Author: Alan Maddick 24/06/2021
I first bought shares on the ASX when I was 13 or 14 years old with the pocket money I had saved doing odd jobs for a couple of years. I think how money works has always fascinated me; What financial strategies consistently work? What financial strategies and behaviours will lead to your financial downfall?
For many years I practiced as a Financial Planner, I then went on to manage 20 or so Financial Planners and what frustrates me is for the most part the Financial “Advice” Industry is so fixated on product sales they rarely if ever gave any advice on what I see as the real fundamental steps to be financially successful and secure. Yes you need financial products but they are not the key in my experience.
Before we look at strategies for success and failure you need to define what is success, this varies from person to person so its a good idea to spend the time and write this down yourself as your definition of success will be different to your next door neighbour. For many Australian families your will have some of these goals and I would argue goals some like home ownership are important for all;
- Own a house in an area you are happy with
- Kids are healthy and well fed
- Perhaps a few extra dollars to give the kids a helping hand with study, first car, first house.
- Enough super that that you can live when you stop working
- For many some additional investment like shares or a rental property or two
I have a lot of qualifications including in some high powered finance stuff (Master of Financial Planning, Graduate Diploma of Applied Finance, Stockbroking, Self Managed Super and Futures qualifications) but what surprises a lot of people is that the strategies I have seen work consistently across large numbers of clients with different backgrounds and from different parts of Australia are not taught in these courses and are not the result of some “magic” financial product.
The most consistent financial strategies tend to be the most boring.
The first group of strategies or topics I would call Money Hygiene – just things you need to do to get your financial life in order. Its very hard to get ahead financially if any of these areas are still messy and you should address these areas first.
- Vices – you need to get these under control, the Vices is see in practice are many and varied, it could be drinking, drugs and cigarettes but these days it could also be uber eats or a botox habit. Most people drink from time to time or order takeaway but once any of these luxury items starts taking too much of your money then they will sabotage your financial success before you get started.
- Credit cards and afterpay – The banks tell us that its good to have a platinum or gold credit card and afterpay tell us their service is better then a credit card. And both afterpay and the banks are right, these products are great. Great for the banks and afterpay! These products are expensive and make banks a lot of money. At the end of the day these credit facilities should only be used as an emergency source of short term funds, it is very easy to get into a trap with these products where you are spending all your free cash paying minimum repayments making it very hard to save any money or pay down the balance of the card.
- Spend less than you earn – Ouch! This is one of the worst financial truths at times. You can only spend what you actually earn, I know for some of you this is obvious but in these days of Instagram and Afterpay many people spend a lot of money trying to maintain a lifestyle that will look good often this is propped up by debt. Some people will come and see me and say “I want to invest to get ahead” but when I look at their finances what they really need to do is spend less or earn more (or both!). This could mean working more or perhaps going back to school and studying to get a promotion or better job.
- Make sure your super is up to date – In Australia Superannuation is the cornerstone of our retirement system; yes there are problems but it is a good system and will get you a lot of the way to financial security in retirement with very little work. If you are self employed make sure you are putting in regular contributions that are at least close to what an employer would contribute. If you are employed then make sure your employer is paying your super regularly.
When approaching your financial affairs have long term thinking – when you are 25 or 30 years old 5 years seems like a lifetime! The clients that are successful set a goal for 2 years, 3 years or 5 years and they do not give up after 6 months, even if there is a bump or two along the way. Young people whinge “I can’t afford to buy a house these days” even when I was 20 young people could not afford to buy a full sized house in Hampton or Brighton. Generally your second or third house will be your final or “Dream” home. Most people buy this final home when they are around 45 – 55 years old. You need to look at what step can you take now or in 2 or 3 years to make a step towards your goal rather than giving up and renting an expensive house in your dream suburb.
Stability- a major factor in financial success is stability, stability in your relationships, stability in your passion and approach to work and stability in your investment strategies. If you bounce from job to job or relationship to relationship this has an emotional and mental toll that can make it hard to focus on investing. It can also be costly, periods of unemployment, moving costs, perhaps even divorce lawyers, costs of selling houses etc. Everyone does change relationships as they do jobs but sometimes it is just a case of the grass is not always greener and you are better to stay where you are in life and work on improving what you have.
You can see how stability and long term thinking effects investment properties, I bought my first home in suburban Chelsea for $119,000 (a 2 bedroom villa unit) now a little over 20 years later that same unit is worth over $600,000!
If you have read this then I really hope it is helpful for you. At Mount Martha Accountants we have more detailed strategies to help with your financial success and would love to meet you and see if we can help you and your family get ahead.