The Financial Dojo Red Wealth Belt™ is our third highest belt. It is above Green and below Black and Master Black. When you reach the Red Wealth Belt™ level, it’s clear that you “get it”. Red represents the energy and heat of the sun that shines upon and encourages the plant to grow toward it. Red is also the sign of danger.
Red Wealth Belt™ (RWB)
So as a Red Wealth Belt™ holder, you are gaining more detailed knowledge about your finances and managing money. And with this additional knowledge, you might be tempted to take unnecessary investment risks. However, you should continue to proceed with caution and diligence when choosing your wealth-building options.
In this mini-course, we will cover more investment options that will give you the tools and power to control your financial future. Specifically, I’ll discuss the Traditional IRA, Traditional versus Roth IRAs, and additional investment options.
Now, if you haven’t read the mini-courses beneath yours, you really should. That’s where we laid out important foundational material such as in the Green Wealth Belt mini-course where we cover designing an investment portfolio, assessing your risk tolerance, and explaining the in’s and out’s of various types of basic investments.
But if you’ve done that, the next step before getting into the nitty gritty of this mini-course is to take the following Red Wealth Belt™ Test. The purpose of the test is to confirm that you’re at the right belt level.
Take the Red Wealth Belt™ Test
Answer the following 9 questions to quickly assess your current financial situation and knowledge. If you answer “yes” to ALL questions, you’re at the right level. Proceed through the course. But if you answer “no” to any one question, you’re at most at the Green Wealth Belt level. So go back to that mini-course and review it.
Spending Mastery Questions:
- Is your FICO Credit Score 726 or higher?
- Are your total monthly debt payments less than 35% of your total monthly gross income (pre-tax)? (See Note 1)
Note 1: Your total monthly debt payment/commitment is comprised of the amounts you pay on all the loans, contracts, leases, and agreements you’ve locked into. Examples of this would be your mortgage (principal, interest, taxes, and insurance), credit cards, student loans, car loans, apartment lease, homeowner’s association fees, furniture financing, remodeling loan, legal judgments, child support, alimony, etc. So, it does not include basic living expenses such as utilities, groceries, car fuel and maintenance, etc.
Saving & Investing (S&I) Mastery Questions:
Calculate the grand total of all your outstanding debt obligations, excluding your home mortgage. Now answer the following questions.
- If you were to completely pay off all of those obligations (excluding the mortgage) today, all at once, would you still have a cushion of at least $50,000 in your S&I accounts?
- Is it safe to say that at least 50% of your total outstanding debt (excluding the mortgage) could be paid down from money held in saving and investment accounts that would not be subject to early-withdrawal penalties by the IRS if you had to use those funds?
Congratulations! You’re almost done with the test. Successful completion of the first two parts means that you’ve reached Red Wealth Belt™ (In Waiting) status. In-Waiting means that you won’t be considered an official Red Wealth Belt ninja until you also complete the final Knowledge Mastery Questions below.
Knowledge Mastery Questions:
- Have you gone through the Financial Dojo Orientation & Overview guide?
- Have you familiarized yourself with the elements comprising the CALM Approach?
- Have you read the Puzzle Box Paradigm™ and completed the Action Steps associated with each of the four guiding principles?
- Did you figure out how much money you’ll need for retirement? (Your retirement money goal)
- Have you reviewed all of the wealth belt mini-courses beneath this one? (Green, Yellow, and White)
If you answered “yes” to all of the above test questions, congratulations, you’re an official Red Wealth Belt™ holder. Apply what you learn in the remainder of this course document to propel you to the next wealth belt level, which is Black. Let’s get the show on the road.
As I mentioned earlier, I introduced a couple of investment accounts in the Green Wealth Belt mini-course that you should establish and contribute to. Specifically, I discussed the Roth IRA and your company’s retirement plan.
Now, if you read that and said to yourself, “Wait a minute, I make too much money to contribute to a Roth IRA” or “My company doesn’t offer a 401k retirement plan”, don’t panic. I have another great option for you. In fact, even if you have both of them in your portfolio, you should consider this investment vehicle.
What I’m talking about is a Traditional IRA. It’s been around for a long time and loaded with great benefits. I definitely have one in my portfolio. Let’s take a closer look.
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