ELB’s...The Secret to Wealth

How to have $1,000,000 at retirement.

By Jason Fittler

I often hear people tell me what they would do if they won the lotto or somehow received a large amount of money. They talk about how much easier life would be if they just had more money or got lucky. I call these people the “Have When’s”. These people all have two common problems. The objective is too large, they are unable to see how they would be able to obtain great wealth and they are not prepared to do what is necessary to achieve their goal.

“There is no victory without sacrifice”

Like everyone one else, my goals seem insurmountable, until I discovered ELB’s. Extraordinary Little Bits, ELB’s break down a large task into small manageable bits.

Let’s say you would like to have $1,000,000 in retirement, you are currently 40 years old and have around $100,000 in your super fund and a mortgage of $250,000. How can you be debt free and have a $1,000,000 to retire on?

The magic of ELB’s

To pay out your home loan over 20 years at an interest rate of 7% you will need to pay $24,000 per annum off the loan. To save $900,000 inside of your super earning 8% you need to save $23,000 per annum. In short you need to save $47,000 per annum. In Queensland the average annual salary is $61,500 after $12,500 goes to the tax man you will be left with $49,000. The task still looks insurmountable?

Let’s break it down; you have a couple of decisions to make. No one said it would be easy.

1.    Get a higher paying job.
2.    Both husband and wife work.
3.    Back grade your house.

For now I will go with example two, both husband and wife are working.

Step one salary sacrifice into super, as detailed above you will need $23,000 going into super for the year or $11,500 each. On $61,500 salary your employer will have to pay $5500 so both husband and wife, each need to salary sacrifice $6000. This will reduce your take home pay to $45,000 per annum. Or a household take home income of $90,000 per annum. Step one is complete, stick to the above plan and you will have your $1,000,000 in retirement. Keep in mind that $1,000,000 will provide you a super pension of approx $90,000 for 25 years.

Step two, pay out the house. As detailed above you have a $90,000 take home income. To pay the loan out you need to put 26% of this towards your home loan. Leaving you $66,000 per annum to live off, anyone who thinks that this would be a problem needs to trim some fat. As such step two is done and the above objective has been achieved.

ELB's breaks down a big problem into small manageable parts. By focusing on these smaller goals we can achieve our dreams.

The catch is you will need to make some hard decisions, this is where most fail. Will you?

Let’s take the ELB’s one step further with the above example. Paying out a $250,000 loan over 20 years at 7% will cost you $215,179 in interest. By increasing your payments to 30% of household take home pay or $30,000 per annum you will pay the house off in 12 years and save $100,000 in interest. If you then continue to pay the $30,000 per annum into savings at 8% you would have an extra $300,000 in retirement. Again ELB’s at work.

If you employ ELB’s into your life there is one golden rule. Never go to bed without taking at least one small step towards the end goal for that day.

Good luck.

Like help with your ELB's? Give us a call (07) 4771 4577.

How Much Wealth You Accumulate Depends Largely On How Much You Spend

Spending Patterns

By Jason Fittler

Why is it that we spend more money on our loved ones at Christmas? Why not buy our loved ones presents whenever the mood takes us? Simply put – conditioning.  We are told each year that we should buy people presents on their birthdays and Christmas, eggs at Easter, flowers on valentines day and gifts on Mothers and Fathers day.

Do not get me wrong, I am not saying we should not buy presents for family and friends but merely pointing out how we are conditioned to spend. Some people find comfort in buying new things others relieve guilt from not spending enough quality time with their family by purchasing them presents. Whatever the reason, all of us have a spending pattern. What is important is to identify this pattern and control how we spend our money.

Accumulating wealth depends largely on your spending patterns, those who spend more each year than they earn will quickly go broke.

Since early 2000 this was the case for most Australians and Americans, this is why lending climbed to new levels and personal households debt levels climbed. When an economy bottoms (much like we are about to experience) you see the effects of living outside your means. Those who adjust to the new economic constraints, will survive, those who do not, will go broke.

