Supporting and empowering people to achieve their dreams by passing on my knowledge and skills is one of the most rewarding aspects of my career.
Of course though, it’s a partnership, and I have observed that people who achieve their goals have either had or learned some essential behaviours that have led them to success. They are:
1) They all spend less than they earn, and saving/investing is an above the line item
The old saying that “it’s not the size that matters, it’s what you do with it” is true with income too. Some of my wealthiest clients have never earned what I would call a large income but have achieved wealth by spending carefully.
Cheryl* for example (Age 58, single income, no kids, client since 1995) has never earned a wage over $58,000 pa (it was $35,000 20 years ago).
With a reasonable handle on her cost of living and some clever strategies she has been able to amass net assets close to $1,000,000. It is not necessarily being anal about watching the dollars, just an awareness of their cost of living, and having committed to saving or funding investments from within their budget – not from what is left over.
2) They stick it out for the long haul, and always have a Plan B
Whilst it pays to be nimble and adapt to new situations quickly, it also pays to be discerning about the next new thing. Some strategies have stood the test of time and Wealthy people are great at seeing the big picture, setting off on a course and sticking with it.
Paul and Jane* for example (Age 57,Married, one child, clients since 1995) found it tough going through the GFC and we talked frequently about what was going on, the bigger picture and his “fight or flight” emotions. With the re-assurance that they were on the right path he chose to stick to the game plan and now has achieved his goal of job share – effectively working 6 months of the year.
Of course, in preparing for success, you need to have a Plan B. Wealthy people have thought about and planned for the “what if’s”, covered if the wheels really do fall off.
3) They all use leverage (debt) effectively, avoiding “bad debt”
In corporate land it can be considered a lazy balance sheet when there is no leverage. Companies borrow money to acquire additional/new productive assets so they can grow, along the way picking up generous tax concessions. Wealthy people know that this is not only good for companies.
Pete* for example (Age 54, single income, no kids, client since 1996, peak salary $50,000 pa) had made great in-roads into his home mortgage when we introduced productive leverage. The strategy helped him pay off his “non – productive” debt whilst accumulating wealth in a tax effective manner.
Phil happily retired at age 50 – yes, that’s not a typo- and is now living off investment income until he can access his super.
Delaying gratification until you can pay cash and avoiding that big no-no – borrowing for assets that lose value over time (or straight away like a holiday) – are certain to improve your balance sheet
over time too.
4) They have more than one strategy in place
For most people the safest strategy is to not rely on one strategy or one asset to reach a goal – the “not all eggs in one basket” truism. Wealthy people generally have a lot going on – different ownership structures (personal, joint, super, companies, trusts), different sources of income (salary, dividends, rent), tax strategies, debt reduction…… It might seem that this complicates things and makes it difficult to focus? Not when the focus is a mutli-pronged strategy to achieve your big picture!
Mike and Marnie* (Age 53, 2 incomes, 3 children, Clients since 1996) have used a lot of strategies over time. Traditional assurance plans, direct shares, managed fund savings plans, leveraging, super salary sacrifice… Their children are now independent, they have a pool of emergency cash, a small home mortgage will be repaid soon without stress, they have been able to fund the new car from their portfolio, their investment portfolio is available pre-retirement and super is growing nicely with next to maximum contributions, all with Plan B in place!
Wealthy people understand a broad based approach with more than one iron in the fire allows them to take advantage of opportunities as they arise as they get a roll on towards their dreams.
5) The all pay for Professional Advice
They say that knowledge is power…. well that is only true if you act on that knowledge.
Wealthy people understand that the landscape often changes and so they hire professional advisers that will keep them up to date with the latest and where time is short, to implement for you any changes or new strategies.
One thing I have also learned is that verbal advice is often not worth the paper it is not written on.
Having a written plan the details written goals and a built in system of review is central to remaining focussed over a long career of wealth accumulation.
Wealthy people surround themselves with a team of people that they can trust, bounce ideas off and learn from. Do you have an Accountant and a Financial Planner that understand you, know where you are headed and care whether you get there? If not you need to build your team today.
*Names have been changed to protect privacy.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.