Reduce Debt Increase Wealth

Increase Wealth

January 08, 2023 MIsterchuck Season 3 Episode 147
Reduce Debt Increase Wealth
Increase Wealth
Show Notes Transcript

Increase wealth can be difficult for most, the younger getting started and staying focus can make this happen much earlier in life. Put yourself first in life and start taking the steps needed to be better financially sooner.

 Article Link:

https://www.investopedia.com/terms/w/wealth.asp#:~:text=Wealth%20measures%20the%20value%20of,the%20accumulation%20of%20scarce%20resources. By the Investopedia Team

https://www.guardianlife.com/investments/how-to-build-wealth

Contact: ReduceDebtIncreaseWealth@Gmail.com
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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. Increase Well, increased wealth can be difficult for most, the younger getting started and stay in focus can make this happen much earlier in life, put yourself first in life and start taking the steps needed to be better financially sooner. I have two links in my show notes on two articles. The first one's investopedia.com Understanding wealth, how it's defined and measured, and the second one from Guardian life.com. Investments how to build wealth. So let's start out first by saying what is wealth. Wealth measures the value of all the assets worth owned by a person, community, company or country. Wealth is determined by taking the total market value of all physical and intangible assets own and then subtracting all debt. This is also known as your net worth. Essentially, wealth is the accumulation of scarce resource wealth is an accumulation of valuable economic resources that can be measured in terms of

Unknown:

either Good Goods or money value. The

Charles McDonald:

concept of wealth is usually applied only to scarce economic goods, goods that are in abundance and free for everyone provide no basis for relative comparisons across individuals. Unlike income, which is a flow variable, wealth measures the amount of variable economic goods that had been accumulated at a given point in time, you can have a high income and never be wealthy. So let's first talk about why that may be if you have a lot of income, maybe you also have a high amount of debt. The more debt you have, the less wealth you're gonna be measuring. Because again, it's the mark of value of everything you own less debt. That is the that is the measurement of how much wealth you may have. And how do you build wealth, building my wealth strategies to grow your assets at any age, the goal of building wealth, the wealth means something a little different to most of us. Some imagined traveling the world while others think I'm making a dream purchase. Maybe you want to be able to visit faraway family without thinking about the costs. send your kids to college to be able to retire at the age of your choosing. Well, wealth making conjuncture different dreams we all aim to achieve the same fundamental goal, live comfortably debt free and well prepared for whatever the future may bring. Thus, have little or no worries on your financial side of your life. So how do I start to build wealth? Well, number one, you got to create a budget. Write down the basic accounting of how much money you bring in versus how much money goes out. earmark every dollar of income for a specific purpose, including living expenses, savings, fund money and any debt elimination. begin building an emergency fund with the goal of saving enough money to cover your expenses for at least three months should you lose income have to cover a major living expense such as a house repair, or if you get sick or injured and then number two is a eliminate debt. If you have loans or carry credit card debt make plans to eliminate the debt as quickly as possible in order to free up more income for savings and investing. Invest wisely. Choosing an investment is a big step you're looking for growth may have to accept that comes with some level of risk. He can possibly grow your wealth, but you can also experience a loss in wealth. Also time needs to be considered when it comes to investing so you invest in solutions based on your risk tolerance and needs. enlist the help of financial professionals and explain your investment options and design a strategy can help you get closer to your goals. The main part of invest wisely is having a financial advisor or that will help you

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do this. Use insurance.

Charles McDonald:

