There’s no one-size-fits-all approach to building wealth. In fact, everyone’s journey might look a little different.
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However, there are a few things that you might be overlooking when embarking on your wealth-building journey. In this article, GOBankingRates cover seven things Rachel Cruze believes you should focus on in a recent video.
Holding Debt
In most cases, debt is made up of two components: Principal and interest. While the interest portion on your debt might be minimal, it does add up. Cruze suggests using funds from your savings account to rapidly pay down debt. Once your debt is paid off, you can be more aggressive with your savings and investments.
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Using a Regular Savings Account
Another commonly overlooked strategy when building wealth is keeping your emergency fund in your checking account. Cruze believes that if you keep your emergency fund in a regular savings account, you have a higher risk of spending the money. Instead, keep your emergency fund in an online high-yield savings account.
Overbearing House Payments
Your house payment is one of your largest expenses. Cruze suggests keeping your house payment under 25% of your gross monthly income. Exceeding this percentage can leave little to no money left to build your wealth. Instead of taking on a high house payment, save up more money to make a larger down payment. The time it takes to save upfront will help you free up funds to build your wealth.
Giving In to Lifestyle Creep
Lifestyle creep happens when your spending increases with your income. For example, let’s say you get a 10% raise. Instead of putting the funds toward your wealth, lifestyle creep increases your spending by 10%. Cruze suggests applying the extra funds directly toward your wealth, such as increasing your investment contributions or savings rate.
Using Credit Cards
Cruze said that using credit cards can derail your wealth-building journey. When you make credit card payments, you are paying for items you have already experienced. This can lead you to spend more money because, emotionally, it’s not your money you’re spending. If you carry balances on your credit cards, the monthly interest rate can also hinder your progress toward building wealth.
Not Contributing 15% to Retirement
Retirement savings rely on time to grow. Cruze advises that you should only invest 15% after becoming debt-free and having a fully funded emergency fund. The specific investment avenue is not as important as your contribution level.
Not Prioritizing Generosity
Giving is one of the crucial money principles that can help change your life, according to Cruze. Prioritizing generosity can change your mindset surrounding money. Your giving doesn’t need to derail your budget. Instead, take the time to determine what you can afford and work it into your budget.
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This article originally appeared on GOBankingRates.com: 7 Things You Might Be Overlooking When Building Wealth, According to Rachel Cruze
