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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
The quick-and-easy guide to unlocking the potential of your income
Building Wealth Essentials For Dummies is your go-to guide for learning the key concepts involved in growing your finances, no matter where you're starting. Small and value priced for the budget conscious, this book breaks down investing, taxes, retirement planning, and all the other wealth-building fundamentals you need to know. Each section gives you tips and strategies you can use to increase your net worth. Investment strategies, real estate advice, retirement account basics—and everything you need to make sure you're not getting too risky with your money. Make a plan and stay on track for your savings goal, with easy-to-understand information and guidance in this Essentials guide.
- Get to-the-point information on saving, investing, and managing your money
- Discover strategies for building wealth and increasing net worth faster
- Easily reference details on retirement accounts and other money matters
- Ensure you're making smart decisions with risk management and spending tips
Building Wealth Essentials For Dummies is a great buy for personal finance beginners who are ready to start putting their money to work.
Your path to profitable, purpose-driven sales starts here.
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Veröffentlichungsjahr: 2025
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Wealth Building Essentials For Dummies®
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Table of Contents
Cover
Title Page
Copyright
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Where to Go from Here
Chapter 1: Developing a Wealth Mindset
Focusing on Abundance
Developing a Wealth Mindset Toward Debt
Chapter 2: Practicing Mindful Spending
Keeping Lifestyle Inflation in Check
Avoiding the “More Money, More Stuff” Trap
Budgeting: Yes, You Need a Financial Plan
Chapter 3: Exploring Winning Investment Strategies
Compound Interest: The Eighth Wonder of the World
Exploring Bonds and Other Lending Investments
Investing in Mutual Funds and Exchange-Traded Funds
Chapter 4: Managing Risk Like a Pro
Understanding Investment Risks
Diversifying Your Investments
Buying and Selling Stocks
Chapter 5: Investing in a Small Business
Owning a Small Business
Starting Your Own Small Business
Buying an Existing Business
Chapter 6: Raking in Profits from Real Estate
Homeownership: Building Equity One Brick at a Time
Building Wealth through Real Estate Investing
Considering REITs (Real Estate Investment Trusts)
Chapter 7: Cutting Your Taxes (Keeping More of What You Earn)
Reducing Taxes on Work Income
Increasing Your Deductions
Making Tax-Wise Personal Finance Decisions
Chapter 8: Planning Financial Independence
Grasping the Keys to Successful Retirement Planning
Figuring Out When You Can Stop Punching the Clock
Chariots of Freedom: Your Retirement Accounts
Getting the Most from Your Retirement Accounts
Chapter 9: Leaving a Legacy
Understanding Estate Planning
Answering Key Questions to Gather Critical Information
Decreasing Your Estate Taxes
Chapter 10: Ten Keys to Successful Fund Investing
Minimizing Costs
Evaluating Historic Performance
Sticking with Experience
Considering Index Funds
Steering Clear of Leveraged and Inverse Exchange-Traded Funds
Reading Prospectuses and Annual Reports
Assessing Fund Manager and Fund Family Reputations
Rating Tax Friendliness
Determining Your Needs and Goals
Tuning Out the Noise
Index
About the Authors
Connect with Dummies
End User License Agreement
List of Tables
Chapter 3
TABLE 3-1 The Difference a Few Percent Makes
TABLE 3-2 Asset Allocation for the Long Haul
Chapter 4
TABLE 4-1 Stocks versus Bonds
TABLE 4-2 Why You’re Buying Your Own Stocks
Chapter 6
TABLE 6-1 How a Rental Property’s Income and Wealth Build Over Time
Chapter 7
TABLE 7-1 Special Tax Credit for Retirement Plan Contributions
Chapter 8
TABLE 8-1 Allocating 401(k) Investments
Guide
Cover
Table of Contents
Title Page
Copyright
Begin Reading
Index
About the Authors
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Wealth Building Essentials For Dummies®
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
Copyright © 2025 Eric Tyson & John Wiley & Sons, Inc. All rights reserved, including rights for text and data mining and training of artificial technologies or similar technologies.