Whether purchased individually or through an employer and different types of insurance can actually help you build wealth faster. Because it's gone up cover you when something bad happens. And you can do this at any age course the younger you start, the sooner you're gonna be considered wealthy. And the more money you're gonna have, because it takes a lot less money on hair, it says, Did you know that you could, you would have to save 15 times more per month to reach a million dollars by age 65. If you start saving at age 55, then if you were to start at age 25, so the younger you start, the sooner you're going to have more money, more investments, more wealth, don't take on new debt. If he had not yet had the responsibilities of family owned a home that means you can eliminate any debt you have a lot faster. live within or below your means to eliminate the need for line of credit, or any other debt, install your savings or investment goals. Take advantage of lower insurance premiums because this is in their 20s insurance that can help you build wealth over time will be the cheapest for you at this age. So locking your plans now. Purchase in the midst of insurance individually or speak with your employer about any insurance plans. You can get through work that would go with you should you change jobs. And that's important. Raise your standard of living slowly. While you say it might be tempting to take on extra payment for that nice new car, or a jet off to luxury getaway with friends. Sorry to cold water on those plans. But it's best not to get into those temptation too much. Definitely treat yourself but budget for it. And remember to keep your long term goals and perspective. If you save them money, invest it wisely, you'll get to enjoy those kinds of purchases sooner than you think. And your 30s. Try to save on housing, buy insurance, prioritize retirement, start a college savings plan for your children, in your 40s preserve the retirement savings that you have, no matter how tempting to not cash it out or borrow against it. Assess your investments, meet with a financial professional to go over your investment options and ensure you're using the right investment for your base on how much risk investment risks you can handle. And what you'd be able to contribute. Protect your learning loved ones insurance. And the same thing goes with in your 50s earmark any salary increases or bonuses to savings, reconsider school loans, it might be difficult, but taking out a college loan for your kids can be risky unless you can repay the borrowed amount within 10 years or before you retire. Take all the help you can get if you're not getting help from financial professionals, or through your employer, make an appointment now. So that's the two articles. That article is assuming the only way you're going to build wealth is by saving it and invest in it in the stock market. Long Term Investments. Well, that's one way in that's what Warren Buffett has done. Warren Buffett is worth billions of dollars, because he saved his money. He kept his debt down. He was frugal in his personal life. He invested as much money as he could and to other

Unknown:

companies that help him grow richer. That's one way to do it.

Charles McDonald:

There's another way you can do it. Especially if you work in the construction industry. If you're a carpenter, electrician, a

Unknown:

plumber, any, you know, bricklayer, whatever,

Charles McDonald:

anybody working in the construction industry has a benefit here because you don't have to invest all your money into the stock market. He might need some money in a retirement account granted, and you should be making those contributions on a yearly basis based on if you have a 401 K or in your own individual retirement account IRA because that's gonna help reduce your taxes and is gonna have money set aside aside for your retirement for when you're no longer working, again, the retirement account that you invest in, you cannot start drawn out to your 59 and a half. That's the earliest, but the latest is 72.

Unknown:

Now, but what else can you do? Well, Donald Trump did it through real estate holdings. That's why I

Charles McDonald:

said, if you work in the construction industry, maybe you can start out by investing in real estate. I'm not saying invest in single family homes. But that's where you could get started, you're probably seen and heard all these ads on TV or on the Internet, where you can buy a house and flip it and make $10,000. Well, that's fine. That's a way to get started. But that's not a way to build long

Unknown:

term wealth. If you can do that,

Charles McDonald:

and you can find a home in your area, that's not overpriced, that's going to be hard. And you can clean it up, do very little to it, make it presentable, maybe it paint, carpet, nothing too serious. And then you can sell it within 30 to 90 days, and make a profit. That's called flipping. But a lot of people are already doing that. But if that's where you want to get started, maybe you can do two or three of these flips in a year's time, or maybe a couple years, and build up some money. So that you can now invest in rental property, rental property is I would stick with residential rental, and buy at least a two family home. With that, you will be getting into more debt. But that is considered good debt, because you have an assets that are gonna generate income for you. And over time, it's gonna go up in value. That's why buying a new car is a bad investment, because you not only taken on debt, but as soon as you drive it off the lot, you're gonna lose five to 10% of the value of the car. And in the first five years, you're going to lose roughly 50 to 60% the value of the car and you're paying interest on the loan. So that is not

Unknown:

a good investment.

Charles McDonald:

So buy yourself a good used car and the $20,000 range, pay it off in a couple years if you have to borrow money and invest in residential real estate. And why am I saying that? Well look at what Trump did. Now granted all his holdings, he owns at least part of it. But he got investors to help him. And he what he probably have done is create a limited liability company got a couple investors to put money in with him. And he went out and bought a expensive building, let's say a big building a multiple unit, building maybe 100 units. And then he bought it under market value. He renovated it as much as he could. He got it all run it out. And he is collecting rent at the top of the pyramid, he's getting a primo rates a rent from all these units, thus creating income form. And he was able to create a pretty good decent return for himself