The important thing is to change your spending patterns and not dip into your savings to prop up your lifestyle. Downturns in the economy can last many years, and will consume all of your savings. Most importantly make sure you continue to invest, it is true that in economic downturns, investments are cheap. This is due to people selling assets to maintain lifestyle.

Things to look out for in an economic downturn.

1.    Higher interest rates – when the interest rate moves up increase your payments to the bank by the same proportion.
2.    Holidays – take a look around the world, during these times you can normally get cheap flights. Also look to go to countries with devalued exchange rates. (The USA comes to mind right now)
3.    Gifts – buy quality not quantity.
4.     Food – cut out the junk, you will save money and weight.
5.    Credit Cards – pay them out each month or cut them up. It is not a time to live on credit, the interest will kill you.
6.    Motor Vehicle – think repair instead of new. If you must buy, second hand will save you thousands.
7.    Media – do not spend because the media tell you the economy is recovering, they do not have a clue.
8.    Investing – continue investing, assets you buy now will be the ones that look after you in retirement.

Our wealth is directly in proportion to our spending or saving habits, never lose sight of this. Long term care and attention to your spending habits will provide you with a wealthy retirement.

My favorite saying is “Look after the pennies and the pounds will take care of themselves”

Have a good Christmas.

Timeless Principles: Seven Cures for a Lean Purse

By Matthew Smith

The gathering of wealth is but one facet of life that many individuals have sought to achieve from the time of antiquity and which still continues today. Individuals seek to accumulate wealth for a variety of reasons; one of which would be considered the most wise and noble is to provide a secure income for your family.

A problem that is prevalent in the vast majority of households in our modern society is that niggling 'want' for a more secure and comfortable lifestyle for our family. This 'want' boils down into a need for ever-lasting financial security.

Most individuals see the best way to solve this problem is by seeking increases in their salary or wages. This misconception, along with another, is that high income earners are definitely wealthy - these are both common fallacies among the vast majority. An increase in household income is fantastic but it will not ultimately solve your problem.

The doctor or lawyer may have a large home and drive a much fancier car than the school teacher or carpenter, but, the same problem arises with higher income earners as it does with lower income earners. The higher income earners generally become higher consumers…it is likely that the more you earn the more you will spend.

The vast majority of households don’t yet understand that the income they earn does not belong to them. It belongs to the grocer, petrol station and butcher and so forth.

To provide a solution to this problem is easier than you may think. To gain financial security you must learn and embrace the rules that govern money. These rules are timeless principles and are adapted from the novel 'The Richest Man in Babylon', which also gave cause for this piece to be written.

Timeless Principles: Seven Cures for a Lean Purse

Cure 1 - Pay yourself no less than 10% of your income
This is where the bulk of your wealth will be created from. Paying yourself no less than 10% of income and saving it for investment will reap untold rewards. By living on 90% of your current income you will not notice a difference in lifestyle. Never stop paying yourself no less than 10% of your income first.

Cure 2 - Control your expenses
By controlling your expenses you are able to identify your needs from wants and take charge of your outgoings.

Cure 3 - Make your investments work for you
Once your investment starts producing income let it multiply by re-investing the income and watch your investments compound over time.

Cure 4 - Consult wise men so you do not lose your savings
You do not seek out the advice of a taxi driver to complete your income tax return; you seek the knowledge and advice of an accountant. You are wise to seek the counsel of individuals who are knowledgeable in handling money.

Cure 5 - Own your own home
By owning your own home you have the cheapest form of housing available. Apart from insurance and taxes, it is far cheaper than renting a home.

Cure 6 - Ensure an income for your retirement and that of your family
You will not be able to work forever. You should focus on working and saving hard to provide a passive income for your retirement. The earlier you start the greater the compounding effect will be.

Cure 7 - Increase your ability to earn
By increasing your knowledge you will be better equipped to make wiser decisions in regards to your investments. Never pass on an opportunity to expand your knowledge. Educate your children on these rules from a young age so that the next generation may out perform the previous.

Those who are wealthy and are financially secure simply know and understand these rules that govern money, and more importantly…obey them.

Want to know more... please give me a call on (07) 4771 4577

Financial Strategy. Do You Have One?