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Library of Congress Control Number: 2025932930
ISBN 978-1-394-32619-8 (pbk); ISBN 978-1-394-32621-1 (ePDF); ISBN 978-1-394-32620-4 (epub)
Introduction
Welcome to Wealth Building Essentials For Dummies. This book draws on my decades of experience working in the financial services industry as a financial counselor and bestselling author to help you create a plan to boost your wealth.
I know from working with people of modest and immodest economic means that they increase their wealth by doing the following:
Living within their means and systematically saving and investing money, ideally in a tax-favored manner
Buying and holding a globally diversified portfolio of stocks
Building their own small business
Investing in real estate
This book explains the essentials of each of these wealth boosters. You learn how to build a mindset toward wealth, pick smart investments, pursue revenue-building opportunities, and mitigate risk. And I help you keep wealth in its proper and balanced perspective.
About This Book
This book covers the essential financial strategies you can use to build wealth. I begin by helping you consider what wealth means to you in terms of boosting your assets and beyond. I also discuss the mindset required to be a successful wealth-builder. The chapters that follow discuss financial strategies you can use to boost your assets.
You can read this book from cover to cover if you want, or you can read a particular chapter or part without having to read what comes before it. Handy cross-references direct you to other places in the book for more details on a specific subject.
Foolish Assumptions
Every book is written with a certain reader in mind, and this book is no different. Here are some assumptions I made about you:
You may have some investment knowledge and investments, but you’re looking to get serious about building and protecting long-term wealth.
You want to evaluate your investment advisor’s or broker’s advice or other investment ideas.
You have a company-sponsored investment plan, like a 401(k), and you’re looking to make some decisions or roll it over into a new plan.
If one or more of these descriptions sound familiar, you’ve come to the right place.
Icons Used in This Book
The icons in this book help you find particular kinds of information that may be useful to you.
This icon denotes strategies that can enable you to build wealth faster and leap over tall obstacles in a single bound.
I think the name says it all, but this icon indicates something really, really important — don’t you forget it!
With this information, I try to direct you away from blunders and mistakes that others have made when making important personal finance and related decisions.
Where to Go from Here
If you have the time and desire, I encourage you to read this book in its entirety. It provides you with the essential information you need to maximize return on your wealth-building efforts while reducing risk. You also can pick and choose the information you read based on your individual needs. Just scan the table of contents or index for the topics that interest you the most.
Chapter 1
Developing a Wealth Mindset
IN THIS CHAPTER
Shifting your mindset toward abundance
Applying a wealth mindset to debt
In this chapter, I encourage you to consider what wealth means to you. I explain how to think in terms of abundance, which is essential to cultivating a healthy wealth mindset. I also help you recognize the common flaws in mindset that lead to counterproductive financial habits, such as over-saving and accumulating too much debt. Think of this chapter as a touchstone you can revisit as you define your financial goals.
Focusing on Abundance
Wealthy people with a healthy and balanced perspective on wealth and life possess a mindset that focuses on abundance. They use and enjoy their money, and although this may sound counterintuitive, they resist over-saving.
Yes, it’s true: Over-saving is possible. Some people, in fact often the best savers, get hooked on amassing more and more money and have trouble enjoying and using their money. Super savers and money amassers generally equate more money with more financial security. Theirs is a scarcity mindset.
This section can help you recognize this scarcity mindset in yourself and others, and provides tips to address and temper it.
Avoiding a scarcity mindset
Over-savers possess a scarcity mindset. Just as some people think that their financial problems would be solved if only they could earn a higher income, over-savers typically believe that if they could reach a greater level of assets, they’d be more relaxed and could do what they really want with their lives. The bar, however, continually gets raised, and the level of “enough” is rarely attained. For this reason, some of the best savers and money accumulators also have the most difficulty spending money, even in retirement.
