Imagine what would happen if you started to build a house with no plans? The wrong amount of concrete may be ordered for the foundations. The foundations may not match how big you want the house to be. Ultimately, the building may not be able to support the roof and that whole house will fall down.
The same goes with investing. Too often, people jump straight to wanting to invest their money in ‘something’ that will provide a good return. In the absence of a plan, they can purchase the wrong asset in the wrong entity with the wrong expectation as to how long they need to invest for. This ends not so much in disaster, but unmet expectations and disappointment.
Below are six steps that provide an overview on how to plan to grow your personal wealth and lifestyle.
1) Clarify Your Goals
Research has proven that writing down your goals significantly increases your chances of success. However, it can be beneficial to share these goals with a professional to review and refine. Goals that are specific, measurable, achievable, realistic and timely will help to ensure they are implemented.
2) Understand Your Budget and Understand what your Strategy Needs are
Any successful company or organisation will set budgets. Yet so often we do not do this with our own household income and expenditure. Use a budget app such as MyProsperity to help you track your income and expenditure across all your bank accounts, loans and credit cards in real time. Once you understand your budget, you can understand what your goals need to be – i.e., how much money do I need to keep my lifestyle in retirement? How much capital do I need to support that retirement? This is the start of developing your ‘Strategy’.
3) Plan to Protect Your Income
Your ability work is your largest income producing asset. A properly considered insurance strategy will ensure that you protect your ability to earn an income in the event of injury or illness. In this era, look for an adviser who will charge you a ‘fee-for-service’ and rebate insurance commissions.
4) Plan to Creation Personal Wealth
There are many options on how you can save and invest in your own name or other structures such as trusts. A properly consider investment strategy will consider all asset classes such as Australian shares, international shares, direct property, fixed income securities, cash or business investments. Knowing your strategy and the time frame you have to plan for will determine what ‘structures’ you will use. For example, do you own these assets in your own name, joint names, a trust, a company or your superannuation?
5) Plan to Grow Your Superannuation
It is compulsory for everyone who works to have a superannuation fund. Superannuation is a lower taxed environment where you can build wealth for retirement. It is not a question of ‘if’ you should contribute more to your superannuation, but a question of ‘when’ it is appropriate to contribute more. A true ‘fee-for-service’ adviser will consider if an industry super fund, retail super fund or a self-managed super fund (SMSF) is right for you.
6) Plan to Protect Your Hard Work and Leave a Legacy
Protecting your assets in the event of death or permanent injury is important to ensure your hard work goes to the people you intend for it to benefit. A complete estate plan will include wills for your personal assets, death benefit nominations for your superannuation fund and a power of attorney (PoA) to advise who can make financial and health decisions on your behalf if you are incapacitated.
In summary, investing money is simple more than finding an asset to buy with the expectation of capital growth and income. Technology, market innovations and globalisation are a few factors that have provided more investment choice. A holistic plan that considers your goals, needs and life situation life will ensure your strategy and the assets you choose to buy are appropriate for you and the timeframe you have to invest.
For more information on how you can use the CreationWealth philosophy to build your wealth and legacy, explore the many tools and information available at creationwealth.com.au