7 Steps To Getting Rich

Take action and get financially free with these 7 steps to getting rich. Now, if you do not like these 7 steps, we have also added an alternative way to get rich.

Step 1: Emergency fund

In life unexpected event happens. When something that cost you money happens, you want enough money to cover the expenses without being desperate and stressed out.

This is why having an emergency fund is important. This emergency fund should cover at least three months of total expenses. The amount of months varies, it’s whatever gives you peace of mind.

For some people, the emergency fund might be 3 months to a 1 year or more.

Is important to have an emergency fund, if you suddenly need money, you really don’t want to sell your stocks in an emergency. Doing so will interrupt the compound effect. You will also have to pay taxes on it.

Any alternative?

An alternative to having an emergency fund could be taking a margin loan against your stocks.

Step 2: 401k

401k decreases your taxable income and uses the tax code to your advantage. The employer-sponsored retirement saving plant helps you plan for the future.

If you put in $1,000 then your employer matches $1000, that’s an instant 100% return on your money. Of course, there is a limit on the amount of money your employer can match, it varies based on your current employer.

Cons:

There have being an increase in people not advocating for the 401k. One of the main reasons is that the 401K can change its rules anytime.

Step 3: Getting rid of bad debt

There are two types of debs. One that brings you income and one that takes income away from you.

Example of good debt

You buy a duplex with a loan with the intention of renting it to generate income.

Example of bad debt.

You buy a luxury car that does not bring you any income, just because you want to impress other people.

When can use my money on liabilities?

Once you have enough money to live off the income that your assets bring, then is ok to buy your luxury car, until then is not a wise choice to waste money that takes away from your financial freedom goal.

In what order to pay the debt?

From highest interest to lower.

Example

if a credit card has a 15% interest rate and you have a mortgage of 5%, then you pay your credit card first since 15%-5% is 10% so you will be saving 10%.

Step 4: HSA account

HSA ( health savings account) is like a combination of the traditional IRA and Roth IRA

What’s so great about HSA?

The contribution that you make are not taxable.
The money that you withdraw from the HSA is not taxable
The money that you put in grows tax-free.

If this is so great why everybody is not using it?

It can only be used for medical expenses.

Step 5: Roth IRA or Traditional IRA

The Roth IRA often offers much better investment options than the traditional IRA. In general, the idea of investing in the Roth ira is that you usually make less money in your earlies year and way more money in your late years.

In contrast, the traditional IRA is for people that have a huge income now in the earlies years, but that have a lower income in the late years.

Step 6: Where else can you put the money?

One of the problems with the 401k, matching 401k( your employer matching to a limit what you put in the 401k), HSA, Roth IRA, and traditional IRA is that there is a limit on the amount of money that you can put in.

You have to find other ways to use your money.

Step 7: Brokarage account

A brokerage account is like a checking account where you hold your money but inside a brokerage instead of a bank. You use the money to buy, sell and hold securities such as stocks, ETFs, etc.

What differentiates a brokerage account

You have immediate access to your money just like a checking account.
The is no investment limit, so you can put in as much money as you want.
A bad thing is that for any realized gain you have to pay taxes

Alternative

Some people do not like the government or they do not like to have the hard-earned money that they invest hostage until they are retired.

An alternative way to getting rich is just to ignore steps 1 to 6 and start with a brokerage account.

Example:

If you have been investing with a brokerage account and an emergency arrives and you need $1000, all you have to do is take a margin loan. Problem solved!

7 steps to getting rich