This may sound obvious to some of you, but you may be surprised how many people spend more each month than they earn. If you don’t have any assets growing for you, your first task is to accumulate a nest egg to help you to start down your wealth creation path.
The only way to save is to spend less than you earn. To spend less than you earn you must understand how much you spend each month and what you spend it on. Yes! It’s the ghastly B word – Budget. And its not enough to spend less occasionally, you have to spend less every month.
What’s your current net worth? You can calculate that by adding the value of all you non-depreciating assets (ie. Cash, shares, property, business value – Not cars, clothes, personal items) and subtracting all your debt (ie. Home loans, car loans, credit card debt, margin loans etc). When we start spending less than we earn, we start increasing our net worth incrementally every month.
Further Reading
The Richest Man in Babylon
To become wealthy you must understand your own self-talk. Do you think “money is the root of all evil”, or were you brought up to believe “rich people are greedy and mean”? If you do, it’s going to be difficult to achieve financial freedom. If you do, being wealthy is in conflict with your core values or beliefs.
It is also important to understand your tolerance to risk. There is a relationship between risk and reward, generally the higher the reward the higher the risk. We need to be careful, though, because a higher risk does not necessarily mean a higher reward. It’s no good investing your hard saved dollars into emu farming and then spending your nights lying in bed worrying about whether you will ever get your money back!
Leverage is one of the keys to building wealth, so if taking on debt makes you feel uncomfortable, help manage your risk using insurance, such as income protection; life and total and permanent disability. They may seem expensive, but in the early stages of building wealth, your ability to earn an income is key to leveraging your investments.
Set yourself an outcome. Make it realistic, and something that you are comfortable with. Building wealth is a long term venture. You are very unlikely to “get rich quick”, and chasing the quick buck is fraught with danger.
Further Reading
Think and Grow Rich – Napoleon Hill
You are your most important asset. Spend time and money on educating yourself.
When you have savings, what should you do with them? You know you should invest, but how and in what? Most people invest in one or more of:
Depending on where you are in life and what you want to achieve all of these are great investment, and usually provide a better return than money in the bank if you educate yourself .
Creating Financial Freedom is not rocket science, many people have done it before. Learning what they have done, using their ideas and mixing them into your situation will be far more expedient than learning from your own experience.
You’ve set an outcome, so now build a plan. Steal with pride, copy and emulate others. But copy those who have achieved. Always ask others what they have done, what’s their current situation. Ask direct questions, especially if they are leading you into investing their way. Take your advice from those who are successful. If your local tax accountant or your bank manager are not investing successfully, don’t take their investment advice!
There are lots of knockers out there. Find yourself and investment buddy, so you don’t have to discuss your plans with the knockers.
Once you understand what is involved in your wealth creating plan, you can decide which parts you want to do yourself and what you would rather “outsource” to others. Remember, you can’t outsource your plan and commitment, only you can drive the direction and manage your advisors. If you absolve yourself of all responsibility, then others will potentially make money at your expense.
Further Reading
(Property) More Wealth Through Property - Jan Somers
(Shares) Buffettology - Mary Buffet
When you know what you want, its time to hit the street and find the properties or shares that fulfill your criteria. You can never spend too much time in your week researching for your investment – however, you can wait too long to start investing!! What do I mean? Research is great, but I remember an old saying “the deal of the century comes along about once a week”. Don’t allow yourself to become a victim of analysis paralysis.
If you don’t have the time to do the research, employ others who understand your strategy to assist you in particular areas. If you don’t want to spend your weekends searching for property – employ a buyers advocate. Give them a very specific brief about what your parameters are. If you don’t have time to research the share market, buy into a managed fund that uses your criteria. If you want help in your strategy see a financial planner who understands your wealth creation goal.
Whenever you find an “expert” to help you, it is key to ask them what they have done and current do for investing themselves. You need to know that they understand you and support your strategy.
Further Reading / Research Resources
See our resources for the Valuer Generals Report
Creating a share club is a great, low-risk way learn about investing in shares with a group of friends. Feel welcome to Contact us and get some ideas and information on how to do this.
So when you’ve saved some money, set your goals, made you plans, understood your attitude and relationship with money, researched your investment and put your plans into action, you have to wait for time to works its magic.
Whether you invest in property or shares, the effects of compounding are profound. And they take TIME. Historically property has doubled in value every 7 to 10 years, and equities tend to grow even faster.
How many people have said “oh yes I bought it 10 years ago and I only paid $150k”. And $150K was a lot of money back then. And now its worth over $400k. Time is very forgiving, particularly with property.
Don’t expect things to happen overnight. Understand your strategy and its time frames. Things will happen in good time.
Then when you’ve built more equity and/or saved more money, you can start over…. Re-write your goals and make new plans, research new ideas and bigger investments, check in with your self talk and implement your new plans.
One day, you will wake up, do the math, and realise… “Wow - I’m rich”. And you will have the choices, the freedom to decide to work doing what you love, regardless of the pay, spend more time with your family, and have more time for yourself. You will have the time and freedom to fulfill your destiny and live your dream.
Further Reading
Rich dad Poor Dad – Robert Kiyosaki
How to be a Billionaire – Martin Frisson