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You don’t have to start an internet company or come up with the next great invention to retire a millionaire.
Nadine Burns, financial planner at A New Path Financial, works with Americans from all walks of life, including teachers, mechanics, and healthcare professionals, and has seen many retire with a seven-figure net worth.
With the right financial strategy and a thoughtful, proactive approach, Burns says you can reach your financial goals and own your home by the time you retire, especially if you start in your late 20s or early 30s.
Below, Burns shares the strategy she uses to help her clients achieve their retirement goals.
Understand your net worth
Burns says understanding your net worth — and tracking it throughout your working years — is the first step to retiring comfortably. Your net worth should rise throughout your working years and allow you to retire with more assets than debts.
To find your net worth, add up all of your assets then subtract your debts.
Stay out of debt
Staying out of debt is key to building wealth, Burns says. Making wise spending decisions, such as buying a used car instead of a more expensive new car and paying it off for years, can go a long way to growing your net worth. If you have a credit card, aim to pay the balance in full every month.
“Why pay someone else extra for the things that you buy?” Burns says. “Debt costs you money no matter what. Even if you get 0% interest on a car loan, the car is depreciating.”
If you have debt, Burns suggests paying it off in a particular order: If you owe money to the IRS, pay it off first; this keeps them from garnishing your wages. In the meantime, pay the minimum required amount on all other debts. After that, use the debt snowball method: Focus on eliminating debts with the lowest balance first, so you can get them out of the way and feel motivated, while continuing to pay the minimum on your other balances. As you pay off one debt, “snowball” your payment to the next-smallest payment until you’ve paid off everything.
One debt that may be unavoidable is a mortgage, which Burns says is acceptable because housing tends to appreciate over time. Burns says the best way to get ahead with your mortgage is to have a 20% down payment ready before purchasing your home. Ideally, you want to be able to pay off your mortgage in 15 years.
Saving for the things you want to buy will help keep you out of debt. Burns recommends first having $2,500 cash in the bank that can cover unexpected expenses, such as replacing a flat tire, so you don’t have to use your credit card. Then, work on building an emergency fund equivalent to six months of your minimum required living expenses.
Once you’ve covered your basics, decide what goals you’d like …read more
Source:: Business Insider