Unknown:

and his investors. And again,

Charles McDonald:

the longer you hold it, the more is going to be worth so you hold it for 10 years. The renters are paying the mortgages for you. Now this goes for all rental property, you have a mortgage. And the renters are basically paying the mortgage assuming you keep it 100% rent or 90% 80%. Rented at all times. And that's reason why I say a multiple unit. residential real estate is because when somebody moves out, if you have a two family that's 50% of your income. If it's a four family, it's only 25% If it's 100 families, then it's only 1/100 of your income. So you be able to get in there, clean up the unit and get it rented out over time and it's not gonna hurt you the more units you have. We're if it's a single family home, and they destroy the house and they move out and it takes you six months to renovate it. And yet six months a year paying the mortgage at six months where you don't have a income coming from that particular unit. That's why I'm saying you need to focus on multiple units. So let's say you start out with a two family, you have a 10 years, and at one up, say 100,000. And value, your mortgage is fairly low. So you are just getting a pretty good return, but you want to sell that property.

Unknown:

And move up to

Charles McDonald:

maybe a four unit from a two unit to a four unit, you need to talk to a tax advisor about this is called a like kind exchange. As long as you sell in long and you got to tell your real estate agent for you do it, you got to talk to your tax advisor before you do it. Any buyer should be aware of it. And any person you're buying from the replace it should be aware of it. Everybody needs to know you're doing a like kind exchange. And why do you want to do that. Because if you sell your first unit, and you have $100,000 Gain on it, if you don't do a light kind exchange, you got to pay taxes on that gain 100,000. If you do a light kind exchange, you don't pay taxes is the taxes are deferred into whatever property you're buying. So lets you buy a for family for what you can afford maybe,

Unknown:

I don't know, half million dollars or more. defer your gains.

Charles McDonald:

What's that mean is your basis is now instead of 500,000 would be 400,000, because your gain has been deferred. So that gives you less depreciation you can take on the building, because you're already took that depreciation on the first building. So this kind of flows through and now you have more units, your income should be up, maybe you have some investors, maybe he had an investor in first property and you have the same investor in a second property. So everything just rolled right on. And now you got a four unit building instead of a two yen building. You keep that for 10 years, and it goes up to $100,000. You can either borrow money against that building, and use it for a downpayment, buy another runs of that residential rental property, with a create a different limited liability company known as an LLC, maybe with the same investor, maybe with one new or two new investors and buy an eight unit building, you see where I'm going here, you're keeping increasing your buildings to more units, so that when somebody moves out, you have less risk of loss of income. And then the whole time you own two buildings, the value of these buildings are going up. And if you own 50% of these buildings, because it's a limited liability companies, the value the market value, that building is 50% of that is considered

Unknown:

towards your net worth. Again,

Charles McDonald:

