Since my blog involves a little bit of personal finance and real estate, I’m going to take a step back from the real estate aspect of renting out rooms and talk about personal finance aspect. Specifically, I’m going to talk about building wealth.
Building wealth does not come overnight nor does it mean living the “high-life” of living in über sized homes or driving fancy cars. In fact, according to the book, The Millionaire Next Door by Thomas J Stanley and William D. Danko, the affluent people or as PAW(Prodigious Accumulators of Wealth) of America drive a plain old Ford (the F-Series truck to be exact).
In addition, the book mentions that the people who are PAWs in America are not high paid doctors or lawyers, but teachers, engineers. This is because the latter group of professions has less social pressure to live in upscale neighborhoods and drive luxury cars. Instead, they can live in a modest sized home and drive simple cars to focus their attention on building a nest egg.
If you want to read more about building wealth, read on.
How to Build Wealth
It takes time to build wealth unless you get lucky and hit the lottery. Assuming you didn’t win the lottery because you’re currently reading a blog about renting out rooms in your house to pay off debt.
Building wealth has two aspects, paying down debt and saving money. If you’re collecting rental income, I highly recommend that you either pay off debt or save it. I’m not telling you what you should do with your money. I am merely making a suggestion that doing either one of two activities, as it will increase your net worth in the long run. Hence you’re building wealth. Simple as that!
But Which One has Priority?
This topic is often debated. I’ve heard both sides of the story and I’m not going to debate about it anymore in this post. What I will tell you is what I do and that is a little of both. I pay down my debt and invest in both a 401(k) and a Roth IRA account. Some may argue paying off your debt first before saving and others argue the other way.
I choose to do a little of both because it is similar to diversifying your investments in a portfolio. Diversification is a common convention investors follow in their investment portfolio because it’s simply never a good idea to invest too heavily in one industry or company. I simply took this approach and applied it to paying off debt versus investing.
Being a Role Model for Children
My parents were frugal growing up and I think some of that has rubbed off on me. They never had the nicest cards on the block nor did they own the latest consumer electronics. Instead, they focused more on saving.
Looking back now on their savings habits, building wealth versus living a debt filled extravagant life can make you a good role model for your children and younger peers. Rather than constantly worry about having the latest and newest consumer goods and falling into consumer debt, being a saver and showing your kids to be frugal will make a profound impact on your children and as they grow up.
Right now, I can appreciate the fact that my parents were savers as they were able to pay for a good chunk of my college tuitions leaving me with a manageable amount of student loan debt. Had my parents been more frivolous spenders growing up, my college loan situation may have been different.
Looking back now, I’m glad my parents choose to be savers.
Paying off debt and saving is definitely not sexy, in fact, it’s actually kind of dull compared to a debt filled life driving around awesome cars and having the latest gadgets. Not everyone recognizes wealth by living debt free and having money tucked away.
I’m not advocating throwing every single penny you earn to either debt or investments. I don’t do this myself. I do live life by traveling to far away places and spend a good chunk of change on it. I only allocate my travel money after I commit to paying my self first. Set your priorities straight and get on with building wealth.
I’ve decided to implement a blogging schedule for myself. The schedule goes as follows:
During the middle of the week, I’m going to post about how the rental income is affecting my personal finance. Also I’ll provide tips on people looking to rent out their spare bedroom
Weekend updates will consist of stories with living with roommates whom I met via craigslist or other roommate listings.
I hope everyone enjoys my posts!