Yahoo Finance I Want To Retire a Millionaire: Here’s the Great Financial Advice I’m Ignoring and Why
Dreaming of retiring with a million dollars in the bank? Who isn’t?
There’s plenty of conventional financial advice out there that sounds good on the surface. Though these tips won’t necessarily hurt your financial health, they may not help you get on the fast track to millionaire status. This isn’t to say this advice is bad–it’s just not tailored for your ambitious wealth-building goals. If you’re serious about retiring a millionaire, you’ll need a different approach.
GOBankingRates talked to Brie Schmidt Zdravkovic, owner of Second City Real Estate, and Sebastian Jania, director of Ontario Property Buyers. Both are on track to retire with over a million in savings. Here’s the traditional financial wisdom they’re rejecting in order to meet their goals.
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Don’t Invest Until You’ve Paid Off All Your Debts
It’s always good advice to pay off debt as fast as you reasonably can. The interest rates on debt can mean that you end up paying much more than you initially borrowed. So if you have extra income, you should always put it towards your debt first, right? Maybe not.
“This can be true in some cases, but not all,” Zdravkovic said. “It is important to understand what kind of debt you are holding and the cost of that debt.”
Different kinds of debt can affect you in very different ways. Zdravkovic provided an example.
“Let’s assume you have a $40,000 auto loan for 60 months at 5.68% and a payment of $767 a month,” she said. “Over the course of that loan, you will pay $6,042 in interest or just over $100 a month. Now let’s assume you have $40,000 of credit card debt and you make the same $767 a month payment. With rates above 20% right now it will take you 124 months to pay off the balance and it will cost you $54,382 in interest payments, or $439 a month. In the first example with a fixed rate loan at 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 absolutely makes sense to use all your extra income to pay that off before investing.”
You should prioritize paying off high-interest debt like credit cards before you start aggressively investing. But as Zdravkovic’s example showed, if you have low-interest debt, you may be able to earn higher returns than the interest rate on the debt. In this case, it’s worth it to continue making payments on the debt while using your extra income to invest.
Cut Expenses Aggressively
If you want to get rich, you need to cut out every non-essential expense 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 look at this piece of conventional wisdom like diets,” he said. “The vast majority of people who aggressively diet end up aggressively binging afterwards when they realize that it’s not sustainable.”
If your budget is too spartan, you’re more likely to fall off track altogether. Leave room in your budget for small luxuries or hobbies you enjoy.
“The approach that I take is to focus on maximizing the top line through increasing my income through high-income skills and keeping my expenses at a comfortable level,” Jania said. “I do not spend whenever I feel like, rather, I simply don’t aggressively cut my expenses.”
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Never Use Credit Cards
It’s easy to let credit card debt get out of control. That’s why plenty of people advise steering clear of them altogether, especially when you’re 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,” Zdravkovic said. “You should have multiple credit cards that you charge a small amount (less than 30% of the available credit) and pay off in full each month. This will help to build your credit score which can save you tens of thousands of dollars.”
A good credit score can help you rent an apartment and lower your insurance rates. It will also make it easier for you to get a car loan or a mortgage with better interest rates. This means that using credit cards to build your credit score will actually save you money.
“The average home price in the United States was $495,100 in the second quarter of 2023, according to the Census Bureau and Department of Housing and Urban Development,” Zdravkovic said. “On a 30-year fixed loan with 20% down you would save over $38,000 if your credit score was a 760 vs a credit score of 699.”
As long as you pay your balance in full each month, using credit cards is a smart way to save yourself money, and can contribute to your goal of retiring as a millionaire.
Go to College
If you want to become a millionaire, you need a high-paying career. And to get there, you absolutely must get a college degree, right? For decades, this was held up: 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.
“From my experience, the more millionaires I meet, the more I realize that the traditional education system does not get me there,” Jania said. “Over 90% of the millionaires I’ve met got to that level through personal education things such as courses, workshops and seminars, not through traditional education.”
The landscape has changed. A four-year degree is no longer the only route to a lucrative career. And the exorbitant cost of a college education is often a significant investment, one that may not necessarily pay off with a high salary on the other end of it. But many well-paying jobs don’t require a degree at all. If you want to retire as a millionaire, it’s entirely possible to find a route that will get you there without a formal and full college education.
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This article originally appeared on GOBankingRates.com: I Want To Retire a Millionaire: Here’s the Great Financial Advice I’m Ignoring and Why
