Debt Free

There are only three ways to reduce your debt, increase the balance in your savings and investment accounts and contribute to your financial security. Everything toward these ends is a combination of one or more of these financial strategies. They are:

• Increase your earnings – If you maintain your expenses at their current level and increase your earnings, you'll obviously have more money to pay down debt and make savings contributions. You can increase your earnings with a number of strategies, but basically you must either earn more at your present job, get a new job with commensurately higher pay, or add income streams. Adding income streams has the additional benefit of diversifying your income. As with diversity in investments, diversity in income reduces the likelihood that your income stream will be interrupted. It also reduces the effect that a single event will have on your income. You can start one or more small businesses, do consulting work, or get a second job. Keep in mind, however, that free time has merits of it's own. If you take a second job, make sure that the additional income it generates is worth the additional time commitment.

• Decrease your expenses – Your disposable income is your after tax income minus your expenses, so if your expenses are reduced, it stands to reason your disposable income will increase. They key to maximizing this strategy is to contribute all your newly found income toward debt reduction or investments. It makes no sense to reduce your expenses in one area, only to increase them in another, even if that new plasma TV or pair of Stuart Weitzmans looks really tempting.

• Increase the leverage of your existing finances – You can do more with your existing finances. Leverage is one of the most powerful principles in wealth generation. You can leverage any resource really, weather it is time, human resources, plant and equipment, or finances. Leverage allows you to control a large amount of an asset by using a small amount. You then benefit from the asset appreciation of the entire asset, even though you only contributed a small percentage.

  The most common use of leverage for most people is in real estate. For example, if you buy a $200,000 home with 10% down, you control the entire asset, even though you only contributed $20,000. If the home appreciates 10%, you experienced a gross appreciation of $20,000, or 100%! That illustrates the power of leverage. In reality, you'd likely have expenses that would be charged against that. But you'd also have tax benefits. Businesses use leverage every day with their employees. They leverage the power of their employees to create wealth. In theory, the employee generates more for the business owner each day than they are paid, thus contributing to the bottom line of the business.

You can, and should use a combination of all three strategies for maximum effectiveness. Maximizing the combined effectiveness of these techniques will ensure your financial future.