The Road Ahead : December 2013
THE ROAD AHEAD DEC 2013/JAN 2014 ROADAHEAD.COM.AU 28 LIFESTYLE | DOLLARS & $ENSE commit first, then strategise NOEL WHITTAKER UNLOCKS THE SECRET TO BUILDING WEALTH. IT'S SIMPLER THAN YOU MIGHT THINK. The secret to building wealth is to make financial commitments and then put a strategy in place to ensure that they happen automatically. To do this, you have to change your habits so you start to spend your salary in the correct order. Most people do it the wrong way. They get paid on Friday, fill the car with petrol and then probably drop in to the bottle shop on the way home. The next day, they do the grocery shopping and, if they're doing this at a large shopping centre, may well fall into the trap of buying a few unnecessary knick knacks as part of the shopping expedition. Their loan repayments are deducted automatically from their bank account and, by some strange but inevitable process, they arrive at next payday with nothing left over to invest. They resolve that next week will be different, but it never is. This ability to spend exactly what one earns is one of the real mysteries of life. Petrol prices and interest rates can rise and fall, yet this inbuilt computer in our brain will always automatically adjust our spending so that our expenditure always runs in line with our income. This is the reason pay rises seldom make much difference to anybody's financial situation. The solution is simple -- make investing the first and most important item of your expenditure, instead of something you try to do when you get around to it. For example, if you are on a low income, arrange to have a small sum such as $100 a month automatically debited to your bank account and invested in a good share trust. Borrowing for investment is the best way of all, because a relatively small monthly payment puts a substantial amount of quality assets at work for you. A tax deductible $300 a month (that's just $69 a week) would enable you to borrow $50,000 to buy blue chip share trusts. If they achieve 10 percent per annum (income and growth combined) they would be worth $400,000 in 25 years. If you have only a small deposit and don't qualify for a margin loan or a home equity loan, talk to an adviser about a regular gearing plan. This is where you invest a set sum each month into a share trust and a lender adds a borrowed amount to it. You decide how much you will borrow each month, but it must be no more than Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com. twice your own investment. For example, if you decide to invest $500 a month, the bank would match it with up to $1000 of loan money. Therefore you are investing $1500 a month -- of which $1000 is borrowed. After 60 months, you have invested $90,000, of which $30,000 is your own money and $60,000 is borrowed. Simple? Of course it is, but most people never get around to starting. The good news is that once you put the process in place by direct debit, you can virtually forget about it.
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