careernav.

So you want to create personal wealth! Let’s agree up front that is a perfectly normal desire.

Personal wealth means different things to different people – what is it for you? Is it an amount of money in the bank? The flexibility to retire before you reach 50 years of age? The ability to purchase whatever you want? Or just to be filthy rich with millions in free cash and to be debt free?

It comes as no surprise there is no shortage of individuals and companies professing they can show you the short cut home with a quick get rich scheme. But for most people wealth creation is more difficult, but a worthy goal to chase over your lifetime. Here are some factors you should consider;

• You may not be able to become rich overnight, but anybody can try to create personal wealth every day of their life. This is very different from a get rich quick scheme, requiring continuous effort and dedication, hard work and patience, focus of energy.
• Saving is the first priority. If you’re an average person like most of us, you need to save to create great wealth. New ideas and businesses are valid ways of creating wealth, but even if you have an entrepreneurial streak it is better to start somewhere solid.

Some argue the road to wealth begins when your net worth (adjusted by the net inflow and outflow of funds) is positive, When you reach this position you have spare funds and can now begin to save a portion of what you earn each month. The more you save the wealthier you become.

Others argue that setting a savings goal comes first; you develop a savings habit when you are young and only draw on your savings to fund other investments - never for personal use.

If the bottom line of savings is to achieve a comfortable retirement, one view is that you should save 15 percent of your annual pay starting at age 30, and pay off all your debts by age 60. One absolute fact is the younger you start, the greater the cumulative effect of your savings. Note the cumulative difference by saving $1,000 per month at 6% compound interest until you reach the age of 60. If you start at;   

• 50 years of age at 60 you will have $164,698
• 40 years of age at 60 you will have $464,351
• 30 years of age at 60 you will have $1,009,537
• 20 years of age at 60 you will have $2,001,448 

So the number one savings strategy is to auto pay yourself first from every pay cheque, via direct debit into a term deposit account. That’s right, everything else is secondary - rent or mortgage, utilities, food, credit cards, car loans, and any other payments. Make more salary or spend less to enable this strategy to work. Adjust your lifestyle.  It is the key foundation to building your wealth.

The second savings strategy is to purchase only what you need and ask yourself before each purchase, ‘Do I really need this?’When the answer is 'no', then start eliminating the “no's” and make an additional deposit into your term deposit account. It is a brilliant counter to impulse buying. These are savings over and above the “pay yourself first” strategy described above, which continues every pay day, irrespective.  Save, save, save and stroll the road to riches.

2.   Get the savings to work for you.

There are numerous options available;

• Financial markets with Stocks, Bonds, Foreign Exchange and other instruments
• Long term securities such as gold, silver and diamonds
• Property markets - buy renovate and sell, negatively gear a rental property, considering commercial buildings versus residential houses
• Specialist investments such as art, antiques, classic cars
• Become an entrepreneur
• Start your own business, perhaps a proven small business, a franchise, or go into partnership.

3.   Back yourself and your judgement.

Whether you are an employee or an employer , the one thing in this worl d you have direct control over is you and your own actions.

•  Acquire knowledge, cultivate your skills, work hard, dedicate yourself and leverage what you know.
• Understand your unique point of difference, what you know most about and your personality strengths. The intersection of these three factors creates your high performance cell and the area in which you are mostly likely to succeed.
• Understand the culture and environment you best perform in and you now have a working model to apply to maximise your high performance.
• Get a formal as well as informal education, accumulate life experience, and learn from your mistakes as well as your successes.
• Keep healthy and fit, maintain your primary asset (you) in the best shape you can.
• Make wise decisions regarding your resources you currently have on hand. Create a budget and stick to it.

4    Get good advice.

• The most costly thing in the world today is bad advice. Recognise your strengths and weaknesses, what you know and don’t know. If you don’t know, then get good market intelligence, good financial advice, financial planning advice, legal advice and mentor advice. Depending on your work and income source you will need advice.
• Good market intelligence is invaluable. Identify individuals who are considered experts or gurus in a market and read their books, reports, articles and seek personal contact.
• Competent financial planning allows you invest the disposable income, money left over after meeting basic living needs. Place the funds in an interest bearing account and add to the balance consistently. Engage a financial planner to outline your options and how you can build on them. With only a small amount to invest, the stock market is an attractive place to start.
• Good financial advice shows you the optimum company structure, tax-efficient strategies and ensures personal protection whilst minimising the commercial risk and maximising cash flow and surpluses
• Sound legal advice protects your best interests. Attention to detail, ensuring contracts don’t have missing or ambiguous clauses, making sure your intellectual property is fully protected by common law, trademark law and patents is all essential.

