We all make poor financial decisions from time to time. The difference in those who are financially successful and those we aren’t often comes down to whether those poor decisions are rare or common.

One of the most common poor financial decisions people make is to load up on high interest credit card debt. In that case, you are building wealth, but not for yourself. You are making the shareholders of that credit card company wealthy.

Financial Advice from Charles Dickens

I have written many articles on this in the past. But the concept was explained well by Charles Dickens in David Copperfield 170 years ago. It is the Mr. Micawber principle, which he explained as “Annual income 20 pounds, annual expenditure 19 pounds 19 shillings and six pence, result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.”

The lesson there is no matter how much you make, if you consistently spend more than you earn, it is a ticket to a lifetime of debt. If you consistently spend less, then you have the ability to grow wealth.

I realize that many people are struggling to make ends meet. The stimulus money that is hitting everyone’s accounts right now will be a lifeline for some. If that’s you, then this advice isn’t for you. This advice is for those poised to use it to buy more things they don’t actually need.

Eliminate Your High-Interest Debt

I have several rules for wealth-building that I spelled out in 7 Steps For (Nearly) Effortless Wealth-Building. The second step is “Eliminate any high-interest debt.” Before putting any money to work on investments, and especially before engaging in any frivolous or unnecessary spending, you should direct that stimulus money at servicing your debt.

The average credit card debt of U.S. families in 2019 was $6,270. According to data from the Federal Reserve, the average credit card interest rate in the U.S. is 14.7%. That means the average family may be paying nearly $1,000 a year in interest payments just to service the debt for things they didn’t really need in many cases.

You don’t find any guaranteed returns of 14.7% in the stock market, so keep those high interest debts in mind. A family of four could get a stimulus payment of $4,200, which is enough to wipe out most of the credit card debt in the country.

The same holds true for other high-interest debt you may have. The long-term return of the S&P 500 is 9.8%. But you pay taxes on those gains. So if you have debt that is anywhere above maybe 6%-7%, you are better off paying off the debt before you start investing.

Once those debts are under control, refer to my article on wealth-building. Those are simple steps that will almost certainly grow your wealth. All you need is time, patience, and the extra money that people often spend unnecessarily.

Believe it or not, for a 20-year old it doesn’t take a lot more than what the average family spends on interest to invest your way to a million dollar next egg over a lifetime. It all comes down to good or bad financial decisions.

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