Guide to building wealth – Forbes Advisor Australia

There is no shortage of get-rich-quick schemes, from buying the latest cryptocurrency to flipping a huge portfolio of investment properties.

However, don’t be fooled by promises of ‘easy riches’ – there is no surefire and guaranteed return on investment and the vast majority of Australians who bet their savings on risky schemes end up losing their money.

Sometimes these “investment opportunities” are little more than glorified Ponzi schemes, offering eye-popping returns to existing investors funded by money from new entrants. As the Australian Securities and Investments Commission (ASIC) notes, they everything ends up collapsingoften with devastating results for Australians who “invested”.

Instead, spend your time learning how to build wealth over time, which requires you to develop an investment plan and adopt a long-term mindset. Follow these eight simple steps to create a lasting legacy.

1. Start by making a plan

Wealth creation begins with the development of a financial plan. It means taking the time to identify your goals and figure out how you can achieve them.

Hiring an experienced and reputable financial advisor is a great way to start building wealth. This is a more expensive option, especially for those just starting out, but choosing an advisor with an Australian financial services license is essential. Australian Securities and Investments Commission (ASIC) Moneysmart website offers step-by-step advice on finding the right advisor for your unique financial situation.

Looking for a robo-advisor platform that also provides access to financial advisors may be a more affordable option. Robo-advisors offer a cheaper alternative to face-to-face financial advisors by using algorithms to create an opinion statement and investing your money based on your risk appetite and needs.

There are now a number of platforms operating in Australia including but not limited to Six Park, Spaceship Voyager, Stockspot and InvestSMART.

2. Set a budget and stick to it

Many people dread the “b” word, but budgeting is a key part of your wealth building strategy. Establishing a budget and sticking to it increases your chances of carrying out your plan and achieving your financial goals.

Budgets also help you understand where your money is going each month and prevent behaviors that can put your goals at risk, like overspending.

With inflation now at 6.1% in Australia and should reach 7% by the end of the year, it has never been more important to manage your money well.

3. Build your emergency fund

Speaking of inflation, when the central heating fails or the fridge stops working, where does the money come from if you don’t have emergency savings?

While you may not have much control over the skyrocketing prices of goods and services (and the cost of replacing them), you can at least avoid the worst of “unscheduled billings” with a fund for days. difficult.

One of the benefits of having an emergency fund is that you don’t have to rely on your credit card for essentials.

This protects your credit history, your wallet (credit card interest rates in Australia can reach 14%) and helps you reap the benefits of interest in a savings account.

Interest rates on savings accounts have been shockingly low in recent years, but with the The Reserve Bank of Australia (RBA) raises the key ratepressure is mounting on banks to pass on these interest increases to savings accounts.

4. Automate your financial life

By making investing and paying bills automatic, you virtually eliminate the risk of forgetting to set aside money for your goals or giving in to the desire to splurge on an extremely expensive and unnecessary item.

This is why it can be interesting to deduct from your pay the total amount that you have budgeted for each of your expenses and investments and to deduct it to cover each expense.

This is especially useful when it comes to saving and investing, because money you don’t see is money you probably won’t miss.

5. Manage your debt

If you are unable to repay your debt, you are not alone: ​​in the last two months of 2021, there have been an increase of $162 million amount of interest-bearing credit card debt in Australia, bringing the total to more than $17 billion.

Of course, not all debt is created equal and some, like mortgages, can even be considered “good” debt, thanks to their (formerly) low interest rates and wealth-building potential as than an asset that appreciates over time.

Some experts even consider a mortgage a type of forced savings account because you’ll likely receive at least part of your monthly payment when you sell.

But if you roll over a lot of bad debt every month, like high-interest credit cards, you could be jeopardizing your financial goals and your credit score. This is why the ultimate goal of being debt free is so important to many Australians.

If you’re not sure how to settle your large debts, Australian Financial Advisors are available to offer free advice and assistance.

Counselors are able to help you manage your debts, figure out what you can afford to pay, negotiate payment terms with companies, prioritize your debts and educate you on your rights.

Contact the National Debt Helpline free of charge on 1800 007 007 Monday to Friday, 9.30am to 4.30pm. You can also find helpful resources on the National Debt Hotline website.

6. Focus on your retirement savings

Since the introduction of the Australian pension system in 1992, household pension wealth has grown steadily.

And that’s a good thing too.

Research published by independent advocacy group Super Consumers Australiarevealed that a single person would need $745,000 in savings, while a couple would need $1,003,000 to maintain a high standard of living in retirement.

The current pension rate is set at 10.5% of an employee’s salary, but many Australian workers choose to sacrifice salary to increase their retirement savings.

The Australian Tax Office A(TO) recommends seek advice check with your accountant or financial advisor if you plan to contribute more than $27,500 to your super (including employer contributions) each year, as this may affect the amount of tax you pay.

Also, don’t be discouraged if you can’t contribute as much as you would like, especially early in your career. One of the great things about the Australian pension system is that it uses the power of compound interest over time. A little money now goes a long way down the track.

7. Stay Diverse

If you cling to the idea that people only get rich by holding very concentrated positions, perhaps by holding large amounts of Bitcoin, think again.

Having a diversified portfolio with different types of investments can both protect the wealth you’ve accumulated and position you to reap rewards even when the markets go down.

Many experts also say that the closer you get to retirement, the more important it becomes to make sure all your eggs aren’t in one basket. If you lose a large sum of money near the end of your working life, you may not have enough time to recover it.

8. Increase your income

Although it’s not a decision you can make in an online brokerage, investing in yourself by increasing your income is an important step when it comes to building wealth. The more you earn in your lifetime, the more money you have to invest.

With interest rates rising alongside inflation, any extra money you can save now will pay dividends, literally, down the line.

Naturally, the best way to earn more money is to increase your salary. Easier said than done, right? In Australia, wages increased by 2.4% over the year to the March quarter of 2022, while annual inflation is 6.1% and rising. In other words, employees essentially back off.

However, the job market in Australia is extremely tight and employees are keen to retain top talent. There’s never been a better time to take your case to your boss.

If you don’t think you’re in a position to receive a raise, schedule time with your boss to work out steps to progress in your current role. You can also consider getting into a side business or trying a passive income idea.

Note: When investing, it is possible to lose some, and very occasionally all, of your money. Past performance is not indicative of future performance and this article is not intended as a recommendation of any particular asset class., investment strategy or product.

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