It’s not about the interest rate
There are so many articles and blog posts out there that talk about how to get the best return for your money. They talk about this investment and that investment, tax-deferred investments like 401(k)’s and IRAs, tax exempt investments like Roth IRAs and Education Savings Accounts (ESA), gold and silver, bonds and CDs. They even talk about getting the biggest tax deduction so you can invest more money and get a greater return. The problem is they’re missing the key to unlock your biggest returns.
Are you ready for the secret? Are you sitting down? Here it is: Your most powerful wealth building tool is….. your income. Well now, isn’t that underwhelming? Maybe so, but it’s true. Unfortunately so many people are focusing on the rate of return with their investments that they’re missing the big picture. Yes, your rate of return is important, but a high rate of return doesn’t do you much good if you don’t have any money to invest.
Get out of debt!
What I mean is you can’t invest a whole lot when you have debt payments of any kind. You can search up and down for an investment with a 5% higher rate of return, but if you’re only investing $50 a month or $100 a month, you’re not going to get very far. Of course the argument could be made that time is on your side, and with enough time and the right investments that $50 per month will turn into a large nest egg. But what if you didn’t have any debt? What if, instead of investing in your bank by paying interest to them, you invest in yourself? If you had no debt, how much money could you invest for your future? It’s a lot more than what most people are investing right now, and I’m pretty sure that investing more money each month will result in a much larger nest egg at the end.
So if you’re in debt (not including your house), I actually recommend you reduce your investing activities (or stop them altogether) until you can get rid of your debt and free up your income to work for you. Most of our clients take about 18-36 months to eliminate their consumer debt once they temporarily stop investing. Obviously we want you to invest but you really don’t have much to work with until your debt is gone. So let’s stop tiptoeing around and start getting serious about your future. Stop your investing, use that money to crank out results by eliminating your debt (quickly), and then start investing like you actually want to see some results over time.