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How do you get rich?

 As the stock market’s ups and downs affects the upward march of the Aussie dollar, and investors ponder if China’s growth can more than offset any slide of the US into recession, it’s a good time to remind most wealth builders of the basics of getting richer. And the key message is to look for and accumulate great assets.

Don’t do this!
The one big don’t message is: don’t be a short-term player who changes his or her stance often, at the wrong time, after the bad news has hit.
Going up!
This shouldn’t surprise you, but I don’t know what’s going to happen on the stock market in the next few years. However, I do know what it will do in 10 years and 20 years – it will go up.
Pick wisely
The history of markets suggests expecting 13% a year over a longish time isn’t too way out. If you pick bad stocks that don’t represent the overall stock market index – the All Ords or the S&P/ASX 200 - then you could do worse. You could go broke! On the other hand, if you can pick or buy a portfolio or fund that reflects the stock market well, then it is wise to do your money-making calculations based on 12-13%.
The property buy
Buy a good property in a sought after area and you could expect around 10-12% a year, but you can do better or worse than that and your homework into this investment will have a big impact on the eventual returns.
Home sweet home
Your family home is a great investment because it’s capital gains tax-free. That means when you sell it, the profit is all yours. With an investment property, as you claim tax deductions, especially for the home loan interest, then the government slugs you a capital gains tax on the net gain you make in owning the property.
Positive property
Investment properties, if selected wisely, can give great capital gain and some can evenly be positively geared where the rent outweighs the interest and other costs. However, these are rare but findable. Homework again can be a big help in this endeavour.
A super idea
Topping up your super through salary sacrifice is a great way to prepare for retirement, but the one problem is you lose access to the money until age 55 at the earliest and even then there are conditions.
Open a business
Another great wealth building option is to start a small business. Many Aussies have started a business on the side while working as an employee and have progressed the business until they have reached a stage where they can go out on their own – but be ethical and avoid growing your business on your current boss’ time.
Journalists, designers and IT people have trudged down this road and while it can be lucrative, once again it works best where the homework is done.
Be prepared
The business plan is the fundamental starting point, though many success story entrepreneurs admit that they did not have a plan. However, they do also admit that they made mistakes that a good plan would have helped them avoid.
Pay for help
Great business performers inevitably realise that they have weak points and start to surround themselves with great experts - accountants, lawyers, business coaches, etc. And they admit that these experts helped them grow their business and as a consequence, their wealth.
The business ownership experience teach lessons the hard way, but the winning business owners grow in stature on the job and the decisions get better and better as time moves on. In a sense the assets that the business owns grow as the key asset – the business owner – also grows as a business thinker.
The rich lessons
I find when it comes to people growing their wealth the same lessons apply. The big money makers use experts, but don’t abdicate the wealth building to their adviser. They get involved and tap into the expert’s expertise - that makes sense!
Make a commitment
Many people treat investment as a part-time, haphazard and chaotic approach instead of a carefully conceived plan to get wealthier in five or 10 years time. Then the next step is to ramp up this income growth by better advice and decisions, but most people never get to stage one, let alone the stages beyond.
Be in control
If you’re reading this and think you’re out of control and all over the place with your wealth building, then promise yourself you’ll get a plan. Set yourself five and 10-year goals and take the steps to see that they at least come true. Over the time, you could easily improve your decision-making and, like great businesses, blow your goals out of the water.
The road to success
This could come from you looking for better tax advice and smarter ways to turbo charge your investments. Wealth building in business leads to success.
But it starts with a plan to get great assets, great advice and to work for long-term wealth. Decide to change today and you will become richer.

Published on: Saturday, November 15, 2008

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