The first, and perhaps the most important step, is to live within
your income. In today's society, this may seem like a foreign
concept. It wasn't always that way. In fact, prior to the advent
of credit cards in the 1950s, living within one's income was
commonplace. About the only credit available was a home
mortgage and a car loan. The terms of these loans weren't as
liberal as today. There was no 30-year mortgage. You couldn't
finance a car for more than three years. Sure there were store
charges, but they weren't revolving charges. They had to be
paid for at the end of the month.

Homeowners made do with what they had. Appliances, cars,
etc. were repaired rather than replaced. If money weren't
available for an item they wanted, or even needed, the mind
set was to wait until they could afford it.

With the economy and unemployment as good as it is today,
many Americans think only of the present rather than their
future needs when spending their income. The feeling is if we
can pay our debt service each month everything is OK. So
we continue to create new debt until we can't afford any more
debt. Unfortunately, some go past this point without a thought
of the consequences until it is too late.

Most consumers fail to realize is by having credit debt,
including a mortgage, they are seriously jeopardizing their
ability to create retirement wealth. The fact is most Americans
are only two paychecks away from insolvency because of
their spending habits.

The second step is to pay yourself first by paying off all your
debts, including your mortgage, before investing or even
saving. This is an unique concept to the financial planning

Paying off a credit card with a 15% APR is the same as
receiving an equivalent return of 15% from an investment. In
addition, this return is guaranteed. Ask your stockbroker to
guarantee the percentage of return on any stock he recommends.

Using the model of the average American family that I use in
my seminars, I show that this family would realize a 37.13%
return on their money by invest6ing in their debt of $169,341 first.

Furthermore, let's assume this same family invests 10% of their
monthly gross income ($427) to get rid of their debts first
rather than investing it in an investment vehicle yielding a 10%
return. The long term result by investing in their debts first is
they would build a retirement nest egg of 1.8 million dollars
over the same the same period it would have taken them to
pay off their mortgage in the normal way. The person who
invests first would accumulate about 600 thousand dollars,
1.2 million dollars less. Both families established a six
month cash reserve.

After all your debts are gone, the money you were using to pay your debts is now available for investing. To become debt free can take from 5 to 10 years, many years before the time required to pay off the mortgage alone. What also is important that by freeing yourself from debt you are not vulnerable to financial misfortunes such as a loss of income. You probably could survive on unemployment compensation if necessary.

The third step is to create wealth by investing your money in
low risk investments over a long period of time. A debt free
60-year-old may not have enough time to build real wealth.
However, without debt even the 60-year-old still can enjoy a
debt free lifestyle. On the other hand, someone in their
thirties or early forties could conceivably amass over one
million in retirement wealth. One million dollars is the nest
egg amount USA Today said on May 8, 1995 that the average
Baby Boomer earning $50,000 annually today will need to
retire to enjoy the same lifestyle they had before retirement.

It is recommended you invest for the long term using dollar
cost averaging. This means investing the same amount of
money each month no matter what the market does. It may
be wise to invest in an indexed mutual fund such as the
Standard & Poors 500 that returned 14.3% during the period
from 1985 to 1995.

My intent is not to give investment advice since this isn't my
area of expertise. Rather, I am suggesting a way to invest for
the long term without having to learn the ins and outs of
investing in the stock market.

The rewards by following these three steps are immeasurable.
Think about how much disposable income you would have
when you have no debts. I suggest you calculate the amount
of money you spend each month on debt payments. This
exercise might prompt you to really consider becoming debt
free. Without debts perhaps your life would be less stressful.
Your marriage and family life might be more enjoyable.
You then could build wealth for a happy, comfortable lifestyle.

Start today by living on less than you earn. Next pay off all of
your debts before saving or investing.. Then build retirement
wealth by investing the money you were putting towards debt
payments in conservative, low risk investment vehicles.

Remember most Americans believe that "everything will just
work out." It doesn't work that way. You must take action to
build real wealth and to achieve financial freedom.

Author's Bio: 

Blanchard Warren, owner of Debts To Wealth, teaches the How To Get Debt Free debt program throughout eastern Massachusetts. His workshop outlines the benefits of investing in one’s debt first – before saving or investing.

Blanchard, a Certified Seminar Leader, has excited audiences in high schools, colleges and companies with this program since 1999. The program is particularly relevant in today’s economy.

Blanchard also publishes a weekly newsletter. Subscribe at