Some super savers have insecurities relating to money. Specifically, they view amassing financial assets as providing them with safety and security that extend far beyond the financial realm. While having more financial assets, in theory, provides greater financial peace of mind, these riches don’t necessarily provide more of the other types of security — friendships, for example, for which hoarders are searching.
Achieving a certain level of affluence can provide for greater access to quality healthcare. However, once one reaches the point at which quality healthcare is the norm, the incessant pursuit of more money can have a negative impact on an individual’s long-term health and quality of life. For example, super savers often believe that they will be better protected as seniors and better able to enjoy their retirement years with hefty account balances. But the pursuit of more money, which typically entails longer work hours and greater stress, can lead to more health problems before and in retirement.
Many super savers, who also tend to be obsessed with work, come from homes and families where they felt on the edge economically and emotionally. Although there are so many things that we can’t control in the world, money amassers typically derive a sense of both economic and emotional security from saving a lot of money.
Super savers have an amazing ability to selectively hear particular stories that reinforce rather than question their tendencies and beliefs. For example, stories periodically surface about how the legions of baby boomers retiring will bankrupt Social Security and cause a stock market collapse. Super savers batten down the hatches, save more, and invest even more conservatively when such stories worry them. News stories about stock market declines, corporate layoffs, budget deficits, terrorism risks, rising energy prices, and conflicts in the Middle East and elsewhere cause super savers to close their wallets, clutch their investments, and worry and save more.
Balancing spending and saving
Most people don’t want to work their entire adulthood. And, even if they do enjoy working for pay that much, who wants to live on the edge economically, always dependent upon the next paycheck to be able to pay the monthly bills?
That’s why you should avoid the extremes of overspending and over-saving. Consider the analogy to eating food: Eat too little or not enough of the right kinds of foods, and you go hungry and possibly suffer deficiencies of energy and nutrition; too much eating, on the other hand, leads to obesity and other health problems.
Overspending and its companion, under-saving, hamper your ability to accomplish future personal and financial goals and in the worst cases, can lead to bankruptcy. Over-saving can lead to not living in the moment and constantly postponing for tomorrows that we may not live to enjoy.
Remember Goldilocks and her quest at the bear’s home for the bowl of porridge that was not too hot and not too cold and a bed to rest in that was not too hard and not too soft. Everyone should save money as a cushion and to accomplish important personal and financial goals.
Keeping money accumulation in proper perspective: As with any good habit, you can get too much of a good thing. Washing your hands and maintaining proper hygiene is worthwhile, but it becomes problematic when you obsess over cleanliness and it interferes with your life and personal relationships.
Conquering over-saving and an obsession with money typically requires a mix of education and specific incremental behavioral changes. Substantive change typically comes over months and years, not days and weeks.
The vast majority of super savers work many hours and may neglect their loved ones and themselves. They typically need to work less and lead more balanced lives. That may involve changing jobs or careers or simply coming up with a “stop-doing list,” the opposite of a “to-do list.”
Giving yourself permission to spend more:
Money amassers usually need to discover how to loosen the purse strings. Figuring out how to spend more and save less is a problem more folks wish they had, so consider yourself lucky in that regard! Give yourself permission to spend knowing that the money you’ve saved will continue to grow and be available to you as you need it.
Doing some retirement analysis: Understand the standard of living that can be provided by the assets you’ve already accumulated. There are numerous useful retirement planning analytic tools you can use to assess where you currently stand in terms of saving for retirement.
Among the various mass market website retirement tools, I really like T. Rowe Price’s (www.troweprice.com/usis/advice/tools/retirement-income-calculator) and Vanguard’s (investor.vanguard.com/calculator-tools/retirement-income-calculator/).
Getting smart about investing your money: While super savers love watching their money grow, some have trouble with investing in volatile wealth-building investments like stocks because they generally abhor losing money. Even bonds can be a turn-off because they, too, can fluctuate in value.
So, part of the challenge with getting comfortable with spending more of your money is to get wiser about investing. Please see Chapter 3.
