4 Stages of Wealth

Stage 1

Having “emergency cash” is the first stage. It’s having $5-7,000 liquid for life’s inconveniences (the furnace going out, the car needing work, etc.) When faced the inevitable challenges that arise, many people are forced to run their credit cards to make it through. They become stuck with high interest rate, non-tax deductible borrowing.

Stage 2

The second stage is the elimination of “bad debt.” I define “bad debt” as any debt whose interest is not tax deductable. Obviously, those high interest rate credit cards must be the first to go. But, we also want to divest ourselves of the borrowing associated with car loans, student loans, and personal loans because it typically can be done cheaper.

Stage 3

Shockingly, when you arrive at stage three, you will be considered in the top 5% of Americans in terms of financial security. Stage 3 is accomplished when you have 3-6 months of your total expenses in reserves. The average American has less than 1 month in reserve! When life shows them a minor inconvenience (like a job loss, an illness, or worse) most people are in a panic situation. With 3-6 month’s reserves, you will have time to weigh options and make better choices.

Stage 4

True financial security is attained when you become “debt free.” But not without debt. I consider you “debt free” when you have enough liquid assets to pay off whatever mortgage they have outstanding. Wealth building accelerates utilizing the tax benefits of having a mortgage in combination with strategies that utilize the 3 miracles of money…

My next post will be about the 3 Miracles of Money!