Style: August 03, 2017

STYLE | finance 65
THEY GET ONTO THE PROPERTY LADDER EARLY
Buying a house as early as possible can open up the opportunity for other
investments.
By paying off your mortgage as quickly as you can, you can decrease
your interest costs and keep more money in your own pocket.
Once you reach particular loan-to-value ratios, you have the ability
to leverage other investments off your property, and use money you
formerly spent on mortgage repayments on potential income sources
like managed funds.
Property as an investment is an appreciating asset; it will build your
net wealth and create its own equity, too. It’s common to live within
your means, but by allocating your spend to a mortgage, rather than
rent or discretionary spending, you are building wealth.
THEY SEEK OUT PASSIVE INCOME OPTIONS
Passive income is the money received for little effort or personal time from
investments such as rental properties and shares.
If you’re looking at long-term passive income, rental properties could
be a good option as you’ll often have tenants paying off the mortgage.
However, once the mortgage payments are serviced, there may be
little tangible income left over.
Receiving regular lump-sum dividend payments from shares in a
company might be a better option for short-term passive income.
But it’s important, before investing, that you know what the pay-out
schedule is. For this kind of investment you also need a lump sum to
invest and the patience to wait for investment growth.
Don’t forget the option of setting up your own business, which plays
to your expertise, but can generate income based on minimal input
from you if you have someone else running the operation day to day.
Alternatively, an option can be to invest or partner in a business.
THEY RUN THEIR PERSONAL FINANCES LIKE A BUSINESS
Know the importance of budgeting and cashflow.
A lot of people spend their money ad hoc, so are surprised when the
$100 a week they think they allow for discretionary spending (e.g.
eating out) is actually closer to $200-$300. A clear budget helps keep
you on top of your spending and makes you aware how much you
actually have left over to invest. It also allows you to build accurate
financial goals that are specific, measurable, attainable, realistic and
time-based (SMART).
Successful businesses know where they are financially at all times –
personal finances should be no different.
THEY SPEND AND BORROW SMARTLY
Spend the right way and stick to budget.
Ideally, all spending should be done with cash that you have and
not bought on credit or hire purchase as you’ll be subject to higher
interest rates.
Try not to borrow money for things that decrease in value. If you
do need to borrow money, make your mortgage work for you. Don’t
make the mistake of setting the loan up within the mortgage as you’ll
end up paying interest on the item over the lifetime of the mortgage.
Always borrow to the side of the mortgage – just using the house as
collateral is smart as the bank has the security of the property and so is
likely to offer the loan at a lower interest rate.
THEY INVEST
Options for generating wealth are spread over multiple platforms.
For retirement alone, we should be saving around 10-15 per cent of
our annual income. If we save eight per cent in our KiwiSaver, five per
cent should be invested through managed funds, which you can still
have easy access to.
This money will accumulate over time and can be used to help pay
off the mortgage or fund a retirement lifestyle.
THEY INSURE
The time, effort and money invested into organising finances and growing
wealth are protected by the right insurance.
What insurance you need depends on your personal situation, but life
insurance and income protection are key introductory insurances.
Life insurance pays a lump sum to your family and dependents upon
your passing to ensure your debt and funeral costs are covered –
people often choose this to take care of their family when they’re gone
and help them maintain the lifestyle to which they are accustomed. In
some cases, life insurance also pays out when you are diagnosed with a
terminal illness.
Income insurance protects what many say is a person’s greatest
asset – the ability to earn an income. This protection comes in the
form of ongoing incremental payments that cover loss of income while
you cannot work due to illness, and takes away the stress and worry
for you and your family at a time when the focus is on recovery. It
generally pays out for bills and day-to-day spending.
THEY SEEK ADVICE
Successful people leverage the knowledge and advice of professionals
in all areas.
For your money matters, financial advisors are best placed as it’s
their job to know what’s going on and stay up to date. Many advisors
work for their clients for free, too, as they are paid by the suppliers.
An advisor will help you create a tailored financial plan based on
your goals, objectives and risk tolerance. Every individual requires
a unique plan, which will develop throughout your lifetime as your
circumstances, priorities and goals change.
A clear budget helps keep you on top
of your spending...
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