How to build personal Wealth without Taking on debt

Tue, Feb 16, 2016

Financial Advice, Investment

While the global economy may have experienced something of a recovery in recent times, there are suggestions that the world may be braced for a global recession in 2016. There are certainly enough portents to suggest that this is the case, with the level of consumer debt throughout developed economies continuing to rise at a rate that is disproportionate to earnings.

Take the UK, for example, where British residents collectively owed an incredible £1.4 trillion at the end of August, 2015. This is a trend that has been replicated throughout Europe and the U.S., so there is no doubt that consumers would do well to tighten their belts in anticipation of an economic downturn.

How to build wealth and financial security without Taking on debt

While this makes perfect sense, however, the question that remains for more ambitious individual is whether it is possible to build and accumulate wealth without taking on debt in such circumstances? We believe that it is, so here are three steps towards achieving this: –

Change your Outlook as a consumer

In many ways, the challenges facing consumers are no different to those troubling business-owners in times of economic crisis. Just as entrepreneurs are tasked with reducing costs as a way of driving profitability, for example, consumers must develop a more frugal outlook in a bid to build wealth.

With this in mind, you should strive to adopt the approach of business-owners in the current economic climate, remembering the underlying rule that the precise amount that you spend on a weekly basis has a direct impact on how much you are able to save over time.

Create a Personal Budget and Prioritise the repayment of Bills

While none of us like budgets, these documents form the cornerstone of wealth building whether you are an individual consumer or a business-owner. After all, creating a comprehensive budget that lists all income and expenditure creates an overview of your financial circumstances, while also helping you to prioritise the repayment of bills and determine a fixed amount of disposable income that can be committed to savings.

There are also various ways through which you can create your budget, from simple Word documents and Excel spreadsheets to free-to-access mobile apps like Mint and Debt Manager. You can therefore choose an option that you are comfortable with and that you understand, helping you to get the most out of the exercise.

Avoid pursuing credit where necessary

While it is widely accepted that taking out lines of consumer credit helps to build your score and financial standing, this only applies if you take on small amounts of debt that can be easily repaid on a monthly basis (think of credit cards as an example). Conversely, taking out large amounts of credit should be avoided wherever necessary, as this will trigger monthly repayments that may be beyond your means or place an unnecessary strain on your financial budget.

Let’s say that you are keen on buying a home, for example, but struggling to find one that you can afford. Rather than taking out a mortgage at the higher end of your budget and potentially risking debt and long-term foreclosure in the future, you should consider renting and continue to accumulate savings until you can buy comfortably.

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