How to Build a Strong Financial Foundation, Brick By Brick
How to Build a Strong Financial Foundation, Brick By Brick
APRIL 8, 2023 Financial Pilgrimage
Nothing may be more critical to your financial future than a strong financial foundation. However, if you’ve been on social media and ventured into finance, you’ve probably seen a few stories about overnight millionaires.
These people may have gotten rich from getting in on a cryptocurrency early, or others boast about how their online business generates six figures per month. I’m not saying there aren’t true stories of people that have been successful in these spaces. Though I am saying that the money has likely been made by the time these trends make it to the mainstream. That, or they are trying to sell you a product on the back end by giving the appearance of success.
Very few people become wealthy through a cryptocurrency or penny stock that goes through the roof. Most people that try end up losing money. Anyone touting the success of a business has likely spent thousands of hours building it up. There are very few shortcuts to wealth.
There is nothing wrong with taking some risks to build wealth. We all romanticize the individual that only spent $1,000 to build a six-figure business. Those situations are rare, though. The more likely scenario is that businesses will fail, and if the person hasn’t already established a strong financial foundation, they will be in big trouble. A financial plan built on risky investments, debt, margin, or any other speculative position could collapse at some point if the economy takes a turn.
The Importance of A Strong Financial Foundation
Building a strong financial foundation may seem like a risk-averse approach. However, I’d like to share why it’s not only the safe thing to do but why it can set you up to take more significant risks down the line.
Let’s start with an example. Think back to the Great Recession of 2008. The era leading up to 2008 felt a lot like it does today, only more so in real estate. Today, we hear of people going all in to try to be crypto millionaires. That approach has worked for some. However, you don’t want to be the one holding the bag once the musical chairs end. Unfortunately, that’s what happened in 2008 in the real estate market.
Homebuyers that shouldn’t have qualified for certain mortgages were duped into buying homes, many with adjustable-rate mortgages. They could afford the payments when interest rates were low, and the job market was strong. Eventually, interest rates started to tick up, making their mortgage unaffordable.
These issues resulted in millions of people going into foreclosure and eventually crashing the housing market. As a result, the job market was terrible for years. The poor housing market created a downward spiral where millions of people were eventually kicked out of their homes. Nearly 10 million homeowners lost their homes to foreclosure between 2008 and 2014. In addition, bankruptcies increased by almost 75% after 2009.
After all that, who were the ones standing? Those with a strong financial foundation. Don’t put your family in a situation where a down economy can cause your financial situation to collapse.
Here’s where the second part comes into play.
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