New Year New Life - Financial Freedom or Financial Hardship?

Written on the 31st of October 2009 by Wealthfarm

New Year New Life:

Financial Freedom or Financial Hardship?
The simple steps to Wealth Creation that anyone can achieve

Will you be part of the 90% of age pensioners that will have very little in retirement with few assets outside of the family home, if that? Could you exist on the Government Age Pension?* Do you worry about how you’re going to pay the bills when you no longer receive a regular pay cheque? Do you feel frustrated that all you have to show for your 40 hours a week at the office is one decent holiday a year and a home loan balance that doesn’t seem to budge?

If you can identify with any of this, you probably have the same fear as most of the population – that you’re only one or two pay cheques away from complete financial disaster - scary isn’t it? The good news is that you don’t have to live this way and the irony is that the very thing you’re most afraid of will probably occur if you don’t face your fears and do something about it…NOW.

The first and most crucial step in creating wealth is taking action. Just as intending to give to charity doesn’t make you a good person if you don’t actually make a donation, daydreaming about being financially free isn’t going to make you rich if you don’t also take positive action.

Creating wealth is simply a process and if you follow a few simple guidelines you can avoid the pitfalls. One of the myths about becoming wealthy is that you need to be earning a ton of money in order to get started…not true. What you do need is a plan. Think about all the time and energy you invest in your one annual holiday. How much planning and thought do you put into choosing the location, checking out the activities, even deciding which restaurants you’re going to eat at. Now think about how much planning and thought you put into ensuring your financial independence in retirement. Are you getting it? Is this ringing any bells? If the answer is yes then read on…it gets even better.

Once you’ve recognized that you need to put some effort into planning your financial future, get some help. If you think you can’t afford expert help think about the money you pay to experts in other areas of your life. Would you drive a car that you’ve serviced yourself if you’re not a car mechanic, would you prescribe your own medication, put fillings in your own teeth? Exactly! You can afford to see a financial expert if you consider it an investment in your financial future, it’s even tax deductible.

Once you’ve decided to seek expert help, it pays to ensure you choose an adviser who is not affiliated with any one financial institution or product. The key to creating wealth is diversification so a good financial adviser will recommend investing across a variety of asset classes and sectors. This will ensure you not only see positive returns but remain protected during downward investment cycles.

Most investment involves an element of risk and the trick is ensuring you manage that risk instead of avoiding it. Work with your financial adviser to develop a risk management strategy that works for you. One that works for someone else may not work for you as everybody’s idea of acceptable risk is different. The best idea is to figure out your worst-case scenario and ensure your portfolio is protected should that occur. It probably won’t occur but, if you’re new to investing, a strategy like this will certainly help you sleep easier at night.

Many people still believe that the best investment is paying off their mortgage. This can be true but it really depends on what you want. Instead of paying an extra $1000 off your mortgage every month, imagine using that money to create a share portfolio or using the $1000 monthly to pay off an investment property…or seven.

One of the most common mistakes people make once they have a wealth creation plan in place is that they fail to maintain it. Change is inevitable and depending on how much your life has altered since you last sat down with your adviser, every so often you’ll need to do some financial fine-tuning. If you have property loans for instance, you may decide its time to shop around for a more competitive rate. Making adjustments like moving from a variable to a fixed rate could save thousands in interest and while checking in on your investments once every few months is a good idea, going over your investment plan annually is absolutely crucial.

The stage you’re at in your life cycle is also an important consideration when rebalancing or reassessing your portfolio. Adjustments should be made if your work situation changes and what worked for you in your 30s and 40s may not be the best strategy the closer you get to retirement.

Think of your wealth creation plan as a garden, if you tend it well and spend time maintaining it, you will reap the rewards. Don’t beat yourself up that you didn’t start as early as you should have and don’t compare yourself to others. So what if your friends started earlier and have one or two more properties than you, everybody’s financial goals are different and it takes some of us longer to commit to a long-term plan than others. The important thing is that you start and that you start right now. Don’t procrastinate anymore and don’t let your fear hold you back.

Putting the effort into creating a secure financial future is the most important thing you can do for yourself. If taking the first step to financial freedom seems too big a task and you don’t think you know enough to get started, you’d be wrong.

You can start today by listing all of the things you’d like to achieve financially. Don’t be afraid to think big and be specific. When you’ve finished writing, break your list down even further by adding your financial hopes and dreams to three separate headings – short-term goals, medium-term goals and long-term goals. A short-term goal is something that might take you up to 5 years to achieve. A long-term goal is one you’d like to achieve by the time you retire and a medium-term goal is considered to be anything in between.

You’re now ready for the next important step and it’s as easy as picking up the phone and calling Wealthfarm Financial Planners to make an appointment. With these first steps, you’re proving to yourself that you already have all the tools you need to ensure your dreams of financial freedom become a reality in 2010.

*NATSEM Research Report, February 2009