you need to talk to a tax professional, a need to talk to real estate professionals. And if you're gonna do this, and you're gonna do multiple buildings, then you should consider getting your real estate license so that when you buy and sell a building, whether it's a light kind exchange or not, it's still considered a sale and the purchase, you're gonna get a commission from the sale, you're gonna get a commission from the purchase. So you're paying yourself for doing the same work. Plus you get the gain, your percent of the gain in that particular building. If you're 100% owner, you get 100% of the gain. If you're 50%, you get 50%. And that's how you're gone to over time, maybe 10 or 20 years. Chris, create wealth for yourself and your family because when you pass away, it can get passed down to your children. Again, you need to talk to a professional and that would be a an estate attorney or a tax professional that works in these type of situations that can help you plan to minimize the taxes at every level at every step. That's how you build wealth. So if you're just getting started, and you got some debt, your number one thing you should be focusing on today is reduce your debt, increase your savings, have an emergency fund in place, have extra money in place, so that when you buy that first building, do that first home flip, or whatever you decide to do, you have some cash available, you can borrow money against your personal residence, to buy this first building. But when that first building is then closed on, you should be able to borrow enough money against it to pay off that loan, that second mortgage on your personal house, you want to keep your personal assets out of this process as much as possible. So that's why I say if you're in the construction industry, you know people within industry, and you buy a home that needs remodeled and needs a major remodel because you got to super cheap. And you know professionals in you know what needs to be done, he gonna have a good idea was going to cost before you buy it. That is the clue. So you can plan ahead and borrow enough money when you purchase that home or building or resonance, whatever it is to do these improvements, then turn it into real estate rental and continue accumulating the value of that asset, and other people are paying the mortgage for you on that particular asset, and you're making money on it. And the best part of this is, when you take depreciation against that residence, that building that you're renting out, that's gonna help reduce your personal taxes. Once your debts under control, you have an emergency fund and minimum three to six months, you have some extra cash around that you have available to do some of the remodeling or for a down payment for the a mortgage on the purchase of the next building. So that you have everything under control in you know what to expect. Again, your loan on your personal house should be down to a level where you can easily make the payments. Now, maybe you think a $2,000 monthly mortgage is an easy payment, maybe it is I don't know how much you're making are you then continued to work at your current job while or career while you are doing this. Because just having a high income is not going to be enough for you to build wealth over the long term, you need to make investments. And in this case, the residential rental property is your investments. But you also need to make investments in the stock market for your personal retirement. I'll be back in one moment with my final thoughts. If you're interested and learn in about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt and even tells you how much and when to transfer money into your savings account and how much and when to transfer money to your debt and which debts to pay off and order. First. It's not cheap. It's a one time payment. But it will definitely be an investment something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase wealth@gmail.com and I'll send you the information about this online software that worked great for me. Well, the first two ways investing in the stock market are long term investments and or investing in real estate rental property where you can do it on a more or less part time basis. And snot gonna take a lot of your time course the residential renting could take a lot of your time if you let it but you can also have rental agents collect the rent for you and take care of maintenance and those type of things. So that you've these first two, you can continue to work, your normal career job or the job that you enjoy the most Let's hope. And then the third way to build wealth is to own your own company. If you own your own company, you're gonna have to be working for that company and hopefully generate enough income to pay a salary to you so that you have income for your personal level. And this way, you're not going to be able to continue working in that career job, or then having another income source. So if you choose to either buy a franchise business, which is the easiest way, because they've figured out everything for you, but you got to pay them a fee the whole time, or you have a great idea of starting your own business, or you're in the field where you can create your own business, and work from there and build it into something. With the help of others, of course, you're gonna have to need employees to do this. So that you can then maybe 20 years down the road, sell it for a large sum of money, or even sooner than that, depending on the business. A lot of these billionaires today started a business, build it up to a point where it's worth millions or dollars, and then sold it off to somebody, some large corporation that wanted to be in that type of business or whatever the case, that is the third way you can build your wealth and build a generational wealth. And what only business that comes to mind is Mars candy, since I hauled chocolate form and other things for him. That was a one person who started that business and it grew into were, even though his son ended up buying it from him, and creating the what we know today as Mars m&ms and all the other candies, and then they got into pet food. And they made investments in Wrigley and other things. That was three or four generations ago. And that's a business that's was sustainable and lasted through time and made many generations fairly wealthy. But that would be more of a long shot. So if you're just you know, an average person, think yourself an average person, maybe you work in the construction industry, that would be great for the rental property because you have contacts, or we'll be able to have contacts, be able to do a lot of the work yourself who like the basics like maybe drywall, painting, cleaning, general maintenance, and then you do have contacts in the roofing, electrical plumbing, that you can have people come in and work for you. Now if you know a plumber or electrician, or both who are doing the same thing. Maybe you can work out some type of deal where you work on each other properties at a reduced rate. Or something I mean, you got to get paid for what you're doing and material you buy and don't work for free. But you can make an arrangement where you help each other out. So you're there and quickly and you can get this stuff turned over pretty fast or you can get the rentals rented out. Or if you're starting out with buying a single family home you're planning on doing a flip, you want to do it in 30 or 45 days you can get everything done quickly and turned over and sold, which is the hardest part of doing a flip is actually selling it you will start making income much greater than you could be making more you're working on a normal job and you're gonna be able to build up your wealth much faster. And you can use the tax code to your favor to reduce your taxes which help you build up wealth even faster. Use professional financial advisors for your your retirement investments, and they need to know what you're doing to generate money. You can get to a point on real estate rentals where you can actually quit your job have enough income to pay your your personal living expenses and still be able to grow into more properties as you go down the road. Again, Laura Russell real estate is the even though you're getting into debt to do it, it considered good debt because it is generating income and wealth for Are you so that's not considered bad debt? Bad debt is buying an expensive car and financing 100% of it. Bad debt is a personal loan at a high rate of interest or a payday loan.

Unknown:

Those are credit cards. Those are bad debts.

Charles McDonald:

Because you're not creating any income or any wealth for you got to do your homework. You have to have a plan. And the first thing to get started, you need to have a plan for your personal life, your personal finances and maintain that through the whole time you're doing this for the rest of your life. And when you do everything, and everything works out for you, even hard times won't be as hard. Good times will be even better. And you'll be overall glad you did. So