This month we’re discussing wealth because locally there’s a lot of talk about a pensioner who just inherited numerous properties in a very prestigious street. With no desire to be a geriatric landlord, the properties went on the market only to find they can’t be sold until the will-makers cat dies!
Apart from dreaming about cat-free-inheritances and lottery wins, how much mental time do YOU actually invest in planning your wealth? If you don’t give it a lot of thought, then I’m sure you have some brilliant excuses and will stop reading right about now.
When we say ‘wealth’ we don’t mean the dark evil wealth the media brainwashes us with. We mean the nice generous kind which protects families, supports creativity, encourages innovation and funds our welfare system by paying eye watering amounts of tax.
If you plan on continuing exactly as you are until retirement then you can easily find out how much wealthier you’ll be by using the simplistic formula below.
Are you comfortable with how much wealthier you’ll be or are you just a little bit in denial? The fantastic thing is that, unlike school, you get more than one shot at the answer. You can easily improve your result by tweaking a few things now so you’re a whole lot wealthier sooner (and before you’re too old to enjoy it)! Why not take a pick and mix approach to our suggestions (below) or skip to the very bottom for some fun Wealth-Statistics.
- Picture it. Graph how wealthy you’ll be so you can clearly see the positive impact making a few changes now has on your long term financial health.
- Family win win. A sure fire way to significantly improve your wealth is to eliminate the banks interest margin. If one of your family has significant funds invested long term (perhaps a crazy cat loving Uncle) and they’re prepared to give you a mortgage then everyone wins (except the bank of course). Set the interest rate between what Uncle Scrooge is receiving and what you’re paying. For example, if his term deposit is paying 3% and your mortgage is at 5% then set the rate in the middle at 4%. The new green line (below) shows your improved wealth and we know for a fact this works because we’ve done it successfully ourselves. An unexpected bonus was that it stopped ‘the elders’ frittering away capital ensuring the next generation doesn’t miss out.
- Forget about living in the moment. Think long term because satisfying emotional needs right now can add years to your mortgage. Simple things like “the wife” working another year or changing cars less frequently has incredible results long term.
- Capture fritter factor. The average couple wastes $20,000 each year on unnecessary junk and I’ve personally witnessed one family get through 8.3 million in less than 6 years. Can you capture your fritter?
- Death by flexi. Flexible loans will keep you in debt for life unless you’re one of the chosen few with inordinate amounts of willpower and descipline. It’s far too easy to throw another ‘holiday’ on the flexi. Read more
- Get income focussed. Focussing on maximising your family income is so much more productive than cost cutting. Cost cutting is completely limited but making small changes to the top line has massive effects on the bottom line. Read more.
- Growing assets. Are your assets going up in value? If you’ve invested in a Lamborghini, rather than a commercial property, you’ll probably find your wealth rapidly evaporating (and that’s before factoring in the $10k service bills one of my clients endured every month). Thinking smaller, what if you’d invested in Apple shares rather than upgrading your iPhone regularly?
- Never pay minimum. Everyone knows you should pay debt off fast (and repay debt before you start saving) but very few people get around to increasing their mortgage payments. Paying a few extra bucks now will make you mortgage free years earlier so why not log into internet banking right now and up your repayments. (Paying an extra $55 each week will make you mortgage-free three years earlier and save a whopping $43,000+ on the average mortgage)
- Fight your inner hunter-gatherer. These days, instead of hunting dinosaurs, your inner hunter-gather is devoted to fuelling shopping sprees. Fight back and prove you’re smarter than the zombies who spend their weekends ‘malling’.
- Saving yourself rich is a myth but if you don’t have the skills to make more money, then embracing your inner penny-pincher is the only way to go.
- Prioritise your bucket list. The media does a fantastic job of brainwashing us that we deserve everything now but having everything now will leave most of us with nothing at all. For a happy life it’s essential you know your top priorities and slot them into your financial plan at the optimal time. The last thing you want to do is take that dream holiday now only to face years of financial hardship afterwards (especially if postponing the trip a few years will make life smooth sailing instead).
- Cancel your sky subscription. It’s not just Sky. It’s that daily cup of coffee, the fancy gym membership and the nightly bottle of something soothing (we don’t mean milk) which make the daily grind bearable but do they really make you happy? (SkyTV adds an extra year to the average mortgage).
- Stay married. Studies show that stable relationships (including business ones) are likely to make you far wealthier. Regularly changing spouses, cars, houses and careers can decimate wealth.
- Be your own boss. Take responsibility for your financial success and don’t rely on your hubby, wife or a prize winning Gatto to make you financially secure.
_______________________________ www.boutiquefinancial.co.nz _______________________________
Boutique Financial Chartered Accountants & Business Commentators
Copyright © 2015 Boutique Financial Limited Chartered Accountants Auckland All Rights Reserved. This publication must be read in accordance with the attached disclaimer and does not provide an exhaustive statement of tax law.