Phil’s Top 5 FinFit tips

Phil’s Top 5 FinFit tips

There is no quick way to become financially independent, unless of course you win Powerball. But with the odds of winning the jackpot being 1 in 292,201,338 that is far from a sure bet to financial independence!

What I have found with personally investing over 30 years is that there are a few key things you can do to get there. My profession as a Financial Adviser also gives me an insight into what works and what doesn’t. Regardless of what your financial independence target is, if you follow these key actions then you are going to give yourself a very good chance of getting there.

  1. Make it your priority

If you are thinking this is a “want” rather than a “need” then you have already put your first roadblock in the way. Think about the last thing you needed. What did you do to make sure you got it? First thing you did was get into the mindset that you must achieve it. Then, you hatched your plan to get whatever it was in the time frame you set yourself. This is commonly referred to as a goal. You are probably sick of hearing the experts say, “you’ve got to set goals”, but they are right. But the most important thing about your goal is not so much what it is, but rather, how disappointed you are going to be if you don’t achieve it. If you have a scale of 1 to 10 where 1 is not important at all and 10 is, I am going to cry for months if I don’t achieve my goal, then it has to be a 10.

From my experience, low priority goals will not happen, high priority goals will.

  1. Save more than you spend

Not exactly a revelation but this seems to be a very difficult thing to do for a lot of people. The first thing you must do is work out how much you can save if you put some control over what you are doing. Create a spending plan, use a spreadsheet to work out what you plan to spend money on to maintain your lifestyle. The number you come up with, whether its weekly, fortnightly, or monthly, is the amount you are committing to spend. Once you have worked that number out, subtract it from the amount you earn after tax, from your weekly, fortnightly, or monthly income. This number is how much you are going to save.

You need to be disciplined from this point. Your spending plan is a commitment. It sets the rules for your spending. The best way to stay disciplined is to check how you are tracking against your spending plan. You need to report on what you have actually spent against what you said you were going to spend. When I look at my clients, the main culprit for overspending are their discretionary expenses. These are expenses that are nice to haves but not essentials. The big ones are entertainment and eating out, 80% of my clients overspend on these and it is not just a small over expenditure, it could be as much as 30% to 40% over their spending plan.

To help you save, you should setup a savings account that is separate from your everyday expense account and then start depositing this amount into this account and then watch it grow.

What you do from here is that you use the funds in your savings account to invest.

A footnote here, some people like to have a buffer of funds readily available they can call on for emergencies. This amount can vary between people. Work out what you want as a buffer, save it first, then invest the funds over this amount.

  1. Patience

You need to sit back and wait. You need the wonders of compounding to work for you but you need to give it time.

What you are going to do now is invest the funds in your savings account and continually add to your investment over the long term.

For example, if you have calculated that you can save $500 a month then by the end of the first year you’ll have $6,000. If you then invest that $6,000 for 30 years, assuming you get an average annual return over those 30 years of 8% and then you continue to invest another $6,000 every 12 months, you will have approximately $740,000 (future dollars) at the end of 30 years.

This is how your super works. Your employer is putting in 9.5% of your annual before tax income into your super fund for every year you are working. The funds in your super fund are invested based on the investment choice you have selected from the day you start working to the day you stop working. By the time you can access your super you are going to have a reasonable chunk of money in there. The difference here though, is that whilst it’s your money that’s going into your super fund, you technically haven’t saved it as your employer, based on superannuation contribution laws, is contributing to your super fund for you. Just imagine how much you would have in your super fund if you made your own contributions to it.

I must comment here that you need to discuss the strategy of putting extra into your superannuation, over and above what your employer is contributing for you, with someone who knows how superannuation contribution laws work and the advantages and disadvantages of doing it.

Regardless of whether you are adding to your superannuation or investing elsewhere, investing a specified amount over regular intervals and letting it compound over the long term is going to give you a better chance of achieving financial independence then not doing anything at all.

  1. Focus on good debt rather than bad debt.

If you are going to get into debt the just make sure it is good debt rather than bad debt.

What is bad debt? Well, it is the debt you get into that will not help you achieve financial independence. Examples include credit cards, personal loans, and car loan. Essentially, any debt you get into, to buy something that is going to lose value.

What is good debt? That’s right, the opposite of bad debt. The debt you get into, to buy something that is going to appreciate. Examples include buying shares or an investment property.

I’ve never heard of anyone who has achieved financial independence by getting into bad debt. I’ve been guilty of getting into bad debt. I’ve had car loans and personal loans in the past. I remember the first loan I ever got was for an Apple Macintosh SE computer which I used to help me get through Uni. I’m showing my age now as most people under 40 wouldn’t even know what a Mac SE is. Let’s just say it was state of the art at the time. You can count the amount of bad debt loans I’ve had over the years on one hand and I’ve still got a couple of fingers to spare and I’ve never, ever, paid interest on any credit card I’ve ever had. I prefer to save and pay cash for these types of big expenses.

I borrow to invest in appreciating assets. Full stop.

Having written that I will emphasise one BIG thing about borrowing to invest. The amount you are saving on a regular basis will dictate how much you can borrow. In other words, the loan repayments need to less than how much you can save.

  1. Educate yourself

Knowledge is power!

The more research you do about a decision you are going to make, the greater the probability that it’s going to be the right decision. This is not just for financial decisions, it’s any decision you make about anything in your life!

Would you rather be the person who makes a decision and then worries about cleaning up the mistakes you’ve made after the fact or, would you rather be the person who considers the implications of the decision you’re about to make, determines what could go wrong, then modifies their decision to limit what could go wrong?

In order to make a decision you need to educate yourself about the decision you’re going to make.

I read. I read a lot. I arm myself with as much information as I can before I make a decision. Now, you don’t want to go down the analysis paralysis path where you spend so much time researching your decision that you don’t actually get to the decision itself.

The other option is that you find someone who can help you make your decision. This is why I have a job, my clients come to me to help them make the right financial decisions at the right time. I help them educate themselves which then means they are confident in making a decision. I love what I do, especially when I see my clients with a big smile on their faces when they achieve their goal. We then celebrate and then we set new ones to achieve.




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