When it comes to financial advice, many people teach that getting out of debt is the end goal. Whereas Getting Out Of Debt is good (get it?), there is much more to aspire toward after that point. For me, getting out of debt is the starting point.
You can’t build any significant wealth while you’re drowning in debt. Debt works like a snowball. Even when you pay off your minimum payments each month, you will end up paying a large amount of interest by the time your debt is paid off.
Say you have $1,200 in credit card debt. For the sake of the illustration, let’s say the annual APR (interest rate) is 10% (note that the average APR for a new credit card in the United States is actually 16.13% as of January 2022.) If you only paid the minimum payment, which in the U.S. averages around 2%, you’d end up paying about $24 a month for your debt. It would take you 4.5 years, and you’d end up paying an extra $300 in interest—money that’s going to nothing.
So, getting out of debt is huge. It puts you in a position to reverse the debt snowball. After you get out of debt, you can invest the money that you were spending on debt payments. Interest will work in your favor now! For example, say that you now have $1,200 to invest. If you put a mere $24 a month into an investment that yields a 10% return, you’ll have $3,385 in 4.5 years. Almost $900 of that would be the return on your investment—money that’s essentially free.
Why We Build Wealth
Can you see why it frustrates me when people stop at the getting out of debt stage and don’t learn how to invest? There is such an opportunity to generate wealth for their families, their communities, and the Kingdom of God. The more financial resources you attain, the more you can increase your giving and bless others.
Oral Roberts once said, “Whoever controls the finances of a city or nation will control the spiritual climate as well.” There is a measure of truth to that. As Christians, we must expand our thinking and understand that economic empowerment is essential for us to see cities and nations transformed.
You might be thinking, “Billy, people can be spiritually transformed without money.” Well, of course they can! The Holy Spirit knows no boundaries. However, how many of you have built a church without any money—no donation, tithes, or anything? How many of you have raised a healthy family without a penny to work with? How many of you have tried to enforce social policies that promote justice and human flourishing without any funds? The point is that money is a tool that allows us to do the will of God. It equips us to be Jesus’ hands and feet in our backyards and to the nations.
3 Tips to Build Wealth After Getting Out of Debt
1. Don’t Invest in What You Don’t Understand
Do your homework and research an investment before you put real dollars on the line. As with anything, you need to prepare before you act. I always say that the favor of God is attracted to a spirit of preparation! If you’re just getting started and you have $1,000 to invest, initially the best thing to invest in is yourself. Get education on how to best steward your money, and it will be well worth it!
An area where I really see a need for more understanding is the rising popularity of cryptocurrency. Before you invest in something like Bitcoin, you should take the time to understand as much as you can about blockchains and decentralized currency. I do believe that the future is decentralized, but that doesn’t mean there isn’t a risk you should evaluate
before jumping head over heels into crypto. Check out The WealthBuilders Podcast for episodes on crypto, as well as general investment tactics.
2. Invest with Your Winning Percentage
Your winning percentage is the extra money you have in your budget after your tithe and living expenses are paid. If you can, live by the 80/20 rule: Use 80% of income for expenses, 10% for tithe, and 10% for investing (5% professionally and 5% yourself.) If you can lower the percentage used for expenses and increase the percentage used for investments, do so! You may have to make some lifestyle adjustments, but very few things that are worth doing are easy.
3. Diversify Your Portfolio
Has anyone ever told you not to put all of your eggs into one basket? That’s the same logic behind diversifying your portfolio. It helps you manage risk. To put it simply, if one of your investments was to go south, it wouldn’t bring your other investments down with it. Here’s a snapshot of how I like to diversify my portfolio:
50% in low-leverage debt (real estate)
25% in long-term treasury bonds
25% in stocks/ETFs