Seven Steps to Building Wealth



(Part 3 of 4)

Step #4

Avoid unnecessary debt

Debt can be useful if used properly. A few years ago I went to Africa, and I noticed half-built buildings everywhere. Projects were at different levels of completion and then abandoned. When I asked my guide why, he responded that there is no banking system. There is no way for the common man to borrow money. People can only complete part of the building because they lack funds to pay for building supplies right away. They build what they can pay for, and then come back and build more when they have more money. How unfortunate that these people are held back from making financial progress because they can’t borrow money to create assets.

If debt is used sparingly for assets that appreciate or allow you to make more money, then debt makes sense. For example, a house, a car, or an education all reap financial rewards and offer opportunities.

Using debt for consumables or things that go down in value makes no sense. Impulse buying or buying on emotion are a recipe for financial disaster. Before you make any major purchase, it is important to decide whether it is a “need” or a “want.” It is amazing how few purchases actually fall into the “need” category. If it is a “want” then a conscious decision should be made as to whether you can afford it. Generally, there is no reason to go into debt for “wants.”

For example, most credit card debt is for things that hurt rather than help your financial situation. My definition of a credit card is “a means of buying something unneeded, at a price you can’t afford, with funds you don’t have.”

Set a goal to live debt free. Put a plan in place to reduce and then eliminate your debts. With 1.5 billion credit cards in circulation, an average household credit card balance of $8,562 and an average interest rate of 19 percent, it’s no wonder one out of every 50 households filed for bankruptcy in 2005. In the United States the household debt-to-income ratio recently reached an all-time high.

Accumulating debt is the exact opposite of accumulating wealth. If you are paying debts, you are helping someone else accumulate wealth. With the few exceptions mentioned previously, avoid debt like the financial plague.


Step #5

Follow a sound long-term strategy

To systematically grow your assets, you must follow a proven investment strategy that doesn’t simply involve “gut feelings.” Emotional investing is a recipe for failure.

At Paragon, one of the models we use is based on investor sentiment. This model measures what percentage of investors are optimistic vs. pessimistic at any point in time. Interestingly, when most investors are optimistic and think the market is going to go up, it goes down. Likewise, when most investors think the market is going to go down, it goes up. We measure this statistically, and the model is extremely accurate. The market usually does the opposite of what most investors hope, think or feel it is going to do.

Successful investing is counter-intuitive. Usually, doing what “feels good” doesn’t work. This is why you must have a systematic long-term strategy. A good strategy should significantly increase your returns over time.

Rather than simply sell you a random collection of financial products, your adviser should provide you with a strategy that does the following seven things:

• Works over different time frames

• Provides effective diversification rather than traditional diversification

• Works in both bull and bear markets

• Is disciplined yet flexible and evolving

• Reduces risk and provides downside protection

• Generates better returns than traditional stock indexes

• Has a proven long-term track record UV


Steps to Building Wealth

Step 1: 

Start now 


Step 2: 

Spend less than you earn


Step 3: 

Hire a competent financial adviser


Step 4: 

Avoid unnecessary debt


Step 5: 

Follow a sound long-term strategy


About the Author

Dave Young, president of Paragon Wealth Management, has been managing money since 1986. He was his first client after he sold his 12 franchise businesses and couldn’t find a traditional brokerage firm to meet his needs. From his personal investment experience, he knew there was a better option to managing money. Later that year, he started his own money management firm and has been managing money ever since.

In 2008 he was awarded the Small Business of the Year Award from the Provo-Orem Chamber of Commerce. He also received the Best of State Award in Financial Services. He is originally from New Mexico. He enjoys spending time with his family, the outdoors, hunting, fishing, camping, sports and exercising.



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