The five steps you need to take to become wealthy
PREVIOUSLY I talked about the components of wealth and money is an important one. The most common question I hear is: "What should I do with my money?"
This question may be asked calmly or in exasperation or sometimes even in desperation. In my experience it does not matter much how much you earn - whether it is barely enough to get by or whether it is $600,000 or more a year or anything in-between, for most people "what should I do with my money" is a very important question.
There is even a universal answer to this question:
Find out what you own, what you owe, what you earn and what you spend and then tell those details to another person.
It can be a stranger but it needs to be a person you trust. It can be a sister, a cousin, an uncle - even a marriage counsellor. For many people this process can be quite confronting and simultaneously very, very helpful.
Why? Because, once you know where you are at, you can go about making changes. Does this sound trivial? It is not trivial: First you need the diagnosis - and you can't get treated before a diagnosis.
The next step is to simply state what you don't like about your financial situation and how ready you are to change it. Are you spending too much? Not earning enough? Or you might be doing well and you feel you can do even better.
Then it is about the how. "I am earning enough but I dislike my job and I am ready to work extra (studying, networking, jobseeking, seeking a promotion), so I can find a better job."
This kind of conversation - especially with somebody who understands money - can transform your life.
You may discover a new sense of purpose and over time things can improve a lot. Many of my clients go through this exercise and when we look back after a few years they have quite a bit more money or a better quality of life and in most cases this happened quite easily.
In practical terms, how do I get wealthy?
It is a fairly simple checklist:
- First, eliminate all debts that are not for an appreciating asset. Credit card debts should be paid quickly.
- Then pay off your home mortgage and make sure you have $20,000-$50,000 in the bank.
- After that it is a pretty equal choice between paying off any investment property loans, putting money into super and, almost as good, buying shares.
- For those people aged 60 and over, superannuation - when set up correctly - lets you save lots of income tax.
- Everybody has dependents - even if you are completely alone you are your own dependant. Make sure you are properly insured. There are lots of ways to get good insurance even when money is tight.
For many people, doing the above means that their finances are sorted and one of the biggest worries has been taken care of.