Going on a news diet: Super savers often benefit from minimizing and even avoiding news programs that dwell on the negative, which only reinforces your fears about never having enough money. One justification that super savers use for their actions that constantly resurfaces in the news is the litany of fears surrounding the tens of millions of baby boomers hitting retirement age around the same time. The story goes that retiring boomers will cause a mammoth collapse of the stock market as they sell out to finance their golden years. Real estate prices are supposed to plummet as well, as everyone sells their larger homes and retires to small condominiums in the Sun Belt.
Such doomsaying about the future of financial and real estate markets is unfounded. The fear that boomers will suddenly sell everything when they hit retirement is bogus. Nobody sells off their entire nest egg the day after they stop working; retirement can last up to 30+ years, and assets are depleted quite gradually. On top of that, boomers vary in age by up to 16 years and, thus will be retiring at different times. The wealthiest (who hold the bulk of real estate and stocks) won’t even sell most of their holdings but will, like the wealthy of previous generations, pass on many of their assets.
Treating yourself to something special: Regularly buy something that you historically have viewed as frivolous but which you can truly afford. Once a week or once a month, treat yourself!
By all means, spend the money on something that brings you the most joy, whether it’s eating out occasionally at a pricey restaurant or taking an extra vacation during the year. How about tickets to your favorite sporting events or other performances?
Buying more gifts for the people you love: Money hoarders actually tend to be more generous with loved ones than they are with themselves. However, over-savers still tend to squelch their desires to buy gifts or help out those they care about.
Think about those you care most about and what would bring joy to their lives. Try hard to think about what they really value and enjoy.
Going easy when it comes to everyday expenses: How would you like it if a family member or close friend followed you around all day and totaled up the number of calories that you consumed? Well, then, why would you expect your family to happily accept your daily, weekly, and monthly tracking of their expenditures? In some families, super savers who habitually track their spending drive others crazy with their perpetual money monitoring. Personal finances become a constant source of unnecessary stress and anxiety.
Especially if you’re automatically saving money from each paycheck or saving on a monthly basis, does it really matter where the rest of it goes? (Of course, none of us wants family members to engage in illegal or harmful behaviors. But other than that, enjoy life.)
Work at establishing guidelines and a culture of spending money that everyone can agree and live with. Some couples, for example, only discuss larger purchases, which are defined as exceeding a certain dollar limit such as $100 or $200. Parents who teach their children about spending wisely pass along far more valuable financial lessons than do elders who nag and complain about specific purchases.
Remembering that wealth is about more than numbers
Getting bogged down in the climb up the career ladder, burning the midnight oil, and accumulating wealth and possessions is easy in a capitalist society. In your pursuit, losing sight of some areas — the ones not about money — is also easy. These areas are just as important as — if not more important than — your finances, which is why you should be working just as hard at planning them. Here are some ideas to get you started:
Personal connections:
A lot of research shows that those individuals who have strong and healthy connections in their later years tend to be happier, enjoy better health, live longer, and live longer independently. Make sure you spend time making and maintaining healthy personal relationships. Doing so is an investment that pays dividends by improving the length and quality of your life.
Personal health:
Your health is much, much more important than your financial net worth. Just ask folks who have major medical problems — especially those they could have avoided — if they wish they had taken better care of their health. Although anyone can experience bad luck or bad genes when it comes to health, you can do a lot to stay healthy and enjoy enhanced longevity and the best possible quality of life.
Activities, hobbies, and interests: Consider taking up activities and hobbies, part-time work, and volunteering. Giving something back to society pays many dividends.
You can find a zillion volunteer opportunities. Your place of worship, organizations that support a cause you believe in (for example, fighting cancer or heart disease), and schools are super places to start looking. Stumped for ideas? Try a service like VolunteerMatch (www.volunteermatch.org).
Developing a Wealth Mindset Toward Debt
Consider why you borrow money. Usually, you borrow money because you don’t have enough to buy something you want or need — like a college education. A four-year college education can easily cost $100,000, $150,000, $200,000, $250,000, or more. Most people don’t have that kind of spare cash. So borrowing money to finance part of that cost enables you to buy the education.
