It is the result of living within your means, saving, and then investing.
Simple isn’t it?
So why are so many people have so little to show for their years of working?
There is no one answer to this question, but…
whatever the reason for their lack of financial success can be summed up in just two words;
Financial illiteracy
People are not broke without a reason and neither are they prosperous without a reason.
If you divided the world’s wealth equally between its citizens, it will not be too long before everyone will return to the same financial position as they were previously because everyone has developed habits of using their money which will either build their wealth or keep them poor.
There is no secret to the financial success of those who build their wealth, and it can be summed up in two words;
Financial literacy
No one is born with financial literacy, just like education of every other kind, it is learned.
So where do you learn about financial matters?
Start with your local library, there are plenty of books you are able to borrow on financial matters. Your local bookstore, ebay, or Amazon all have books on finance while you may pick up the odd book on the subject from a charity shop.
One good book to keep an eye out for is “Rich Dad Poor Dad,” there are a lot of other books from the same author.
The author of Rich Dad Poor Dad stresses the importance of developing income producing assets and reducing those or at least eliminating liabilities which cost you money.
I have a free ebook to give away, it is called “Financial Steps.”
All you need to do is join my mailing list on the following link;
Financial success is much easier than you think and is often just a matter of prioritizing your spending. The first thing to do is to find out where your money is going and where is disappears into the sunset never to be seen again. Much of this type of spending is dead money because you have nothing to show for it. You need to convince it to stay at home and work for you rather than fill someone Else’s pockets.
There are a number of money leaks which drain your finances so lets take a
took at some of the main culprits.
INTEREST
If you have hire purchase loans, credit card loans, or bank or finance
company loans then a good deal of your money is being spent servicing the loan.
There is a cost to using other people’s money to buy stuff and that is called
interest. In order to become debt free and save money, you need to decide on
what youer priorities are and MAKE SACRIFICES. As painful as it may sound, you
must do an audit in order to work out how much of your money in going in
interest payments per annum.
If you are seriously in debt then talking to a budget advisor make sense.
STUFF YOU NO LONGER NEED
Everyone has stuff they no longer need just lying about around the house.
This can all be considered “dead money”. Your stuff can be converted
into cash and turned into seed money for your future wealth. Selling the stuff
on ebay will give you some extra money to invest. You can then put this money
to work for you.
HOBBIES AND SPORT
People will spend a fortune on their hobbies and the question of whether
the amount you are spending on yours is going to affect your financial plans in
the future. We hear of people who spend absurd amounts of money on whatever
they are collecting yet when it comes to retirements savings bury their head in
the sand. The money spent on this stuff is really dead money because it is not
producing any wealth.
Sport is in a separate category altogether because being a participate in
sporting activities promotes health and well being but you are able to minimize
the amount spent so that what it is costing you does not get out of hand.
MONEY LYING IDLE
Money just lying in a low interest account earning just 2% interest is losing its value because when inflation and tax are both considered, it has lost its value and is worth less than 12 months ago. It all depends on what the purpose of that money is. If it is rainy day money then you may be better off investing it in Bonus Bonds where instead of being paid interest, you go into a draw to win prizes including a million dollar prize. It may be a long shot but at least you have a chance.
It all adds up during the course of a year. $4 or so for one cup of coffee per day does not sound much but if you buy say three cups of coffees per day that is $12 per day you are spending on coffee. That is $60 per week (5 days per week) and during the course of a year, that is $3,000 worth of coffee you are drinking. That could be your retirement savings or an overseas trip, or whatever you may prefer to spend your money on which you can see with your own eyes what your labours have paid for.
Learn to look at your spending on an annual basis because it does not sound
like money money when you are paying for something in small amounts but like a
dripping tap, leaks like this can add up to a lake. These little money leaks
can then be used as your seed money to build your future wealth.
Special Note
If you would like to purchase this article for use on your own blog or even as part of an ebook then click on the button below:
The talk in New Zealand these past two or three weeks has been the
possibility of the introduction of the Capital Gains tax. This is likely to be
at 33%. irrespective of which tax rate you are on. So if for example you are on
the lower income bracket paying tax of 17.5% then your kiwisaver provider would
still pay 33% tax on any capital gains on your kiwisaver. The capital gains tax
could be mitigated by new incentives by those in the scheme or at least
encourage those who have not joined to do so. All will be revealed in May’s
budget but it is likely that the $1000 kickstart will be reinstated and that
the annual tax credit will be increased. It was the last National government
who scrapped the kickstart in order to balance the books. They also reduced the
tax credit from $1040 to $520. Prior to the reduction, you had to deposit at
least $1040 to get the full government tax credit so that was in effect the
same as making 100% on your investment, tax free. Then National reduced the tax
credit to $520 but you still had to deposit $1040 to get this which is like
earning 50% on your investment.
As for the $1000 kickstart. If you are a school leaver or have not got
around to joining kiwisaver then it may be a good idea to wait until after the
budget to see what unfolds. It really depends on timing because Grant Robertson
(The finance minister) may decide that they changes will take effect on July
1st which is the start of the kiwisaver year but if the changes take effect
immediately after budget night then it would be good sense to join kiwisaver in
order to collect the 1k kickstart and deposit at least $1040 into your
kiwisaver account by 30th June in order to collect July’s tax credit.
Another change which has been talked about is the scrapping of the tax on
employer contributions for those earning less than $48,000. As with the
government incentives, the employer contributions will become tax free if your
level of income allows it. It was the last National government who placed the
tax on employer contributions.
It is interesting to see how any capital gains tax will effect kiwisaver
balances in the future because a lot of these funds do have investments in
property. It may well affect the supply of housing because would be property
developers will think it is just not worth the hassle especially with the new
compliance costs which will cost land lords an arm and a leg.
A capital gains tax will not just affect property and shares. It is likely
to affect crypto currency as well but it is not clear what the situation is in
the event that someone makes a capital loss as can happen when investing for
capital gain. Investor’s who lose money in an investment in this way may well
be able to claim losses against their wages and salaries but it is best to seek
advice from a qualified person in this regard.
It is important not to panic when the markets are falling as has been the case recently. Whether you have a grand or two in shares or have 1000s invested in the sharemarket, it is best to ride it out the storm and just let the markets bounce back in your favour as no doubt they will. That is if you had followed the basic rules of investing.
The most important rule is to never invest in the markets money which you cannot afford to lose. If you are saving for a house then the sharemarket is not the place to invest your money-you should instead go for more conservative investments. The worst thing that can happen if you had invested your house deposit money in the sharemarket is to find that the value of your investment is reduced when it comes time to withdrawing your money.
If on the other hand you were investing for your retirement then you can afford to take risks as this is a long term investment and you will be able to take advantage of the gains in the market which for decades have outweighed the falls. Some financial advisors would tell you to scale back to more conservative funds the closer you are to retirement but that all depends on how soon after retirement you actually need the money. This is particularly relevant for those with kiwisaver accounts (NZ retirement savings scheme). (Not necessarily applicable in your own country).
It is also important to diversify your investing so that your risk is spread out over several companies and industries. If you have the means to play the market directly then this is the most important rule to follow. It will help you to withstand a sharemarket down turn better because some companies fare better than others during an economic downturn.
This week’s sharemarket down turn is a timely reminder to exercise commonsense when investing money by not placing all of your eggs in the one basket and to ride out the storm.
This article is not intended as financial advice but rather is the sole opinion of the writer.
