Linda Leitz: Important factors in wealth building | Business | gazette.com – Colorado Springs Gazette
Wealth is in the eye of the beholder. For some it’s a huge house, several flashy cars, eating at fancy restaurants every night and frequent lavish vacations. For others, it’s knowing they can live from their retirement funds someday without having to work. Still others might want to be able to work in a career they love and make ends meet.
For each, there are some actions that can help them build wealth as they define it.
The first is to live within your means. If you’re racking up debt for ordinary living expenses, your finances are going the wrong direction to build wealth. There are legitimate reasons to borrow — to buy a home or vehicle, or for education to have a good career. There are parameters around what will be reasonable amounts to borrow for these items. Mortgage lenders often use 35% to 40% of gross income (income before taxes and other deductions) as a metric of how much total debt, including mortgage payments, is sustainable. Student loans are generally considered sustainable if the amount borrowed is no more than the annual salary in the chosen career path soon after graduation.
Living within your means isn’t all. You also need to save some of your income. Like debt levels, there are some rules of thumb. Saving 10% to 15% of your gross income is a good start. You can initially have that as your emergency fund, which would be in something stable like a savings account at a financial institution or a money market fund. Having an emergency fund, instead of putting emergency expenses on credit cards, will help you build your wealth. Once the emergency fund has about six months of basic living expenses, start saving that money toward long-term goals.
Get your financial information from reliable sources. Your friends from work might be doing well with their money. But they’re not you and might not be doing as well as you think. There are seminars, online videos and articles to peruse, but their advice might not be right for you. While professional advice isn’t free, a good financial professional who has a philosophy that fits with yours can be worth the cost.
One of the biggest obstructions to building wealth is bad decisions, but the ability to head off bad decisions is in your power. It’s almost impossible to completely separate money and emotion. Money allows us to meet our basic needs and fuels our dreams. Decide on a course to meet your goals of building your wealth and realize that the time when you need to stick to you plan is when you might least want to. Many people want to take their money out of the stock market …….