have one, and even debts you owe your grandma.
  2. Organize your debts. Create Your Debt Waterfall. Now that you have your list of debts, it’s important to organize them into a payoff schedule. At Financially Fit, we call this the Debt Waterfall. Your Debt Waterfall is the order of your debts that allows you to accelerate your payoff speed with each debt you pay off. Once you pay off your debt, you use the money you were using to pay it off and use it to accelerate the payoff of your next debt.There’s a lot of discussion on how to organize your debts to pay them off quickly, but the truth is, just stay focused and pay them off. If you get distracted or discouraged, you lose. Stay focused and you’ll eventually become debt free.
    (1) Highest Interest Rate to Lowest Interest Rate: In many cases, paying the highest interest rate off first can get you out of debt the fastest and save you the most money. However,
    it can also be one of the hardest ways to stay motivated to execute. If you don’t finish, you don’t get out of debt.
    (2) Calculate the Priority Quotient: The priority quotient is a special method developed by Financially Fit. The priority quotient uses your minimum monthly payments to help order your debts into the fastest payoff method. The debt with the lowest Priority Quotient is the debt you payoff next. The debt with the lowest number of months to pay it off is your highest priority debt. Attack it first, then move on to the debt with the next lowest number of months to pay off. To calculate your Priority Quotient use this formula:
    (Balance / Minimum Monthly Payment = How many months to pay off that debt)
    (3) Lowest Balance to Highest Balance. Ordering your debts and attacking them with the lowest to highest balance can offer you the highest satisfaction giving you little wins along your debt payoff journey. By using this method, you can help keep yourself motivated along the way until you reach the finish line. Many times by attacking the lowest balance first, you can get your first debt paid off in 2-3 months, then use the money you’ve freed up to attack the next debt.
  3. Assess your cash flow. How much excess cash do you have each month? Use it to accelerate your debt payoff plan. We call this building your Focus Fund. A Focus Fund is cash that you are using to focus on accomplishing a financial goal. In this case, you are using your Focus Fund for paying off your debts. It’s important to build your Focus Fund to a sufficient level to attack your debts and pay them off as quickly as possible. If your debt payoff drags on for too long, it’s possible for you to get discouraged and quit only to return to your old lifestyle. Keep your Focus Fund attacking your debts, and you’ll make it through.
  4. Pay Off Your Debts. Once you have your list in order and your cash flow plan, you can begin your debt waterfall. The debt waterfall is what Financially Fit calls your payoff plan. As you pay off each debt, you take the cash you’ve freed up by paying that debt off and attack the next debt. As you pay off more and more debts, you’re Focus Fund grows larger and larger until you have all of your debts paid off.
  5. Never go back into personal debt. Personal debt is a trap that will rob you of your ability to build wealth. Sadly, many people who finally become debt free return to debt believing they are more mature now and can handle it. Once you become debt free, the trick is to put your money to work for you. That’s how you can become financially free where you no longer
    work for money because your money now works for you.In most cases, your consumer debt can be paid off in two years or less. For those who are even more aggressive, you can become debt free including your mortgage in 5 years or less. yes, that’s right, 5 years or less including your mortgage! Now that you’ve learned the principles of how to get out of debt, it’s important that you tell others how to get out of debt.

I’ve personally been free of consumer debt since January 2002, and a little later we paid off our mortgage. I can honestly say the grass is greener when you’re debt free.