10 Best Strategies for Your Finances Based on Net Worth, According to Vincent Chan
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Financial guru Vincent Chan has made a name for himself on various social media platforms, offering actionable financial strategies to people from all walks of life. Whether it’s advice on building wealth, investing, savings, or holding on to the wealth you earn, Chan has a few tips and tricks that could help.
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In a recent YouTube video, Chan outlined several strategies for people belonging to several categories of net worth.
Beginning by pointing out that having a negative net worth (or zero net worth) doesn’t literally mean you have nothing in your bank account, Chan explained that even those individuals living in a nice home while holding a heavy debt load could find themselves in this category — along with 10.4% of all American households.
Defeating your debt is the No. 1 priority for people in this category, Chan explained. Pointing out that interest on your debt load can compound just as easily as interest on investments, Chan suggested tackling high-interest debt immediately.
“For instance, if you have a credit card balance of $10,000, with an APR of 26% — and you’re making the minimum payments of $250 a month — it’ll take you about seven-and-a-half years to pay off your debt. And when it’s all said and done, you’ll have paid $13,500 in interest alone,” Chan outlined.
The first strategy deployed to beat this debt? The avalanche method. By prioritizing your debt by interest rates, and paying off debts with the highest interest rates first, you will be able to apply the minimum monthly payment that used to be budgeted to the highest-interest debt payment to the principal amount owing on the next debt offender.
If quick wins are more aligned with your personality, Chan advised the snowball method. Forgetting about interest rates, just start wiping out the smallest debts first, moving up to tackle those with larger principals later.
Finally, Chan mentioned a hybrid approach for those unsure of which path to take. A few victories against smaller debts — or beginning with the snowball method first — can instill the confidence necessary to take on the avalanche method afterward.
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Chan was careful to caution viewers of the challenging nature of this net worth bracket, because while “you might have some breathing room here,” all it would take is one poor financial decision to push you down into negative net worth. Chan advised the following three strategies for those in this situation.
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Create additional income streams: Pointing out how precarious it is to rely on a single job or income stream, Chan advised diversification. A side hustle or side gig may be necessary to cushion your income.
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Spend on assets before liabilities: Quoting “Rich Dad, Poor Dad” author Robert Kiyosaki, Chan gave the example of a rental property (adds value over time) versus a car (loses value over time) as defining an asset versus a liability. He advised considering a diversified investment into stocks and bonds with proven track records of returns.
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Automation is key: Having your paycheck automatically divided into savings, investing and discretionary funds by an app or a service could ensure that you don’t engage in fiscal mismanagement due to human error (or impulse spending).
At this level of wealth, Chan indicated, you “should have a solid buffer.” Given that you have a bit of fiscal room to leverage, he advised two distinct strategies to further grow your wealth.
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Cement your tax strategy: Making full use of tax advantaged accounts such as the 401(k), Roth IRA, Health Savings Accounts (HSAs) and 529s — or qualified tuition programs offered by some states — means you are maximizing on every potential dollar, and avoiding unnecessary taxation in a legal fashion. Homeowners should also be able to avail of targeted tax deductions, including mortgage interest and state and local property taxes. If you sell your primary residence, a significant tax exemption, concerning the capital gains total versus your income, is also on the table.
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$100K is the magic number: “Aim to have at least $100,000 invested,” Chan advised. Gesturing toward how quickly a larger investment of capital can grow due to compounding, he indicated that this is where the old mantra of “money makes more money” comes into play.
If you fall into this group, you’re part of 21% of the population, as Chan stated. At this point, it’s important to leverage your wealth in order to see even greater gains.
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Utilize debt as leverage for greater profits: Contrasting the concept of debt incurred by those with lesser wealth (credit card debt, etc.) against those who take out loans in order to generate greater wealth — “to buy assets that increase in value, like property and businesses,” as Chan laid out — it’s advised to keep your cash flow ready to invest in even greater opportunities which may not require the taking out of a loan, while also using the concept of debt as an opportunity rather than a liability.
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Lessen the belief that more hours is equal to more money: Instead of strictly believing that trading your time for money is the only way to generate wealth, Chan pointed out that there is really only “so much time you can trade.” Giving the example of a carpenter friend who was completely booked, and subsequently raised the price of his product, the YouTuber indicated that there was still a maximum ceiling to his friend’s earnings — there’s only so much time for him to offer in the span of a day. By creating a business in which he oversaw other carpenters who were tasked with making his product, that friend “works less, and makes more money than before,” an optimal outcome for the newly minted entrepreneur.
Closing out his video, Chan underscored the importance of habits — making sure that, no matter what, you stick to the plan and engage in wealth-building (and wealth-preserving) behaviors regularly. In doing so, you ensure a better financial future, while also reducing stress levels and avoiding the most common money traps.
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