Published on December 1, 2022
After 30 years of being an adviser and coaching families to reach financial freedom, it came down to ensuring these 7 steps were followed to ensure the most effective and efficient method possible.
Step 1. Plan to be Financially Independent
As the saying goes “if you fail to plan, you plan to fail”. As in any goal, whether that is buying a house or financial freedom, you need to have a plan with set goals, on how to get there. Once you have decided, most importantly, write it down, review periodically and have someone in your life to keep you accountable and on track.
Step 2. You need to learn to save
Start with something small that you will not miss, pay it to yourself first after getting paid (as nothing left usually at end of month) And importantly give yourself time to allow the effect of compounding interest and it is amazing how quickly your savings will grow. Aim for a 3-months’ savings nest egg as a first goal.
Step 3. Good verse Bad assets/debts
You should aim to buy (or even borrow to buy) Good assets which are assets that pay income such as a property with rent, or shares with dividends. Compared to Bad assets that don’t provide an income such as cars or a boat as they are lifestyle choices, which are fun, but not investments.
As an example, if you saved for an investment property of $500,000, it would probably take 10 years to save that amount of money, unfortunately by then, that property would now be $1,000,000 and not affordable, so borrowing helps you invest now. Whatever assets you buy make sure they are diversified so not all your money tied up in just your home, or one investment share for example.
Step 4. Get your money working harder for you
Salary is important but successful investors know to use other people’s money such as borrowing money from a bank to buy good assets and have them working hard for you while you sleep such as buying property and collecting rent.
When it comes to superannuation, your superannuation is a long-term investment and so make sure it is in an investment fund that has a majority of shares and property, the best performing long term asset classes. If it is half in cash, fixed interest or bonds, the least performing asset classes over long term, such as a Balanced Fund, you are just not maximizing your investment returns. Over 20 years, an extra 2 or 3% per annum return on what you are getting now, could double your account balance and so worth taking notice of.
Step 5. Time
Investing works when we use that one great secret, time. Anyone leaving a good investment whether a property or a blue-chip share portfolio over a long period of time, say a decade or more (long term), has virtually always shown strong growth and proven successful. It’s using what we all learnt back at school the power of compounding interest. Wasn’t so important back then but now it’s your own money, it’s worth understanding this great investment principle.
Also important with time, don’t get bogged down trying to do it all yourself, as spare time when it comes to family, work, health and so on, is a rare commodity and so outsource what you can but always follow and maintain control over it.
Step 6. Your Safety Net and Estate planning
The ‘safety net’ of life insurance ensures all your future financial goals can be achieved for you and your family. Also once you start building assets, you should ensure you have an up to date Will as don’t leave your family with a problem.
Step 7. Find a financial adviser/coach as we all need life balance
Most people are time poor, work too hard and so don’t have time to work on their future plans, let alone their own health and well-being. All successful people have coaches and mentors and so why not you for your finances. They can help you set goals, help you stay on track and be held accountable, and well worth the money as unless you do this every day, will probably be better at it and make sure it gets done!
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich