Tuesday, July 24, 2012

My Debt Free Wealth Building Strategy

It’s close to a month now that my household was transformed (after three and a half years of frugal fury fighting) into one that is debt free. We have our next goals and dreams lined up and it is amazing to not owe anybody anything. Through it all we are continuing wealth building as an intricate part of our financial planning. My approach to this is steady and continual: far from get rich quick. We make intentional action and prioritize wealth building every month in our budget, and here are a few of the ways we are doing this:


I receive no match from my company but contribute 4% of my gross income every month. My wife receives a 50% match up to 6% and maxes this out. It’s a win-win situation, my wife gets an immediate 50% return on every dollar she puts in and I get to lower my tax bill a bit every year. Within my 401k I currently invest in a bond fund because none of the equity options meet my criteria for investing, but I will keep an eye on this and eventually move the investment into an index fund once interest rates start to rise, which should be in a year or so.

Roth IRAs

With after tax dollars we use the ROTH to grow money saved for retirement tax-free. I contribute 11% of my income every month here, and my wife contributes 6%. Ultimately through retirement specific vehicles every month, I contribute 15% of my gross income and my wife 12%.

Brokerage Account

Above and beyond retirement accounts, my wife and I would like investments that we don’t have to wait until 59 ½ (US retirement age) to have access too. Through a brokerage account we still plan and invest long term. Any money put in and invested we do not plan to use for at least 5 years. Within our debt free monthly budget, in a few months once we have the funds for our travel plans for the year set aside in cash, we will begin depositing a dedicated $1,000 every month into this account. One heads up though, our brokerage account is invested in mutual funds which have generated dividends and capital gains that are all reinvested. So we set aside our estimated taxes due through our monthly budget so there’s no “gotcha’s” at year end.  

Our ultimate goal is to have our investments spread across these accounts to generate more income than we generate for ourselves.

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