The financial planners in our Perth office are often asked to give advice over the phone or by email. However, everyone’s financial situation is different. Consequently, we can’t really give any specific advice until someone has a conference with us and we get a full view of their finances.
What we can do, though, is provide a nice little summary of some general techniques for building wealth. Remember that the information in this piece is general in nature and does not constitute financial advice, nor is it a substitute for individual financial planning services.
That being said, here are some wealth building techniques and fundamentals that may be helpful.
Pay Yourself First
If you don’t have any money to invest, your financial dreams are just that: dreams. For most people, the most effective way to save is to put aside a fixed amount or a percentage of each paycheck. If this can be automatically deducted so you never even see it, that works the best. Many people start with a savings account and then invest when they have sufficient capital.
Create a Budget
After setting up automatic withdrawal of funds to a savings or investment account, the next step for anyone who is serious about their finances is to create a budget. This requires writing down everything you take in and everything you spend. This is a great exercise, just for the awareness it brings.
After you know how your money is coming and going, you can identify necessary and unnecessary expenditures. It is easier to figure out how to reduce expenses if you know how much you are really spending.
One mistake a lot of people make is to create a budget that is too severe. If a budget doesn’t allow for some fun and some disposable income, you won’t stay on it. If you can’t stay on a budget, there is no point in making one.
Balance Your Risk
Some people have a low risk tolerance and don’t take enough risks. Some have a high risk tolerance and take too much risk. Usually, the higher the risk the higher the potential return. We usually end up recommending a diverse portfolio with some high-risk and some low-risk investments. However, we never recommend that anyone make an investment with which they are not comfortable and don’t fully understand.
We feel that it is important to set goals. When we have an introductory meeting with a new or potential client, we like to ask what their goals are. For example, when do you want to retire? How much money do you want to have when you retire? How much money do you want to save this month? This year?
Once you have goals, a good financial planner will assess them and come up with a solid plan for you to make them happen.
Save Half of Your Good Fortune
If you get a pay increase or an unexpected lump sum of money, it makes a lot of sense to save half of it. Since it is money you haven’t really had yet, you won’t miss the half of it you put away. This could be a different percentage, but be sure to share your good fortune with that person you are supposed to pay first: yourself.
Reduce Administration Fees
If you have accounts at multiple banks, you can probably save money by consolidating them into one account. If you have changed jobs and have more than one superannuation fund, you can probably save on fees by switching them to one account.
Get Professional Help
While the general information we have shared can be very helpful, we firmly believe that the best course of action for anyone is to call a financial planner. Some people are able to manage their own money and do a great job, but they are competing against professionals who invest for a living.
At Purely Finance, we are all licensed and trained to help you maximise and protect your investment income. To learn more about maximising investments, call Purely Finance: 1300 745 778.