Millionaires - the ones who’ve built their own significant wealth - are different from you and me in one way only. They know how to manage money, from their income to their investments to their debts.
Don’t depend on a single income
A second income can be a powerful source of growth, providing funds you can invest and grow outside the confines of your everyday budget.
Second incomes can come from all over the economy. A few common ones include real estate purchases, financing a growing business or investing in higher-risk assets with potential for high returns.
Watch your debt-to-income ratio
Your debt-to-income ratio (“DTI”) measures your monthly debt payment against your monthly gross income. The ideal DTI is 36% - a good number to keep your credit card use in check.
To calculate your DTI, add your total monthly debt payments and divide them by your total pre-tax monthly income. For example, if you pay $200 a month towards your car loan and another $800 towards your mortgage, your monthly debt payments are $1000. If your pre-tax income is $4000, then your DTI is 25%.
Here’s a basic guide for judging your DTI:
- 36% DTI = ideal
- 18% or lower DTI = preferred
- 45% or over DTI = not good
Keeping your DTI low ensures you can afford the debt you’re carrying, which impacts your credit score and your access to more credit.
Don’t pay more tax than you need to
Reducing your tax bill can deliver regular savings. Start by maximizing your contributions to tax-advantage funds designed for retirement, education or health savings. You’ll lower your income tax today, and you’ll either avoid paying taxes on your contribution or you’ll defer until retirement, when you’re likely in a lower tax bracket. Talk to a professional tax advisor to see what works best for you.
Have a game plan
Set a goal and break it down. Understand what it takes to get where you want to go.
Chart your income, project your savings, and see the kind of investments you’ll need. Get a clear-eyed view of the path ahead, and figure out how you can make your money work for you.
You’ll probably see how much you’re spending on your debts. Make clearing them a priority, so you can keep moving forward.
Bright can grow your money for you
A lot of people use Bright to manage their debts and to start saving more. It’s a great way to achieve more financial freedom.
But Bright can also find the fastest, smartest ways to grow your wealth. Set your goals, and we’ll customize a Bright Plan, building your savings and managing a fully diversified portfolio, from bonds to ETFs. We’ll do it all automatically, adjusting to your shifting needs.