From my experience as a tax accountant, financial planner and a parent, I have had the opportunity to review many clients’ personal financial balance sheets, tax returns and personal net wealth.
Below are five financial planning tips that I believe that we should be teaching our children. But before I delve onto those five tips I would like to point out one overwhelming fact. If we go back to our childhood and we think of others that we went to school with, we could probably surmise:
- We had similar parents
- We lived in the same or similar suburb
- We went to the same school so we had the same teachers
- We all sat the HSC or equivalent
- We probably all went to university or the equivalent
However, if you go back and compare your financial wealth and security now, there will be a massive range of difference between your school friends. Many readers will assume that the wealthier classmates were smarter or had higher paying jobs. I can assure you that from my experience this is rarely the case. The wealthier people tend to take better control over their finances, they tend to set financial goals and make better investment decisions.
1. The basis of equation of life
EARN MONEY → PAY TAX → SPEND = SAVINGS
We are all aware of the above formula. Most people interrupt this formula as they need to earn more, pay their legally responsible taxes and the balance or remainder is what they choose to save or to spend.
2. Earn money
In the above formula most people place the most emphasis on the “Earn Money” category. That is, the more we are able to earn, the more they can save or spend. While this is no doubt true, my experience is that generally the wealthier clients are not the clients that necessarily earn the most income however, they are clearly not the ones that earn the least income either. They are generally the people in the middle that focus on their savings, spending and investments.
3. Spending vs saving
I am sure you have all heard of the term compound interest or reinvesting to compound your wealth, so I won’t go into it here. But what I have found over the last 30 years is that the people with the greatest wealth do not save the remainder of their pay packet, they spend the remainder. Clients that have accumulated the most wealth adhere to the following formula.
EARN MONEY → PAY TAX → SAVE/ INVEST REGULARLY = REMAINDER TO SPEND
4. Start early to create a good habits
True story. Two single male clients, both in their early thirties, both share a house together and pay the same rent. Both earn very similar income. I know because I completed their tax returns. One purchased a brand new BMW and is extremely well dressed, looks very successful. The other buys an average investment property, drives a not so great car, and presents professionally but maybe a little less fashion conscious.
Twenty years later the first client is complaining about how expensive property prices are, the second client has paid off his mortgage and moving on with life.
5. Don’t try to ‘keep up with the Jones’
When you see someone driving a nice car, for example you see a shiny new car, from where I sit I see the car and the debt. If you want a nice car that is fine but save for it, as you would save for a deposit on a home. Don’t borrow 100% to acquire it.
Most Australians have made money from purchasing a property whether that is an investment property or their home. The main benefit I see in buying a home is that you will have a roof over your head and you will not need to pay rent for the rest of your life. The second benefit I have seen is that it teaches people to save by making a monthly commitment to paying their mortgage. The third benefit is that property prices over the long term tend to grow at a greater rate than inflation.
At Quinn Financial Planning we pride ourselves on increasing the wealth and financial security of our clients. If you’re looking for a financial planner in sydney to help build your wealth, get in touch with Peter Quinn by filling out our contact form, or give us a call on +61 2 9580 9166 to book an obligation free appointment.