7 Steps to get out of Debt and become rich

This Article we will talk about how to get out of debt and become rich. This is everyone’s first desire to be rich. But road to riches requires patience. This article is ultimate guide for you to get out of your debts and then become rich.

 

This is basic strategy and it can work for everybody. Without further delay, let’s begin.

1.       Calculate your Worth

First step to achieve any goal is to calculate how much you are on your path and what is your goal. So, first step is to calculate your own worth. Below is sample format how you can calculate your own worth.

In above format first enter all of your assets in respective Rows, and add them up, similarly enter all of your liabilities in respective rows and add them up. Your net worth is total Asset minus total Liabilities.

 

If this number is Positive, it is good sign that you have positive net worth, and if this number is negative, well this strategy is applied on negative net worth also.

Let us consider a test case, Person named Adam has negative net worth and having high debts and don’t have money to pay. So, first Adam calculates how much he owes and to whom. Then he has to contact the person from whom he has taken the debt. And convince them that he will pay them month by month. And they will most probably agree because in other case Adam doesn’t have money to pay. And they will not get their money back. Once Payment Plan is finalized Adam has to move on second step.

2.       Start Saving Money

Second step is to start saving his 10% income immediately. The question here arises if someone is not able to afford his expenses in 100% then how he will complete his expenses in 90%. The answer is third step. So now Adam starts to put 10% of his income effective immediately. This step can also be quoted as “Pay yourself first”.  As once we get our salary, we pay to grocery store to get grocery, we pay at shops to purchase clothes for ourselves. The catch here is to pay yourself first and put 10% of your money as Saving for future. Now Adam has put 10% aside on his salary day now he has to complete all his expenses in remaining 90%

3.       Lesson your expenses:

Now Adam has put aside his 10% money and he has to manage all expenses in 90%. So, he has to lesson his expenses. In order to do so, he made a list in which he enters all of his expenses that are expected in this month. And add them up. If they are less than his 90% balance then it is good, and he can save more money or pay his debts. But if money is less than expenses Adam has to cut down some of expenses that can be managed without pay. Or find cheaper alternatives. Now is the age of information and you can easily find cheaper alternative on internet. If this still more than your expenses than increase your income. Get a pay raise, or change Job. Or start a side hustle. Like writing blogs, freelancing. Now a days there are many websites that gives freelancing options like fiver. Google AdSense can give you money for blogging. And you can do many jobs as freelancer to make more money. YouTube vloging is also a good option. But trick here is to decrease expense as if you don’t control the expenses than increasing the income will not give you benefit.  

4.       Pay your debts

Now you have every month 10% saving so he immediately starts to pay his debts. And drop by drop, one by one debt will be paid. Once debt is paid your first goal is achieved now next goal is to be rich. Paying debt is very important as this will give you satisfaction and confidence.

5.       Save for Rainy Day

Now all debts paid, start saving this 10% for rainy day or emergencies. This fund must have at least 6 months of money of your expenses as savings. Don’t put this all money in bank. As inflation will kill it. 30% of this saving should be in cash and balance in some easily liquid able asset like mutual fund.

 

6.       Start Investing

At this step you must have paid all of your debts and you must have 6-month expenses in your fund. Once it is completed, start investment. This 10% saving must go in investment. Stocks are cheaper option. Mutual fund is another option. Below are some investment ventures that can be started as low as 5000 PKR (25$). I am not entering non-Islamic ventures of investments

·       Mutual funds

·       Stocks

·       ETFs

·       REITs

·       Investment in business

·       Farming

7.       Financial Freedom

Become financial free by increasing your income streams. Make Passive income streams to increase your wealth. And become financially free. Purchase such assets from your investments that increase your wealth, like stocks with dividends. Houses on Rent. Once these investments are enough to cover your all expenses, you are financially free.