This is a guest post by Millionaire Mob, a blog focused on investing in dividend growth stocks, passive income ideas and travel hacking. We have helped thousands of people with bettering their financial future through our personal finance tips. Please let me know if you would like to guest post on RFI.
Picture this. You are employed but your income is below zero. It’s such an irony, to say the least. But that was my situation in 6 years ago. I had so many student loans that I spent my entire paycheck to repay my massive student loans.
I was clearly living beyond my means. I had to make some serious money moves to get out of this situation. Luckily, I had basically no credit card debt and lived without a car.
I not only have a positive net worth today, but I have also achieved six-figure annual income. I went from a negative net worth to $332, 000 in 6 years. I ventured into online jobs, passive income opportunities, maxed out my retirement accounts each year, invested in a dividend portfolio, among other investments that enabled me to achieve my current lifestyle.
I am now able to get enough cash to cater for my traveling expenses to different destinations of my choice. Passive income ideas give you the freedom to pursue your other life ambitions and to live free. I have paid off all my student loans and even bought a house! In this article, I will show you some exciting hacks that I used to reduce my debts.
According to a recent data from the comet, an overwhelming majority of U.S adults are in debt, 80.9% are the baby boomers, 79.9% are Gen Xers and 81.5% are the millennial. Majority owe money in mortgages, student loans, credit cards and medical debts.
Do you know your net worth? You can calculate your personal net worth by taking all your total assets both monetary and physical and subtract your total debts and financial obligations.
A lot of people are struggling with debts because of diverse reasons. I am going to share with you some of the basic personal financial management skills that I utilized to get to where I am today.
- Set a financial plan
I realized that before I was not clear on what I wanted to accomplish and the timelines. So, I first wrote down clear financial goals and objectives. I decided to set specific financial targets that I want to accomplish every month and every year.
Having a plan in place helps you to get organized and manage your finances. You can use the personal financial ratios to create your personal financial plan. The ratios will help to evaluate your financial position and to decide the right actions to take to get out of any financial situation.
A plan also helps you to set achievable targets, for example, you can decide the percentage of debts you will have paid off by a given period and where the money to repay the debts will come from.
You are also able to plan on when to acquire specific items like a house, a car etc. A plan gives you clear guidelines on when to achieve your specific financial goals and ultimately attain financial freedom. Need some motivation for financial freedom? Here are my 10 favorite quotes about financial freedom.
- Cut your spending
Majority of people end up with a negative net worth because of spending more than they earn. That’s was my major undoing. I spent cash to purchase unnecessary items and to travel and buy items for vacations using credit card debts.
The first step to having a positive net worth is to cut unnecessary expenditures. Here you may be required to make some tough choices like eliminating your annual holidays, reduce eating out and excess partying with friends, eliminating the cable, cutting the car expenses among other extreme measures. An ideal way to achieve this is to create a budget that will help track your expenditures.
I have become a very enthusiastic frugal living crusader. My advice is that you need to evaluate if the item you want to purchase is worth buying or you can do without.
I did a study on the top percentile income earners and net worth. In this study, if you invest 30% of your pre-tax income and start making $60,000 per year at age 22, you will achieve an invested capital of approximately $2.5 million by the time you are 45 years old. Simple math like this shows that you can achieve financial freedom sooner than you think.
- Develop a payment plan to get out debt
A negative net worth simply means that your debts and other liabilities exceed your total assets. Getting your debts under control is another key step to rebuild your net worth. You can begin to pay off the high-interest debt which is called the avalanche method. High-interest payments could cripple your efforts to get out of debt if they are accumulating at a fast pace which can worsen your financial position. So, it is crucial to first clear those high-interest debts.
Another thing to consider is consolidating your debts to the greatest extent possible. By reducing the numbers of individual payments that you are supposed to make you’re able to manage and to keep up with the payments better.
Consider refinancing your mortgage, if applicable. Homeownership is a great way to build equity and your net worth but it can also be draining your finances if you have the wrong type of mortgage. If the mortgage is long-term, has a high-interest only, or is giving you trouble making payments, then you can consider refinancing the mortgage to a shorter term with lower interest rates. Just make sure that you get a mortgage that you are comfortable making payments.
Auto loan refinance is a great alternative to help repay your car loan. This requires you to have a reasonably good credit rating. Search for the right loan terms to repay the car, for example, don’t opt for low monthly payments because it extends the life of the loan and could lead to a negative equity as cars depreciate in value.
Federal student loan refinancing is one of the best ways to lower your interest rate on the student loan and pay off your debt faster. Another strategy to pay your student loan balance faster is to increase your monthly payment. It may be difficult if you cannot afford the extra payments particularly if you have many obligations to meet, but if you can do it, don’t hesitate. An income-driven repayment plan is also another great but short-term alternative if you need to lower your payments. Also, take advantage of the student loan forgiveness when there is a chance for it.
I refinanced my student loans and I couldn’t believe that I did not do it sooner. This helped me save thousands that I could then use to pay off more debt!
- Seek extra sources of income
To be able to get out of a negative net worth, you need to find additional sources of income to create more revenue. Search for higher paying jobs more aggressively than before or ask for a raise from your current employer, start a side business or a do a part-time job, etc.
You can also venture into online jobs, passive income businesses to generate an additional income. The passive income idea gives you great freedom and lets you explore the world.
Another way to build your net worth is through investing. There are numerous investment options available today. Consider investing in the stocks like buying shares, dividend portfolio, mutual funds, ETFs, bonds, real estate, among other investments.
Find out the best investment in the market to make. Read different materials like books, journals, and blogs to find out more about the best investments to make. Seek the financial advice of a financial expert on how to create a perfect investment portfolio and to know the right asset allocation.
You can rebuild your net worth if you are determined to so. Avoid procrastination and start making those little steps and ultimately you will achieve your financial goals. I hope you have gained valuable insights from my story.
What are you waiting for? Go get started on securing your financial future.
What methods have you used to increase your income or grow your net worth? I’d love to hear from you in the comments.
Author Bio: Millionaire Mob is where people come together to find the best travel deals and financial advice. We specialize in dividend growth investing, passive income and travel hacking. Our advice has helped thousands of people travel the world and achieve financial freedom. Millionaire Mob hopes to provide the best advice to help you learn and grow along the way. Follow us on Instagram, Twitter and/or Facebook for all the latest updates.