8 ways to change your financial life: these basic but powerful strategies can boost your net worth

Black Enterprise, June, 2004 by James A. Anderson

These are tough times for the sort of scrimping and saving required to boost net worth. Wealth building during the '90s stock market gave way to a cruel bear run just ending in 2003. And some experts say the situation might degenerate again after 2004 if the real estate rocket runs out of fuel.

Taking note of such cautionary signs, however, doesn't mean having to embrace a doom-and-gloom financial outlook. In fact, there are some basic strategies you can employ to bolster your finances. Start, of course, by making a commitment to wealth building by adopting the BLACK ENTERPRISE Declaration of Financial Empowerment, displayed in every issue of this magazine.

In this article, we'll show you eight ways to develop sound budgeting habits to free up cash for investments, and we'll give you tips on how to invest at minimal risk and maximum returns. Read on to find out how you can change your financial life.

1 budget in real time

Most of us are locked in a losing battle between wealth building and bill paying. But sound budgeting is the linchpin of any attempt to accumulate wealth. Beyond budgeting, there is no way to get a handle on how much money you're bringing in and how much you're sending out. In fact, budgeting is a key plank of BE's DOFE, set out in Principle No. 4: to engage in sound budget, credit, and tax management practices.

For most of us in this era of PCs and the Internet, the job requires nothing more than hopping on a computer with Quicken or MS Money. Unfortunately, says Pasadena, California-based financial planner Percy Bolton, what technology giveth, it can also take away. While technology helps make the development of a family budget hassle-free, it often sabotages efforts to live frugally. Says Bolton: "The fact is most couples who tap the ATM or make debit or credit card purchases on the fly find that their budget goes out the window in no time."

As she prepares for retirement in the next decade, Bettye Haysbert, 60, an educational consultant who lives outside of San Francisco, tracks her expenditures by logging them regularly online. "It is important to do so," she says. "I have to keep up with what goes out or I won't be able to stick to my investing plan."

2 slash debt now

You pay enough for goods and services, right? So dishing out two or three times the retail price for an item seems exorbitant.

Bolton's advice on how to gain control of your credit card purchases is simple. He suggests you pay the minimum on all charge cards except for the one with the highest, interest rate. Try to double or triple the monthly payment on that card. Once that debt is out of the way, attack the card with the next highest rate, again making minimum payments on charge cards with lower fees.

3 adopt a capital preservation lifestyle

The simplest and most basic wealth-building tenet is probably also the most difficult. We all love bright, shiny objects. The bling-bling and the automobiles all look good and they do wonders for our egos. But they also drain a lot of cash from our bank accounts. Money manager William Thomason has noticed as much. "The simple fact is that the rich often make conscious decisions to cut back on what can often seem like frivolities," he notes. "That might mean traveling coach, or buying a car off lease, or even dressing down, but at the end of the day, that is what preserves capital."

We are not here to preach. Of course, we all know that a dinner of steak, potatoes, and vegetables might run $30 at our favorite restaurant, yet amount to no more than a few dollars if prepared at home. But having spared you that lecture, we will note another fact concerning the cost of a big ticket item such as a car. (You might want to verify this fact for yourselves.) Say that a new 2004 sedan retails for $21.000. Purchase the car off of a two-year lease, and it will run you $14,000. The difference? "Basically, you've let someone else take the hit for the car's heavy depreciation," says Thomason.

4 to thine own self be true

There is always the temptation to follow the lead of your friends, neighbors, or idols. Yet, for all the pressure to follow others' paths, sometimes you just have to face the fact that your circumstances differ from those of the crowd.

Financial planner Bolton says that sort of clear-sightedness helps you not only focus on your goals but also produces significant cash flow. Take the question of whether to get a 30- or 15-year mortgage. Bolton says most of his clients have a knee-jerk reaction to the matter: They instinctively opt for the 30-year option. Closer scrutiny, however, often leads to a change of mind. For one thing, Bolton points out, encumbering oneself with a 30-year mortgage does not make sense if you intend to stay in your home for only 15 years. As of mid-March 2004, the 30-year mortgage carried a 5.1% interest rate while the 15-year one was only 4.4%. Over the long haul, that difference can amount to as much as hundreds of thousands of dollars in extra payments on your loan.

5 develop the habit of investing