How about a new car? A trip to your friendly local car dealer shows you that a new set of wheels will set you back $25,000+. Although more people may have the money to pay for that than, say, the college education, what if you don’t? Should you finance the car the way you finance the education?
There’s a big difference between borrowing for something that represents a long-term investment and borrowing for short-term consumption. I’m not saying that you shouldn’t buy a car. The point is to spend what you can afford. If you have to borrow money in the form of an outstanding balance on your credit card for many months in order to buy a car (or take the vacation, or whatever), then you can’t afford it.
Avoiding bad debt
I coined the term bad debt to refer to debt incurred for consumption, because such debt is harmful to your long-term financial health.
You’ll be able to take many more vacations during your lifetime if you save the cash in advance. If you get into the habit of borrowing and paying all the associated interest for vacations, cars, clothing, and other consumer items, you’ll spend more of your future income paying back the debt and interest, leaving you with less money for your other goals.
The relatively high interest rates that banks and other lenders charge for bad (consumer) debt is one of the reasons you’re less able to save money when using such debt. Not only does money borrowed through credit cards, auto loans, and other types of consumer loans carry a relatively high interest rate, but it also isn’t tax-deductible.
I’m not saying that you should never borrow money and that all debt is bad. Good debt, such as that used to buy real estate and small businesses, is generally available at lower interest rates than bad debt and is usually tax-deductible. If well managed, these investments may also increase in value. Borrowing to pay for educational expenses can also make sense. Education is generally a good long-term investment because it can increase your earning potential. And student loan interest is tax-deductible, subject to certain limitations. Taking out good debt, however, should be done in proper moderation and for acquiring quality assets. See the section later in this chapter, “Assessing good debt: Can you get too much?”
Borrow money only for investments (good debt) — for purchasing things that retain and hopefully increase in value over the long term, such as an education, real estate, or your own business. Don’t borrow money for consumption (bad debt) — for spending on things that decrease in value and eventually become financially worthless, such as cars, clothing, vacations, and so on.
Assessing good debt: Can you get too much?
As with good food, you can get too much of a good thing, including good debt! When you incur debt for investment purposes — to buy real estate, for small business, even your education — you hope to see a positive return on your invested dollars.
But some real-estate investments don’t work out. Some small businesses crash and burn, and some educational degrees and programs don’t help in the way that students hope they will.
There’s no magic formula for determining when you have too much “good debt.” In extreme cases, I’ve seen entrepreneurs, for example, borrow up to their eyeballs to get a business off the ground. Sometimes this works, and they end up financially rewarded, but in most cases, extreme borrowing doesn’t pan out.
Here are three important questions to ponder and discuss with your loved ones about the seemingly “good debt” you’re taking on:
Are you and your loved ones able to sleep well at night and function well during the day, free from great worry about how you’re going to meet next month’s expenses?
Are the likely rewards worth the risk that the borrowing entails?
Are you and your loved ones financially able to save what you’d like to work toward your goals?
If you answer “no” to these questions, consider focusing on some debt-reduction strategies, such as those I cover in my Personal Finance For Dummies book.
Kicking a credit card habit
Here are some tips that can help limit the influence credit cards hold over your life:
Reduce your credit limit.
If you choose not to take my advice and get rid of all your credit cards or get a debit card, be sure to keep a lid on your credit card’s
credit limit
(the maximum balance allowed on your card). You don’t have to accept the increase just because your bank keeps raising your credit limit to reward you for being such a profitable customer. Call your credit card service’s toll-free phone number and lower your credit limit to a level you’re comfortable with.
Replace your credit card with a charge card.
A
charge card
(such as the American Express Card) requires you to pay your balance in full each billing period. You have no credit line or interest charges. Of course, spending more than you can afford to pay when the bill comes due is possible. But you’ll be much less likely to overspend if you know you have to pay in full monthly.
Never buy anything on credit that depreciates in value.
