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Here’s the Great Financial Advice I’m Ignoring and Why
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Dreaming about retiring with a million dollars in the bank? Who is not?
There is a lot of conventional financial advice that seems good at first glance. While these tips won’t necessarily harm your financial health, they may not help you quickly reach millionaire status. That’s not to say this advice is bad – it’s just not tailored to your ambitious wealth-building goals. If you really want to retire a millionaire, you’ll need a different approach.
GOBankingRates spoke with Brie Schmidt Zdravkovic, owner of Second real estate cityand Sebastian Jania, director of Property Buyers in Ontario. Both are on track to retire with over a million in savings. Here’s the traditional financial wisdom they’re rejecting to achieve their goals.
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Don’t invest before paying off all your debts
It’s always good advice to pay off debts as quickly as possible. Debt interest rates can mean you end up paying a lot more than you initially borrowed. So, if you have extra income, you should always apply it to your debt first, right? Maybe not.
“That may be true in some cases, but not all,” Zdravkovic said. “It’s important to understand what type of debt you have and the cost of that debt.”
Different types of debt can affect you in very different ways. Zdravkovic gave an example.
“Let’s say you have a $40,000 car loan for 60 months at 5.68% and a payment of $767 per month,” she said. “Over the course of this loan, you will pay $6,042 in interest, or just over $100 per month. Now, let’s assume you have $40,000 in credit card debt and make the same payment of $767 per month. With rates above 20% right now, it will take you 124 months to pay off the balance and cost you $54,382 in interest payments, or $439 per month. In the first example with a loan with a fixed rate of 5.68% it may make sense to use your extra income to invest with an average rate of return of 8% or more. But if the debt is credit card debt, it makes perfect sense to use all your extra income to pay it off before investing.”
You should prioritize paying off high-interest debt, like credit cards, before you start investing aggressively. But as Zdravkovic’s example showed, if you have low-interest debt, you can earn higher returns than the interest rate on the debt. In this case, it’s worth continuing to pay off your debt while using your extra income to invest.
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Aggressively cut expenses
If you want to get rich, you need to cut all non-essential expenses from your budget. That’s the conventional wisdom; Your daily latte habit will have to go, along with things like dining out, entertainment, and vacations.
Not necessarily, according to Jania.
“I see this piece of conventional wisdom as diets,” he said. “The vast majority of people who go on aggressive diets end up binge eating later, when they realize it is not sustainable.”
If your budget is too spartan, you’re more likely to miss out completely. Leave room in your budget for small luxuries or hobbies that you enjoy.
“The approach I take is to focus on maximizing income by increasing my income through high-income skills and keeping my expenses at a comfortable level,” said Jania. “I don’t spend whenever I feel like it, I just don’t aggressively cut my expenses.”
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A balanced lifestyle that includes some of life’s small indulgences and leisure activities can increase your mental well-being and stimulate motivation to achieve financial freedom.
Never use credit cards
It’s easy to let your credit card debt spiral out of control. This is why many people advise avoiding them completely, especially when you are trying to build wealth. But credit cards also come with some financial benefits – if you use them wisely.
“Credit cards are very valuable tools if used correctly,” said Zdravkovic. “You should have several credit cards on which you charge a small amount (less than 30% of available credit) and pay in full every month. This will help increase your credit score, which can save you tens of thousands of dollars.”
A good credit score can help you rent an apartment and reduce insurance rates. It will also make it easier to get a car loan or mortgage with better interest rates. This means that using credit cards to increase your credit score will save you money.
“The median home price in the United States was $495,100 in the second quarter of 2023, according to the Census Bureau and the Department of Housing and Urban Development,” Zdravkovic said. “On a 30-year fixed loan with 20% down, you would save more than $38,000 if your credit score was 760 versus a credit score of 699.”
As long as you pay your balance in full every month, using credit cards is a smart way to save money and can contribute to your goal of retiring a millionaire.
Go to college
If you want to become a millionaire, you need a high-paying career. And to get there it is absolutely necessary to have a university degree, right? For decades, this has been maintained: If you had at least a bachelor’s degree, you were more likely to earn substantially more than someone with just a high school diploma.
“In my experience, the more millionaires I meet, the more I realize that the traditional education system doesn’t get me there,” said Jania. “More than 90% of the millionaires I have met reached this level through personal education activities, such as courses, workshops and seminars, rather than through traditional education.”
The landscape has changed. A four-year degree is no longer the only path to a lucrative career. And the exorbitant cost of a college education is often a significant investment, which may not necessarily pay off with a high salary on the other side. But many high-paying jobs don’t require any degree. If you want to retire a millionaire, it’s entirely possible to find a path that will get you there without a full, formal college education.
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This article originally appeared on GOBankingRates. with: I Want to Retire a Millionaire: Here’s the Great Financial Advice I’m Ignoring and Why