Two books offer road maps to affluence
Dear Liz: I’m doing all the right things: accumulating an emergency fund, contributing to retirement funds and paying down the mortgage. I currently save about $12,000 of my $90,000 annual salary. Beyond this, how do I take the right steps to large wealth accumulation, as in $3 million to $5 million?
Answer: You’re already on your way. If you bump up your retirement contributions by at least the rate of inflation each year and earn an 8% average annual return over time, you should hit $3 million in about 35 years.
If you want to accumulate your fortune faster, you should save more, achieve a better-than-average investment return, or both.
If you’re serious about accumulating wealth, get a copy of “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. The authors outline how people really get rich in the U.S.: by living well below their means and making saving and investing a priority. Many of them also have their own businesses. The risk of failure for small businesses is high, but those who succeed keep more of the upside than those who work for someone else.
Stanley and Danko repeatedly make the point that the millionaires they studied were more interested in building wealth than in displaying high-status trappings. They tend not to drive fancy cars, wear expensive watches or spend a fortune on clothes. In his most recent book, “Stop Acting Rich,” Stanley makes the point that millionaires also tend to spend modestly on homes: Few have more than one, and most choose houses and neighborhoods that are easily affordable, rather than a strain on their finances.
These books can provide you a road map for your own path to wealth and provide inspiration for the journey.
Debt settlement ruins your credit
Dear Liz: Lots of “credit card remedies” are being marketed now. Is debt settlement a reasonable way to reduce debt? I have a good track record of payments and good credit scores (my median FICO score is 745). I’m concerned I’ll damage my creditworthiness for years to come.
Answer: Debt settlement means you’re paying less than you owe -- and creditors really don’t like that. Debt settlement can trash your credit, which is why it isn’t a good option if you can find other ways of dealing with your debt.
If your interest rates are relatively low and you can easily make your minimum payments, your best bet is to simply pay off the debt on your own, throwing as much money as possible at your highest-rate card while paying the minimums on your other debt. Once your highest-rate debt has been retired, you can apply that payment to your next highest-rate debt, and so on until you’re debt free.
Or you can transfer your debts to a fixed-rate personal loan and pay that off over time. Many credit unions offer three-year personal loans at rates of 10% to 15% to people with good credit.
If you’re struggling to make your minimum payments, you should arrange two appointments: one with a legitimate credit counselor (you can get referrals from the National Foundation for Credit Counseling at www.nfcc.org) and another with a bankruptcy attorney.
The credit counselor may be able to put you on a debt management program to pay off your debt at lower interest rates. Credit counseling is a neutral factor in credit scoring formulas -- neither helping nor hurting -- but your creditors may report you as late, which could hurt your scores.
Bankruptcy would really trash your scores, driving them down into the 500s. But it could wipe out your debt and give you a fresh start if you aren’t able to pay your bills.
What you want to avoid, if possible, is raiding retirement funds or home equity to pay credit card debt, particularly if bankruptcy may be an option. Retirement funds are protected in Bankruptcy Court and so, in many cases, is home equity.
Correction on credit union site
Dear Liz: I find your column very helpful, but the link you suggested for finding a credit union is useless. It seems to be an advertising space for scammers.
Answer: Sorry about that. The correct URL for the site mentioned earlier is www.findacreditunion.com.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.
