Do you have a friend that is always droning on about what they’re going to do next so that they don’t need to worry about money anymore? If they’re like a couple of my friends, they will no doubt spend more time talking and very little, if any time putting these ideas into action. Getting ahead financially is rarely done quickly and it’s never exciting but by taking the following simple steps you’ll set yourself up a much richer life.

Vision –

Most of the time when taking a drive you know where you’re going and it’s only seldom that we’ll hop in the car and just drive without direction. Yet it’s the opposite for many when it comes to money –  the thought of doing something with purpose to achieve a particular goal is rare.

Having a clear, descriptive vision of what your richest future looks like to you is vital. You must know what you want – at least vaguely – so you’re not wasting your time and money now.

Income & Expenses –

While there is no rulebook that tells you what you should be earning and spending, you should use some rules to control how your spending works with your earnings. Get a grip on the basic relationship between what money flows into your household and what flows out.

Your rules don’t need to be complex, in fact it’s best if they’re as simple as you can make them. The primary aim is to keep your spending less than your earnings. Bypass your own biases by paying bills and making savings directly out of your pay, automatically. Have a spending account and know that when it’s empty then you have to wait till next pay for your next indulgence.

Borrowing –

In Australia, we are in a period of record low interest rates which is great considering our borrowings have never been higher. House prices are massively overvalued according to some which only feeds the household borrowings getting higher.

What’s amazing is that today, at a time of record low interest rates, the amount each household pays in interest on their home loan is higher than that paid by each household in the late 1980’s at a time of record high interest rates.

Don’t be fooled by low interest rates, the principle of your loan still needs to be repaid and when this is unaffordable to you then your family will be sacrificing their future to maintain this large debt today.

Plan B –

Sometimes things don’t go according to plan and taking some time to work out a backup can payoff in unexpected times.

Today, there are more homes lost to illness and disability than there are to fire yet only one third of working Australians have any form of disability insurance.

If you had a machine in your house that generated $80,000 per year do you think it would be wise to insure it?

Guess what that machine looks like? You!

You must be an investor! –

I’ve worked with thousands of financially successful families from all walks of life and they are all investors. None of them waited to have lots of money before they started investing, they all started with small and regular savings and then kept at it over long periods of time.

I love the story of two friends, Wal & Wendy. Wendy started investing $200/month when she was 20 and she did this for 10 years until she turned 30 and then didn’t invest anymore. Wal chose to do the same as Wendy but he didn’t start investing until he was 30 and then kept investing the same $200/month until he turned 65.

At age 65 you’d think Wal would have more money as he invested every month for 35 years but Wendy only for 10. What’s amazing is that Wendy actually wound up with $425,000 and Wal with only $388,000! This is purely because Wendy’s money was invested for longer.

The moral of this story? Start now, not later!

Take the Project Finspiration quiz to learn how you behave with money

Depending on how your finances are looking at the moment you may feel a little unsure of the points above.

Out of all the families we’ve worked with over the last 20 years, these are five of the crucial elements (and also the easiest to do) of building your financial fortress:

  • Dream your clearest and most detailed Vision
  • Understand the relationship between your Income & Expenses
  • Only borrow to meet your needs
  • Use insurances for simple and cost effective backup
  • Learn to invest. Small & regular & long term

I’ve read complaints from people stating that organising their finances takes too much time, there’s too much effort, it’s too boring, there’s no point, they have no money etc etc.

All of this is rubbish. Really. I’m not saying you need to spend all of your time pouring over financial information, this is just crazy.

Just spend a little time now to get things started and then revisit what you’re doing at least annually. Maybe as you’re getting started doing a 6 monthly revisit would be worthwhile.

Remember that knowing what to do will only have a 20% contribution to your wealth but actually getting in there and doing it will contribute 80% to your ultimate financial success.

So? Get out there and get started!

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