The simple formula for personal wealth management is to spend less than you earn and invest prudently, aligning your investments with your long-term goals.
When asked for his “go-to” tip for financial wellness, Ralph Bender, MBA, CFP®, of Enduring Wealth Advisors®, states it simply: live within your means.
While it makes sense to spend less than what you bring in each month, it’s also tempting to spend more since various forms of secured and unsecured credit are easily accessible. However, using credit cards and loans to maintain a lifestyle beyond what your monthly income can accommodate can put you into a vicious cycle of debt.
For example, carrying a constant $5,000 credit card balance at 18% interest could reduce your personal net worth by more than $100,000 over 30 years. A $50,000 balance for the same period could cost over $1 million.
That’s based on the assumption that interest-only payments of $75 per month, or 18% annually, get diverted from a retirement investment earing 8% over 30 years. In addition to the $24,000 interest payments going to the credit card company, the hypothetical investment stream grows to $111,777. A balance 10 times larger increases the burden ten-fold.
Check back throughout the month of April as LPL shares more tips for financial wealth from our network of independent advisors.