5.   Achieve portfolio balance.

Financial wealth is not all about pursuing relatively safe investments. While a solid financial base is essential, there is a place for some higher risk activities in most portfolios, particularly while you are young.

• Construct a share portfolio with a balance of say 60% low risk stocks, 30% medium risk and 10% high risk. You and your advisor will find the right balance.
• Add a rental property leveraged with 85% mortgage. Pick a high occupancy rate investment such as houses for the armed forces or apartments for student accommodation. In this kind of accommodation tenants are used to Spartan, no-frills accommodation.
• When you can, squirrel away something into gold, better still silver or even diamonds. They are long term investments and a hedge against economic downturns and company failures.
• You should distinguish between a depreciating asset (such as an expensive car or boat) and an appreciating asset (such as a property with a good position). 

Ask the question, ‘Do I really need such an expensive car?’ or ‘Will I really use a boat?’ By all means own both, just keep it in perspective.

6.   Become a Milestone Entrepreneur.

Most start-up ventures fail and many entrepreneurs have been bankrupt. But if the light burns within, it is often difficult to resist the temptation to back yourself and start your own business. Having a red hot crack yourself is fine provided you have done your homework or due diligence on the venture.

The following are essential to maximise your chances of succeeding;

• You have a depth of knowledge backed up with commercial experience in the chosen sector
• You have a taken the time to understand yourself and identified your ‘high performance cell’ and the environment and culture you work best in.
• You have sufficient capital, with a source for more if needed.
• Deal in products and services the marketplace wants. Is there a gap in the market, is the gap big enough, how can I protect my first mover advantage? Take the time to research the right opportunities, learn how to make the most of them, and then exercise the patience.
• The venture should not have too much of its working capital tied up in raw materials, packaging, finished product, or a high labour component. Conversely, a short conversion time is desirable. Otherwise your cash flow will be under immediate pressure
• You have superannuation and a modest but solid portfolio to fall back on if your enterprise fails.
• You have written an exhaustive business plan; you have had it reviewed independently by someone qualified; and you have had the financials triple -checked for accuracy.
• You have also sought the professional advice mentioned above
• You build in milestones to ensure you remain on track, and you are ready to abort if you are not achieving them.

There is an interesting article in Careernav Life Skills titled ‘Being an Entrepreneur – Pros and Cons’. Click here to read. If you want the freedom of your own business, but wish to reduce the hassle and risk associated with a total start up, buying a franchise is a viable alternative. BRW magazine regularly review the franchise industry and nominate the Top 10 franchises across a range of factors.  The Franchise Industry of Australia is also a valuable source of information. These days there are tight regulations on franchisors to ensure they provide franchisees with protection.

7.   Surround yourself with quality people, both advisors and staff. 

• Ultimately there is only so much you can do before you need to rely on others to move forward. Recruit only the best people;
• Pay them above market rates, with a double level bonus indexed against agreed key performance indicators
• Make sure they are intelligent in their field
• Give them the right tools of trade
• Place them in a motivational environment
• Get out their way and let them show you exactly how good they are!
• These people will make you money provided you look after them with personal and professional development programmes, show your appreciation, and publicly recognise and reward them. They will build an emotional attachment to you and your business and with that comes high staff retention – a major key to profitability. 

Ask those who have done it.

• It may be logistically extremely difficult but ask those with perceived personal wealth how they made it, what advice they have and what their definition of personal wealth is.
• Professional sports people  - for example, Roger Federer, Lauren Jackson
• Prominent business people and industry leaders, such as Lindsay Fox.
• Email Richard Branson, Tiger Woods, Bill Gates, Elton John and Michael Jordan
• Email Nicole Kidman, Kate Blanchard and PINK. 

It would be an interesting exercise!

The definition of wealth.

Wealth is more than the size of your investment portfolio and bank accounts. There is financial wealth and personal wealth.

Who would you rather be;

A financially very rich workaholic, lurching from one personal relationship to the other, with little to no connection with your children, socialising with a group of acquaintances but having few if any ‘real friends’ and always wondering whether they like you or your money?

OR

A hard working individual with a mortgaged home, who struggles to pay the school fees, with a partner you describe as your other half, a close bond with your kids, a wide group of friends and a work-life balance?

There is no correct answer, but I know which one I would prefer to be and what definition of personal wealth sits comfortably with me;
‘....The ability to live comfortably in a mortgage free home, enjoying a partner who is my other half, a close bond with my children, a small group of close friends and a work-life balance, all the time knowing the financial interest generated from my savings and investments will see me into a healthy retirement full of adventure, holidays, golf and fishing....’

What’s your definition?  Write a blog and post on the Careeernav website.

P.S. And yes, it’s bloody hard to achieve!