Part 3 - How to Become an Investorgetic®. The secret to becoming a Millionaire Series

Focus on Financial Liberation: Introduction and Step 1 

Your retirement may seem like a distant dream; something to worry about later on. Yet what you do now – how much you earn, spend, save and invest – determines how much money you will have in retirement.

How much money you will need depends on the kind of lifestyle you want. Do you want a frugal retirement, living week to week on the pension? Or do you envision yourself debt free, living in comfort off your own savings and investments? 

It is never too early to transform into an Investorgetic™. You can start working towards a financially liberated retirement no matter what stage of your life you are in. But the fluctuating global economy complicates matters. What is financially relevant now might not be in 20 years’ time.

For example, the erosion of investor returns has caused major economic upheaval. The rate of return for cash investments nosedived from 7.5% in 1995 to 2.5% in 2015. This has had a huge impact on people’s quality of life in retirement.  

So, when the world is faced with an uncertain financial future, how can you plan for your retirement in 20 or 30 years? And how can you plan for another 20 years after that?

Create your wealth road map 

No one can guarantee what their future will be. But you can understand and manage the risks by creating your wealth road map. A wealth road map considers various financial

scenarios – good and bad – and uses the numbers to create a sound financial strategy bolstered by wise investments.

Your wealth road map is not a one-off assessment. At the very least, it needs re-evaluation yearly and whenever you experience a major change in your circumstances.

Improve your current financial position

Before you can start planning for the long term, you must take an honest look at your present financial situation. What needs improving? What bad habits need nipping in the bud? Address these now to avoid financial headaches later.

1.     Reduce your credit card debt

Do you have credit card debt and little or no assets, equity or savings? Even a small amount of debt can snowball over time and ruin your chances of saving enough for a self-funded retirement. You must pay off – or at least reduce – your credit card debt before you start investing. It may even be prudent to refinance your debt by increasing your home loan. By doing this, you can reduce the credit card interest you pay by two thirds. However, you would also need to rein in your spending. Otherwise, you could fall into a vicious cycle of refinancing your home loan every few years to pay off your continuing debt.

2.     Finalise the family home

If you are renovating, building, selling or upgrading the family home, this must be finalised before you commit to a long-term financial plan. You don’t want to take on a hastened investment that ends up costing you dearly because you were too preoccupied with small to medium-sized goals.

3.     Manage your budget

At some point in the future, you will need to pay off your investment debts. If you currently struggle to budget and save, chances are you’ll struggle in the future, too. Failing to live within your means places long-term strategies and investments in jeopardy. To invest and build your assets, you must first work out your expenses, commit yourself to a realistic budget and regularly save money from your disposable after-tax income.

4.     Manage your bank accounts

Effective banking practices allow you to control your household expenses and manage your financial goals. For example:

  • Have no more than one credit card or debit card. Use this card to pay all the household expenses. Ensure the limit is no more than $2000.
  • If you have a spouse or partner, ensure both incomes are paid into your home loan/offset account.
  • Create separate accounts for holiday savings, household budget, education and investment/property. Set up monthly or fortnightly direct debit payments into each account.
  • The investment/property account can be where any rental income goes in and property expenses go out. If you don’t have a property, you can use this account to save for your own home, investment property, shares or managed fund.
  • The education fund can be a savings account or another offset account split against the home loan (where the balance offsets the home mortgage and the interest is calculated on the net amount). This allows you to save for your children’s education while reducing the interest on your home loan. Use money in this account for school fees, uniforms and books, and save for future private school and/or university fees. 

5.     Your age and retirement goals

If you don’t allow yourself ample time to grow your wealth and assets, you may need to adjust your lifestyle at retirement. People who start planning in their 40s have a 20-year horizon to work with. This gives them a much better chance of achieving their retirement goals than someone who is in their 50s with limited assets. However, when there is a will, there is a way. It starts with an honest money conversation.  

Once you have improved your current financial situation, you can start looking at ways to invest your money.

Stay tuned next week for how you can make wise investment decisions based on your attitudes towards risk.

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Susan Wahhab —CPA, SMSF Specialist, Entrepreneur, Working Mum, Small Business Supporter— is Australia’s leading Financial Strategist and Money Mentor. Susan is the founder and managing director of Accounting and Financial Services firm Winner Partnership Pty Ltd www.winnerpartnership.com  

Susan is the author of the transformational and practical book Money Intelligence®. Susan is passionate about helping people achieve financial liberation. At the age of six, she witnessed how her money-savvy mum (whom she calls the money manager) joined forces with her dad (whom she refers to as the money maker) to save the family business from bankruptcy and become financially free. Susan truly believes that people can become financially liberated by developing a healthy relationship with money. Buy the book in either printed copy or ebook and learn more about being money intelligent www.moneyintelligence.com.au