How to Avoid Letting Debt Hold you Back from Building Wealth

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Are you letting debt hold you back from building wealth? If so, you could be doing yourself a huge disservice. Here's how to invest while still in debt.More than 80% of Americans have some form of debt.

But does that mean more than 80% of Americans aren’t building wealth?

After all, debt can really hold you back from achieving your financial goals.

When I graduated college and found out I had $30,000 of debt, I realized I couldn’t do certain things if I wanted to sacrifice and pay it all off.

So far, I’ve felt like I couldn’t travel as much as a I wanted to, purchase things for my current home, buy my first house, plan my dream wedding, start saving for my son’s education, or even invest due to my debt.

Recently, I realized while I can’t do all of these things at once and pay off my debt, I can still start investing, which is an extremely important financial goal everyone should have.

Want to Build Wealth? Start Investing and Growing your Income

It’s easy to look at celebrities and other wealthy people who don’t ever have to worry about money a day in their lives and envy them or wonder how they got so lucky. If you’re like me and can’t sing, dance, or act, and the odds of you becoming a celebrity one day are slim, you’ll need to start investing. Yes, even if you have debt! If you want to build wealth and have more than enough money to meet your regular expenses, it’s a necessity.

Some of the most common myths about investing are that it’s risky, you should only worry about it when you’re older, and you should invest only after paying off your debt. When you start investing as early as you can, you allow enough time for your money to compound and grow year after year. This is how some people amass more than $1 million in assets by retirement age – not because they’re lucky or rich.

The key to building wealth is starting early and making it work even if you have debt.

Squeeze $100 Out of Your Monthly Budget to Invest

Believe it or not, you can start investing with $100 or less. To start, see if you can lower any of your current expenses to free up $100. You may want to cut out any unnecessary expense entirely or deduct $10-15 from your variable expenses to free up this money.

Then, choose a reliable broker to start helping you distribute your funds into ETFs and mutual funds. Mutual funds represent an investment that contains a variety of different shares of individual stocks and bonds. Funds have a set price each day along with expenses including commissions and operational fees.

Exchange traded funds (ETFs) are also a variety of investments, but they mostly have lower expenses than mutual funds and are bought and sold like stocks.

A more laid back way of investing is to simply make sure you are contributing to your retirement fund. If your employer offers a 401(k), make sure you are contributing to it. If they match your contributions ,be sure to utilize that benefit. If your employer doesn’t offer a retirement plan, you can always open a Roth IRA, and if you’re self employed, you can open a SEP IRA.

If you want to invest outside of retirement and don’t want to deal with all the specifics of investing in the market or make any risky moves, you’ll definitely need a broker.

Luckily, you can choose a digital and affordable brokerage site like Loyal3, Betterment, or Fidelity Investments that can help you manage your investments easily online.

I know Betterment specifically does all the hard work for you. When you open an account, you fill out a short survey about your investing goals and set up recurring deposits. Based on your goals, Betterment will automatically distribute your funds into ETFs based on your portfolio allocation plan whether it favors stocks, bonds, or both. You can also set up a Roth IRA with Betterment. Their fees are pretty low – around .15% – .35% as long as you deposit $100 or more per month.

Fidelity allows you to open a Roth IRA, choose from more than 10,000 mutual funds to invest in, and offers unlimited U.S. equity trades for $7.95 per month.

Talk to a financial advisor if you want to learn more about how to get started with investing and which strategy will work best for you.

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Start Building Passive Income

Building passive income is another way to build wealth even when you have debt. When you earn a combination of active and passive income, you’ll be bringing in more money to manage while putting in less effort.

While owning real estate is one of the most popular methods that may come to mind when someone says passive income, there are many other ways to establish it that don’t require much money to get started.

You can:

  • Create a product and sell it
  • Start building affiliate income for referring other people to products you use and like
  • Publish a book or write an ebook and promote it to earn royalties
  • Or start a blog and monetize it to bring in extra money

Passive income is not necessarily easy to establish, but like investing, it takes time plus a lot of extra work to establish an additional source of income.

Last year, I reviewed my health care company on my blog. Since they had a referral program, I mentioned in my review that if anyone was interested in joining, they could mention my name as a referral.

It turns out I receive $100 per referral, and it feels great to receive an email notifying me that I have a pending payment coming in along with the fact that I get to help connect people with a great health coverage option.

Debt Doesn’t Stop you From Earning More or Saving

Don’t let being in debt stop you from setting aside money to save and invest or taking it upon yourself to earn more. It’s important to focus on paying off your debt once and for all, but if you still have a few years left of payments to make and have low interest debt, you could be doing yourself a disservice by holding back on creating wealth.

It’s best to establish a healthy balance between the two so you can help improve your finances now and in the future.

 

Do you have debt? How do you plan on building wealth? Have you begun to invest despite being in debt?