Meals out, cars, clothing, and shoes all depreciate in value. Don’t buy these things on credit. Borrow money only for sound investments — education that advances your career prospects, real estate, or your own business, for example.
Think in terms of total cost.
Everything sounds cheaper in terms of monthly payments — that’s how salespeople entice you into buying things you can’t afford. Take a calculator along, if necessary, to tally up the sticker price, interest charges, and upkeep of a car you may be considering, for example. The total cost will scare you.
It should.
Stop the junk mail avalanche. Look at your daily mail — I bet half of it is solicitations and mail-order catalogs. You can save some trees and some time sorting junk mail by removing yourself from most mailing lists. To remove your name from mailing lists, contact the Direct Marketing Association (you can register through its website at www.dmachoice.org/register.php.) They now charge a $6 administrative fee for a ten-year registration period.
To remove your name from the major credit-reporting agency lists that are used by credit-card solicitation companies, call 888-567-8688 or visit www.optoutprescreen.com online. Also, tell any credit card companies you keep cards with that you want your account marked to indicate that you don’t want any of your personal information shared with telemarketing firms.
Limit what you can spend.
Go shopping with a small amount of cash and no plastic or checks. That way, you can spend only what little cash you have with you!
Chapter 2
Practicing Mindful Spending
IN THIS CHAPTER
Living within your means
Reducing your spending
Creating a budget
When you begin thinking in terms of building wealth, you question all the things you spend your money on to prioritize what’s most important and reduce spending on those items that are not.
In this chapter, I encourage you to consider your spending habits. Is a second car more or less important than a vacation abroad? Are you willing to give up regular clothing purchases, or would you rather quit your gym membership and start exercising in other ways? And what about those new smartphones you’ve been buying for $600, $800, or perhaps even more?
I also describe the traits of successful savers and highlight the benefits of budgeting.
Keeping Lifestyle Inflation in Check
For most people, spending money is a whole lot easier and more fun than earning it. Far be it from me to tell you to stop having fun and turn into a penny-pinching, stay-at-home miser. Of course, you can spend money. But there’s a world of difference between spending money carelessly and spending money wisely.
If you spend too much and spend unwisely, you put pressure on your income and your future need to continue working. Savings dwindle, debts may accumulate, and you can’t achieve your financial (and perhaps personal) goals.
Thinking like a saver
Here are the common traits among those who are able to consistently save a healthy portion of their income. Successful savers
Understand needs versus wants.
Don’t define necessities by what those around you have. I’m not going to tell anyone exactly how they should spend their money. But I will tell you that if you take out an auto loan to buy a car that you really can’t afford, and you take a similar approach with other consumer items you don’t truly need, you’re going to have great difficulty saving money and accomplishing your goals and will probably feel stressed.
Routinely question spending and value research. Prior to going shopping for necessities that aren’t everyday purchases, make a list of the items you’re looking for and do some research first. (Consumer Reports is a useful resource.) After you’re sure that you want an item; your research has helped you identify brands, models, and so on that are good values; and you’ve checked in with your bank or money market account to ensure that you can afford it; check in with various retailers and compare prices. When you set out to make a purchase, only buy what’s on your list.
The internet can be a time-efficient tool for performing research and price comparisons, but be careful of common online problems. The first is advertising that masquerades as informative articles. The second problem is small online retailers who may be here today and gone tomorrow or who may be unresponsive after the purchase. Finally, internet retailers are adept at pushing additional items that they have good reason to believe will appeal to you, given your other purchases.
Always look for the best values for products purchased.
Value means the level of quality given the price paid for the item. Don’t assume that a more expensive or brand-name product is better, because you often don’t get what you pay for. Overpaying for products isn’t how you build wealth.
Reduce time spent on earning and spending money.
The saddest part about being on the work and consumption treadmill is how much of your time and life you may occupy earning and then spending money. Consider how many hours you spend working and shopping in a typical week. In addition to the time actually spent at work, consider commute time and time spent getting dressed and prepared for work. Now add in all the time you spend shopping and buying things. Compare the grand total of time spent on work- and shopping-related activities to time spent on the things you really enjoy in life. Think of building wealth in terms of increasing your freedom and the time you’re able to spend on the things you enjoy.
