Many people are eager to grow their wealth through various investing strategies. However, these same people will often invest their money into a stock market while already owning a significant amount of debt. I guess the thought is, that if they make enough money from their stock portfolio, they can use the earnings to pay off their obligations.
Unfortunately, it does not work that way. The truth is, it is much better to pay off any existing obligations than to invest in the stock market. For example, you’re guaranteed to receive positive results from paying off a twenty-percent interest rate credit card.
Whereas the stock market is likely to net you around eight percent returns per year if you’re performing well. However, the eight-percent yearly gains is a long-term estimate, of about five to ten years.
Most stock portfolios have ups and down years, with some years occurring losses. I, for one, have a stock that had a three-percent loss for two years. It wasn’t until this year where the stock is now performing a twenty-three percent gain.
However, I don’t owe any debts, and thus it’s much easier for me to grow wealth. Ever since I’ve been debt-free, I’ve been able to place roughly twenty-five percent of my monthly income into savings.
Growing Wealth Requires Savings
If you’re unable to save money, then you’re not going to be able to grow your wealth. All the money you earn will be going towards living expenses and bills.
Correct, two different terminologies, living expenses does not equal debt. A living cost is a service expense, such as a phone, rent, energy, water, trash, cable, etc. These are bills you need may or may not need to live and are paid as you go.
A debt is an obligation you owe to someone for a service or product that was provided and paid through interest payments. A living expense could become a debt obligation if a service payment were missed.
But back to the main point, to grow wealth, you must be able to save. As the saying goes, It takes money to make money. There is no way you’re going to be able to grow wealth if you have no money available from savings.
If you’re unable to save money then perhaps you may want to take a look at your living expenses. Write down all your monthly costs and eliminate unnecessary expenses.
Maybe you can reduce your phone bill with a cheaper phone? Maybe cut down on the groceries. Most importantly remove any outstanding debt obligations.
If you look at most of the rich, they don’t own any outstanding debts. If they do, usually the debts they owe are in businesses or assets that generate income.
However, for the average person just trying to grow their nest egg, the simplest thing you can do is to pay off any existing debts and then look at ways to accumulate more money from the savings earned.