- 1.Wealth Creation – The Five Key Steps to Grow Your Wealth
Author: Daniel Brown
In our next article within this series, we continue to explore the fundamental steps to securing your ideal financial future.
The only difference between wealthy people and broke people is their mindset. Wealthy people identify and create opportunities, broke people make excuses and blame others for their financial position.
If we can change your mindset, we can change your financial future.
The following steps help break down the myth of achieving financial freedom – it isn’t difficult, it simply comes down to being committed to making change and having a clearly defined plan.
1. Start with budgeting taking responsibility for your spending
There are plenty of articles about budgeting and cash flow programs, but they don’t focus on the real issue.
We have plenty of excuses of why we needed to buy new clothes, “deserve” a holiday or not prepare a meal plan for the week ahead.
If you are connected with your goal or vision for the future, your choices will become real and you will take responsibility for your spending habits.
Action item: establish clearly defined goals and have them displayed throughout your house.
2. It’s not just about the spending – find ways to make more income
Once you have clearly defined goals and take ownership of your spending, we can then focus on how to earn more.
The answers are right in front of you:
- Education: commit to working on attaining another type or the next level of education.
- Ask for a pay rise: a key tip here, don’t use “if you don’t pay me more, I’ll look elsewhere”. Try asking by first identifying the value you are creating for the business and then explain how you have more to offer and feel being rewarded for the commitment will provide value to the organisation.
- Start a side hustle: monetise your passion. Establishing a process to create additional income in your spare time after work is a great option to provide further income for the household.
3. Investing – what’s your preference?
With many different investment vehicles available, it’s important to consider where you feel comfortable to invest in.
Consider which investments both partners feel comfortable with as the preferred investment vehicle. This will help when the investment market and the value of your investment decline.
Most Australians feel comfortable investing in what they believe they understand and feel comfortable with – property. While this may be suitable for you, consideration should be given to the benefits of investing in all asset classes and the income, growth and taxation characteristics associated with each investment when establishing your long-term plans.
4. Savings vs. borrowing
Most people are taught from an early age to start saving for our first car or house (thanks to the Commonwealth Bank’s Dollarmites account). The result = purchasing a depreciating asset or locked into repaying a mortgage.
The benefit of savings is that they provide a financial commitment and ensure that funds are available when needed. The negative is that you are generally using after-tax income to save to an interest-bearing account which in turn creates more taxable income. The taxman loves you and the banks use these funds to then lend out at a higher interest rate to mortgage holders.
The benefit of borrowing though is that you can use as little as 20% to acquire an asset – otherwise known as leveraging.
Those among us who become financially independent usually have a few regrets. They didn’t get started earlier, they didn’t borrow and acquire more assets and ensure they had more time in the market.
There are many options available once you become financially educated. You can own a whole asset, partially own or simply have an option to purchase in the future if you’re prepared to leverage.
Action Item: seek advice from a qualified mortgage broker e.g. Fortuity Lending to check your loan serviceability and lending capacity so you can start as soon as possible.
5. Commitment to the process
One of the earliest lessons I learnt about money from Robert Kiyosaki is “pay yourself first”. I then took this lesson and applied another lesson, “pay your commitments first and never withdraw those funds”.
Instead, if needed, find another way to create additional funds or extend the repayment timeframe. For example, pay an additional $500 per week off your home loan and it can support you in taking responsibility for your spending, as per Lesson #1.
Along the way, you will no doubt find excuses of why you need to withdraw the cash but reprogram your thought process and this will help deliver your financial freedom.
To ensure you have the rewards in place for your commitment, incentivise yourself in non-monetary ways such as having a day off, reading a book to improve your financial knowledge or spend time with someone inspiring to you or that has already achieved financial independence.
I recently had a client that was simply not willing to change their mindset and continued to blame everyone else for their financial position and previous decision made. Not enough time, complaining about the costs compared to the benefits, etc – the sad reality is their financial position is set in stone unless they are prepared to listen, learn and change.
We help people create wealth by changing their mindset, behaviours and create opportunities no one else can see.
Take your first step towards Wealth Creation and book a complimentary financial planning meeting with one of Newcastle Financial Planning Group’s Wealth Creation Specialists.
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