How to Budget: Part III

Start thinking about retirement, mortgage payoff, and asset accrual for passive income.

Now that you have the foundation and structure of a budgeteer, lets talk about some basics of building your financial wealth. You have freed up your money from debt (congratulations!) and planned for emergencies. Use these suggestions to start accumulating wealth:

– Retirement: How Much Should You Put Into Retirement for Your Retirement Dreams?
– Own Your Home: Tips to Live “Rent Free”
– Assets: Make Your Dollars Great Employees

Retirement

The thing that always keeps me focused in this ongoing step is the first step I always take my financial clients through because it’s so powerful. It’s dreaming big!

If you never have, I encourage you to use one of these online calculators to see what you could make by consistently putting money away for retirement:

Roth IRA calculator
Traditional IRA calculator
401(k) Calculator

You can learn about retirement basics here. After choosing which retirement vehicle you want to use, you have to decide the percentage of income you will put into your retirement fund.

The typical recommendation is to put away 15% of pre-tax (gross) income. Choose something that works for you, but don’t be afraid to start putting money into retirement accounts. You will notice the difference the longer interest has to compound.

Contact an advisor that sets up retirement accounts and start today. Don’t wait.

Own Your Home

Can you imagine living “rent free”? Your mortgage is your largest liability as it takes the most money from your income. With being able to comfortably put away 15% of your income towards retirement, you are ready to tackle your biggest debt: mortgage.

Now get ready to start dreaming again. Use this calculator to see how an extra $50 or $100 towards your mortgage each month will shorten your loan time:

-Extra Payment Mortgage Calculator: Making Additional Home Loan Payments

Consider these additional suggestions to pay off your loan faster:

-Biweekly payments. Divide your monthly payment by 2. Pay this amount every two weeks towards your mortgage. This will add an extra payment towards your house – 13 payments instead of 12. That alone will shorten a 30-year mortgage loan by 4 years.
-Extra income. Check out 3 ways to kickstart your savings. Increase your income temporarily (or not) to drop on your mortgage payment. Again, using the calculator above, you can see how additional mortgage payments can reduce your loan time.
-Rent a room. Use your home to pay itself off by considering a room mate temporarily or even posting your home on sites like Airbnb. This is basically the extra income portion, but it’s also PASSIVE. You are not doing any extra work and you can (again) diminish your loan time.

Use these extra tips to shave at least 10 years off your mortgage to become completely debt free. You will save time and money from reducing the impact of that nasty interest.

Assets

You are putting extra money towards retirement and your house. Now start thinking about how you can make your money work for you. These are a few suggestions to begin thinking about acquiring assets which are possessions that can produce passive income (aka, you don’t work for it).

– Stocks
– Mutual Funds
– Dividends
– Rental Properties
– Self-Sustaining Business

I’ve only had experience in the first three and hope to continue to acquire assets, but I wanted to have you start thinking about life after debt. Now that more of your money is freed up, you have the resources to do more with your money. Rich Dad Poor Dad and the 4-Hour Work Week are great resources that help you to start thinking of living life outside of the box. I encourage you to start dreaming big.

Through preparing yourself how to budget, you have been able to build up your emergency funds, pay off all of your debt and started accumulating real assets such as your property and retirement funds that are beginning to work for you. The point of learning the how to budget is to build the foundation, structure, and design for wealth in your life. I hope you carry these principles with you to continue managing your finances well and accumulating assets.

Where are you in your finance journey?

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