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Stairway to heaven

It’s at times of financial fear and loathing that it is ideal to make suggestions to people that there could be a better way to build their wealth. I call this the Anatomy of a Great Wealth Building Plan, and I recommend you benchmark yourself against these recommendations and then think about some remedial action.

If you read this and you don’t need to make any changes, I hope your explanation is that you have been a regular reader and have benefited from our online relationship.

Change for the better

To at least give you an idea of what constitutes a good plan, below you will see 14 life-changing money steps that can form a stairway to your financial heaven. Note, not all of them will suit you, but at least it will give you an idea about what the smarties all know and what they are doing.

Step one: look
Assess your current financial position and set some money goals. You need to answer the following questions:
  • What is my weekly income?
  • What am I spending each week?
  • What am I saving and is it enough for my goals?
  • Can I save and then invest more?
  • Can I answer these questions myself? If not, who can I get to help me?
Step two: act

Get real and do a budget to find out what you are earning, spending and saving. This is the biggest and most important step to change you from being a normal person who is in money madness land to being someone whose money act is together. Once you do this you will feel empowered and you will be champing at the bit to get on with the investments to make you wealthier.

Step three: tidy up
Rearrange your income earning and spending to start saving more, which then can be used for smart and safe investments.
Step four: pay for help

You know it all sounds too hard but if you want to get wealthier, then you have to seek professional help. A financial adviser could cost between $3000 to $5000 because a plan takes about 12-13 hours. Some financial advisers charge by the hour, while others will charge by the percentage and other will take commissions from the financial institutions whose investment products they recommend.

I prefer by the hour planners, but that’s my personal view. Make sure you ask for the total charge – direct and indirect – and make sure you know the real cost.

Unfortunately, a financial plan is not tax deductible but ongoing advice is and if you are too busy this can be a good idea.
Step five: get smart

Treat tips or get rich schemes with suspicion. Some tips and schemes can be sound, but they also can be license to lose money. The salespeople behind these schemes know what the average person does not know and they play to this weakness.

When something sounds too easy, too expensive, too complicated or too lucrative, go to an accountant or another adviser for an independent view.

Recently, in Geelong, a whole lot of people were stung and it sounds like it was either a dumb or sneaky adviser meeting a group of investors who didn’t really understand the game they were playing.

Step six: spread your risk

Don’t invest or save in only one area – give yourself some diversification in the assets you hold to make money. A house, an investment property, some shares and fixed interest deposits are the stand out choices for many investors who have made themselves comfortable. But there is a very important lesson: make sure you will have the cash flow to make investments work.

Always ask the ‘what if’ question to manage your risks. A good adviser does this for you and if you are doing it on your own, once again asking your accountant about what he or she thinks could be a smart move.

Step seven: own your home
Pay off your house as quickly as you can, but make sure you have a redraw so you can get your money back if things get tight.
Step eight: learn more

Use negative gearing to buy into investments such as property, shares or units in a managed fund. Once again, watch your cash flow.

Step nine: make the sacrifice
Maximise your payments into super by understanding salary sacrifice.
Step 10: get more help
Get a good accountant to explain relevant tax tricks, which can help a good investment get even better.
Step 11: educate yourself
Copy the wealth-building habits of the rich – buy books and read about them.
Step 12: make changes
Become a researcher on all of your money plays. You have to change as a person for the best money results.
Step 13: be wise
Remember, the higher the promised return, the higher the risk.
Step 14: work for you

Finally, lots of people have become rich by setting up their own successful businesses as these can absolutely kill the returns that you get as a passive or sideline investor.

Published on: Tuesday, July 14, 2009

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