By Jason Fittler

Strategy; everyone knows the meaning of the word but few people have a clear and concise strategy of how they will live their life and achieve their goals. When it comes to financial matters most people’s strategy is as follows:

“Make as much money as possible, buy the best lifestyle possible with the money you have. Retirement is too far off to worry about”.

Creating wealth is not about how much you make but in fact more about how much you spend and what you do with your surplus income. Everyone knows the story of the Hare and the Tortoise, but when asked what the moral of the story was most will say, “Slow and steady wins the race”. This could not be further from the truth, the Hare lost the race because he did not use his time efficiently, he had no strategy.

An effective strategy is what allows you to win and achieve your own personal goals. An effective strategy is one which needs to be reviewed constantly to make sure it is still effective when circumstances change.

When you are looking to Grow your Wealth, you need a strategy.  Without this you will be lost. So where do you start?  Below are a few ideas to get you going.

1. Budget, spend the time and work out a budget. This does not need to account for every dollar spent but should detail how much surplus money you would like to save each month. Remember a budget is about things you will not buy. For more details on budgeting go to archive articles on the website.

2. Decide what is the most effective use of the savings
, pay down debt, investments or put into super.

3. Look for professional help, you will need a coach or someone to help you set and maintain your goals. Look for an advisor whose income is directly related to your investments growth.

4. Review your strategy regularly
to make sure you are still on track or review when there is a change in your circumstances which will affect your surplus. I would recommend at least every 6 months.

5. Know your end goal
, write it down and place it somewhere you will see it every day.

Here is the key; there are two types of people who will read this email. The first group will read this and understand the advice but will not actually go and write down their budget or goals. I will guarantee that this group will be no better off next year then they are this year.

The second group will right now set a time to sit down review their budget and write down their strategy and goals. I will guarantee that these people will be better of financially in 12 months. Unfortunately only around 2% of the population falls into this category.

Which group do you fall in?

Give us a call... we can help. Ph (07) 4771 4577

Are You Wealthy? Take 5 Minutes to Find Out.

By Jason Fittler

Being wealthy means a lot of different things to a lot of different people. But you can in fact pin point the moment when you officially become wealthy.

You no longer need to work to maintain your lifestyle.

For the average Australian worker this would mean when your passive income is above $70,000 per annum. So let see if you are wealthy!

1. Add up your total assets; include family home, cars, boats, investment properties, share holdings, managed funds, cash, superannuation, value of business and anything else of significant value.
2. Subtract any debts being credit cards, overdrafts, home loan, investment home loan, margin loans and personal loans.
3. Subtract any assets which are not income producing being family home, cars, boats and any items which are for personal pleasure.
4. Multiply the total by 4%.

If your answer is over $70,000 congratulations you are in the wealthy category. If you are way over, you need to start thinking about generational wealth. More on this later.

If your answer is below, then there is still some more planning to be done. So get on to it now, if you need help call us. Phone 07 4771 4577

Plan to Save as Part of Your Budget

By Jason Fittler

One big part of the budget which people overlook is savings. They are determined to save money but rarely committed to saving money. What is the difference? Being determined means that for a short time you put money away for “a rainy day” but due to an unforseen circumstance they need to dip into their savings.

Sound familiar?  My view… Do not save for a rainy day, save for a sunny day, a day when you want to go out an enjoy yourself, and a little coin in your pocket makes it possible. Rainy days or bad days should be covered in your budget, it is called insurance, if you have not got it get it.

What is a Financial Plan & Why Should You Have One?

I need a Financial Plan! This is a very common statement I hear when dealing with new clients. But what is a Financial Plan, what is its purpose, what does it cover, how does it help you? Most people who ask for a Financial Plan have little understanding of what it is or what it does. To keep it simple I have listed below the things a Financial Plan should not do and what it should do.

Things a Financial Plan is not...

• It is not a sales tool; a free financial plan is written to convince you to invest your money with someone.
• It is not a legal document which allows you to sue the planner if things do not work out as you wanted. Unfortunately, governments and lawyers have taken the common out of sense and you now have a financial plan which looks like war and peace.
• It does not tell you what you need to do or make you rich.