How to get the best advice

 Q. What do we want the most and are willing to pay a premium for today?

A. The best outcome in hindsight.

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With both hindsight and 20/20 future clarity the best financial advice is simple; however the real benefit is attained in its application.

 

1. Have access to savings for emergency situations, preferably three months living expenses

2. Be in an occupation/business that allows you to fund and live your lifestyle aligned to your passion and values.

3. Pay down your debts at a reasonable speed until you're debt free. If you have any debt at all ensure that it is investment debt i.e. tax deductible; still pay it down at a reasonable pace.

4. Protect your cash flow/livelihood and assets. Achieved via insurance, contracts, ownership entities/estate, added value etc...

5. Do not invest for the main benefit being a tax deduction.

6. Buy and sell for a purpose/reason, not a speculation.

7. Invest regular savings using the most tax effective vehicles i.e. superannuation, trusts etc...

8. Reinvest back into your investment. Do this until you require the income from the investment and/or it is enough to meet your cost of living/business operational needs.

9. Invest in that which will provide ROI (Return on Investment) to meet your cost of living without you losing sleep or experiencing excessive volatility that impedes your lifestyle cashflow.

10. Invest the majority of your time in things within your control

     a) Exercise and eat right Improves health and self esteem,

     b) Self educate improves career opportunities,

     c) Make time for others improves personal relationships,

     d) Support others who are not as fortunate improves community participation,

     e) Spend money on experiences rather than materialistic objects

     f) Connect with your soul & nature for enlightened spirit

 

I encourage you to invest in your future self by contacting us to find out a better way to achieve the things important to you sooner.

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When Debt Makes Sense

When Debt Makes Sense?

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I believe that debt if addressed intelligently is an excellent strategy to consider. Here are some of the following examples where I believe debt is appropriate.

  • The investment must be either neutrally geared or positively geared if a valid financial reason to borrow and invest is to be considered. This allows the investor/borrower to either have exposure to the asset class i.e. property or shares without requiring ongoing cash flow to top up shortfalls by the borrower.

Take the net income (gross income less all expenses) earnt from the investment. Divide the income by the interest you will be paying. For example if a property is worth $500,000 and is rented for $26,000. Holding costs are calculated to be $4,000pa (rates, insurance, management fees, strata etc). If the loan interest is 5% then divide this by $22,000 ($26,000 gross rent less $4,000 expenses). The loan amount therefore for this property investment to be neutrally geared is $440,000. For this investor to have no additional ongoing out of pocket expenses $60,000 deposit is required (plus purchase costs & stamp duty). Note the investor should also be mindful of the opportunity costs (lost/gained) of their deposit & fees as they are now tied up within the one investment.

  • Another consideration in using debt to create wealth may be to advance one’s career i.e. for further studies. If one’s university or business studies cost $50,000 and 100% is borrowed for this. The question you need to ask yourself is how much will the additional expense and new knowledge gained from the studies improve one’s earning capacity from gaining higher qualifications? $10,000 per year, $20,000 per year, or more?

Considering a career/business future may be another 20-30 years. If your income increases by $15,000 per year from a more specialist role, or you can qualify for a higher pay grade, then over the space of 20- 30 years your return on investment would be over $300,000- $450,000. In this light I believe borrowing to invest in your own career, intellectual advancement or greater business income whilst still a debt, it’s definitely a better debt than a worse one.