Make saving money a habit.
Just as with changing what you eat or your exercise routine (or lack thereof), modifying your spending and savings habits is easier said than done. The information that follows can help motivate you and get you on the path to consistently saving and then investing your money wisely to achieve your desired goals.
Try brainstorming a list of five luxuries that you currently spend some money on that you may consider doing without. Your list might include things like morning Starbucks lattes, salon hair products, or Friday night at the movies. Pick one or two items from the list that you would be most comfortable going without and then see how you feel about that change before possibly considering eliminating other spending.
Living within your means
Spending too much is a relative problem. Two people can each spend $50,000 per year (including their taxes) yet still have drastically different financial circumstances. How? Suppose that one of them earns $60,000 annually, while the other makes $45,000. The $60,000 income earner saves $10,000 each year. The $45,000 wage earner, on the other hand, accumulates $5,000 of new debt (or spends that amount from prior savings). So, spend within your means. If you do nothing else from this chapter, please be sure to do this!
Don’t let the spending habits of others dictate yours. Certain people — and you know who they are — bring out the big spender in you. Do something else with them besides shopping and spending. If you can’t find any other activity to share with them, try shopping with limited cash and no credit cards. That way, you can’t overspend on impulse.
How much you can safely spend while working toward your financial goals depends on what your goals are and where you are financially. Save first for your goals and then live on what’s left over.
Turning your back on consumer credit
Buying items that depreciate — such as cars, clothing, and vacations — on credit is hazardous to your long-term financial health. Buy only what you can afford today. If you’ll be forced to carry a debt for months or years on end, you can’t really afford what you’re buying on credit today.
Without a doubt, renting-to-own is the most expensive way to buy. Here’s how it works: You see a huge ad blaring “$19.99 for a 65-inch Smart TV!” Well, the ad has a big hitch: That’s $19.99 per week, for many weeks. When all is said and done (and paid), buying a $489 65-inch Smart TV through a rent-to-own store costs a typical buyer more than $1,800! Welcome to the world of rent-to-own stores, which offer cash-poor consumers the ability to lease consumer items and, at the end of the lease, an option to buy.
If you think that paying an 18 percent interest rate on a credit card is expensive, consider this: The effective interest rate charged on many rent-to-own purchases exceeds 100 percent; in some cases, it may be 200 percent or more! Renting-to-own makes buying on a credit card look like a deal. I’m not sharing this information to encourage you to buy using credit over time on credit cards but to point out what a rip-off renting-to-own is. Such stores prey on cashless consumers who either can’t get credit cards or don’t understand how expensive renting-to-own really is. Forget the instant gratification and save a set amount each week until you can afford what you want.
Consumer credit is expensive, and it reinforces a bad financial habit: spending more than you can afford.
Repaying your debt
The best way to reduce the costs of consumer debt is to avoid it in the first place when you’re making consumption purchases. You can avoid consumer debt by eliminating your access to credit or by limiting your purchase of consumer items to what you can pay off each month. Borrow only for long-term investments, like a home, real estate, and education.
Don’t keep a credit card that charges you an annual fee, especially if you pay your balance in full each month. Many no-fee credit cards exist — and some even offer you a reward/benefit for using them:
Discover Card
(phone 800-347-2683; website
www.discover.com
) offers rebates of 1 percent of purchases (higher percentage offered for some particular retailers) in cash. At the end of your first year, Discover automatically matches an unlimited amount of the cash back you’ve earned that year.
Fidelity Rewards Visa
(phone 888-325-6196;
www.fidelity.com/cash-management/visa-signature-card
) pays unlimited 2 percent cash back on all purchases, and that cash is deposited monthly into an eligible Fidelity account such as a cash management account, IRA, and so forth.
USAA Preferred Cash Rewards
(phone 800-922-9092; website
www.usaa.com
