Are you focused on the troubles of the world? Or on your personal plan for financial security?
Written by Chris Freeman
Here we are… a couple of weeks into the new financial year. You are sitting in your office or home or a cafe reading this. You may be considering world affairs, or overseas and local economic conditions.
How do you make decisions amongst the apparent chaos? What do you do to give you options in the future?
Because things can change quickly are you concerned about what to do next?
Let’s see if we can help you with some steps towards setting up a strong financial future.
During the GFC, clients of BWC’s Design a Decade program did not have to sell any investments but continued their plan for the future with these age old principles. People overestimate what they can achieve in two years but vastly underestimate what they can achieve in ten years.
No doubt specific circumstances will change, however 3 simple principles can help settle the path forward:
1. Isolate some seed money:
The balance is to see our income as ‘bread’ and ‘seed’.
Our employed or business incomes are to make us wealthy personally.
The ‘bread’ is spent on things that are consumed and do not bring a future return, e.g. food, entertainment, hair and beauty (guys, the girls cannot have the same allowance as you or they will end up looking like you), clothes, household goods etc.
The ‘seed’ goes to items that will increase in value and/or give a financial return, e.g. your home, investment property, shares and commodities. Ensuring our income does not go into bread items only is the start of securing the future.
Most people spend on the bread items and then see what is left over to invest.
The ‘pay yourself first’ principle applies here. Ensure you have seed money set aside each pay day. No matter how small your surplus is – respect the seed! If seed is left in the bread account it is sure to be eaten.
The wise simply have a developed perspective of life yet to be lived, their present actions are thought through and considered so as to build a life not destroy one. – Phil Baker (A Wise Heart: the Forgotten Factor).
2. Sow some seed wisely:
Capital investment protects against inflation.
It is important to understand the effects of inflation. For most Western World countries, governments are focused on an economy that has growth. This has two effects:
1. Many items will cost more in the future, e.g. from property to a cup of coffee.
2. The value of money decreases.
So, a key principle is that some of our seed income goes to investment in capital ownership of items that will be of more value in the future through inflation working for you. If you try to save cash for your future then inflation is working against you. Residential real estate is shelter for people and most people are looking to buy or rent in the lower end of the market. The rental returns are generally higher here as well. This is a low-risk, long-term place to sow your seed.
REAL LIFE STORY
Many Design a Decade clients have simply ensured they spend less than they earn and place the surplus into residential real estate. Those who have been on the program for a decade or more are secure with options for the future.
3. Where will your seed money come from in the future?
Consider your future income sources.
Relying on employed or business income to be there into our late age is dangerous in this current climate. Nowadays people live to a late age but the retirement age is still targeted at 65. In some ways we are still looking back to before the Industrial Revolution when people had to find value within themselves to develop income. But job and business security is so subject to changing economic circumstances that we must continually consider where our future incomes may come from.
We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction. – Bill Gates
Be a good employee, or business owner, on the lookout for better future incomes.
So step 3 is to consider what you can do to transition to incomes that are flexible time wise and enjoyable to do AND can be continued into later life.
With so much knowledge available today through the Internet, books, seminars and workshops, lack of knowledge is not the problem. With the complexities of modern life the missing link is often the understanding and wise application of all this knowledge. In the past understanding and wisdom was handed down from generation to generation, however, with the complexities of life and over fifty percent of families breaking up Understanding and Wisdom are now commercial commodities.
What do you know and enjoy that could become an income source as you convey your understanding and wisdom to the benefit of others?
Want some help?
The future holds many decisions. Have you planned ahead? ‘Design a Decade’ is the key to helping individuals, couples and families plan for the future.
About the writer: BWC Founders Chris and Heather Freeman and their team have developed the ‘Design a Decade’ program over the last fifteen years. They have worked with all age groups: the poor and the wealthy; the organised and those in chaos (often both in the one household), to help them to create really solid foundations on which to build their lives and to agree on a path forward, whether theirs is currently great or terrible.
To read Chris’s story click on their logo below.