  • Debt for an investment property improvement. Whilst being mindful to not over capitalise. If the improvements were to cost $30,000 for new carpets, paint, kitchen, bathroom, or maybe an extension i.e. extra room and because of these improvements the borrower/owner is able to charge a higher rent let’s say $100 more per week or $5,200 per year. If one borrowed only $30,000 and the interest rate was 5% i.e. $1,500 per year, then through this strategy incoming cash flows have increased by $3,700 per year from previously and potentially also increased the capital value of the property at the same time.
  • If a business owner embarked on a business expansion plan through either the purchase of another business or business machinery and this acquisition led to a increased business income/ profits, similar to the above example, if a business borrowed $100,000 to purchase another business and the interest cost to borrow was 10% i.e. $10,000 however because of the new business purchase (after any additional expenses such as staff, rent, utilities, stock) was to generate an additional $30,000 in gross profit per year to the business. Then the net business additional profit and cash flow to the business would be $20,000 i.e. $30,000 profit less $10,000 loan interest = $20,000 increased cash flow. As long as the borrowing and investment generates an improved cash flow, borrowing to invest is a strategy with intelligence.
  • Debt can also make sense if you were to refinance the debt to a lower interest rate i.e. an interest free or low interest balance transfer on your credit card, other loan. The advantage is that after the refinance less interest outgoings is the result, therefore real dollars being paid out in interest on one’s existing credit card would reduce. However the temptation must be resisted to just pay the minimum balance. To remove this worse debt ASAP one should continue to pay the same interest repayments as previously. Ultimately with the debt gone one now has the additional cash flow that can be used to add to one’s savings or make other investments.
  • The final consideration I would give to where it makes sense to be in debt is if the property you are intending to live in, and the loan and outgoings you have projected to pay are less than the current rent and out goings you are paying now. In this situation I would encourage one to use any additional monies one has to reduce the debt. As an alternative to simply paying rent in this situation the borrower would be exposed to an asset class that has potential to grow, whilst at the same time ensuring a roof is over the borrower’s head.
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How to Save Money Without Cutting Back on your Quality of Life

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The saying "You can't cut to greatness" is as true for business as it is for our own financial goals.

However I want to share with you some simple activities you can implement, delivering great savings, whilst maintaining your current quality of life and helping you achieve your financial goals sooner.

 

  1. Change your transactional bank account and credit card fees. Switch to a nil cost account/provider.
  2. Change lenders or products if you have a home loan. Compare rates and consider benefits of changing to an offset account.
  3. Review your insurance providers (life & general) and compare terms & costs vs. competitors terms & costs
  4. Review your utility suppliers (power, phone, gas) fees and services vs. competitors.
  5. Apply for a commission refund if not accessing advice on your retirement accounts.
  6. Claim your rightful deductions in your annual tax return.
  7. Spend your money more in alignment with your values. Challenge your spending that’s for show.
  8. Automate your finances. Save on late fees. Some provides give discount for paying on time while paying on time also improves your credit rating.
  9. Get a money jar for all you spare change.
  10. Take care of what you own. Saves money on maintenance and repair costs.

Feel free to add more helpful ideas in the comments area.

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How to Create Substantial Wealth

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Creating wealth is counter intuitive, if you want to keep it long term.

True wealth is more than just a bigger sum in your bank account, however the following will help you accelerate it, keep it longer and enjoy it more.

The following are five things you can do now to substantially increase your wealth:

1. Invest time in more bonding experiences with your partner and those important to you. These experiences don't have to require additional spending (think a walk, make a meal, conversation etc…). Why do this? Well divorce is the fastest way to loose half or more of your wealth, not including the emotional distraction and financial cost rebuilding your life. This goes for business relationships and work environments.

2. Invest in yourself. This means better health, career education/research, money management/ cash flow & savings, spiritual growth, contribution to others lives. You will find greater peace and personal happiness. Additionally you will have less need and desire to take greater risks, whilst having more time to enjoy living life to its fullest.

3. Discover, give and help other people get the things that are important to them first (not what you want and need first). As the saying goes by Zig Ziglar "You can have everything in life you want, if you will just help enough other people get what they want".

4. Discover your "BeCause". When you know your core values and make choices aligned to these values you increase your chance of success and have directly improved your quality of life.

5. Let go of your past failures. We know we cannot change our past, however we can change our future doing the activities that create success and work towards. "The best thing about the future is that it happens one day at a time"Abraham Lincoln". Do what you can do today. Time will pass whether you do or do not.

 

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