Wealth Creation

Introduction

In the last blog post we talked about creating a budget and working out whether or not that you are living within your means.

With this post I was struggling whether to write on Savings Plans or Debt Reduction first as they are both equally important.  I find that it’s generally better to try and remove debt as quickly as possible as you tend to pay a higher interest on debt than interest you receive on savings.  On saying that, you still will have to save a little bit for a rainy day but all of your focus should be on eliminating debt.

So, what is debt?

Debt is basically a condition that arises where you owe money or are under obligation to pay money for a good or service. This comes in many forms but the most common are that of loans, credit cards and bills. The problem with loans and credit cards is that these types of borrowings inherently have high rates of interest attached to them, so paying them off becomes even harder, especially if you only pay off the minimum monthly repayments.

Debt can be split into:

• Good Debt: which is borrowed money for an investment that will appreciate in value or can generate a higher amount of interest than that of the loan. For example, property, stocks and shares, business, art, wine and precious metals (jewellery), etc.

• Bad Debt: which is to borrow money for items that will depreciate in value. For example, a car, holiday, entertainment equipment and other material items of that nature.

In today’s society you’ll find that it’s easier than ever to get yourself into debt. With the media encouraging and conditioning people to spend money through their flashy advertising. Not only are people spending their own money but they borrow as well, with the banks willing to lend to almost anyone. They make it a business to entice people to live outside of their means.

How do you eliminate debt?

For Debt Reduction you need to focus on your mindset more than the strategies as the strategies are easy but to stay on track with your budget each month and focus all of your disposable income into reducing your debt takes dedication and commitment.

Here are some simple Debt Reduction Strategies that I have used:

• Create a debt list: This can be done in two ways, first use your budget to get a list of all of your debts and list them with the debt that has the highest payable interest and work your way down the list. Second, you can arrange the same list from the smallest amount owing to the highest.

• Debt reduction strategy: Using the list you have just created, start with the top item and concentrate all of your dispossible income on paying this off as quickly as possible, for example a credit card debt of $2000.00 @ 15% interest, that had a minimum monthly payment of $200.00. Instead of paying the minimum add the dispposible income of $300.00 to the minimum payment. On doing this you’ll find that instead of taking 11 months to pay off it’ll only take you 5 months to pay it off.  Once this debt has been payed off, use this alloted money of $500.00 to add to the payment of debt on the next item on your list, say a car loan of 25,000.00 with a minimum payment $415.00 p/m @ 10% interest. So now you’ll be paying $915.00 p/m and you’ll have the debt cleared in 2 yaers and 8 months. Once the car loan debt has been payed off continue to the next debt on the list and add the extra $915.00 to that debts monthly payments. Work your way down the list and you’ll be out of debt in no time. Remember that this strategy relies heavily on your ability to have a surplus budget. If you don’t you might be able to use these strategies below to free up some money.

• Consolidate loans: This is usually a commercial service that will combine all of your smaller higher interest debts like credit cards and small loans etc, into a large single more manageable loan that usually has a fairly low interest rate. Do this to generate a monthly surplus in disposable income so that you can target the first debt that you want to get rid of. You’ll also find alot of educational resourses on sites like Fox Symes Debt Solutions.

• Credit cards: Shop around, there are plenty of banks and credit unions that now offer 0-3% interest on any transferred balances. Find one to reduce large monthly interest repayments. These low interest cards typically have a 6-12 month expiry. When they are due for expiry simply find another low interest card and transferr the balance again. Here are two that I know about. ANZ credit card and Citibank credit card.

• Home loan: There are so many different types of home loans and strategies that can be used to help either reduce your monthly payments or cut years off the life of your mortgage. It’s probably best to find a broker like Aussie Homeloans or Mortgage Choice to help you with this as they are experts at tailoring a loan to meet your individual needs.

These are just a few of the more simple strategies that are out there. I hope that these Debt Reduction strategies will be of some benefit to you, as debt is an easy hole to fall into and a hard one to get out of.

If you have come across any good debt reduction strategies or ideas, please feel free to comment about them in the comment section below.

In my next post we will discuss Savings Plans. I hope to see you then.

All the best in your wealth creation journey,

Jon Symonds.

Where Do You Start!

Before you get into the wealth creation strategies and the development of your mindset. You need to first take a good deep look at your financial position. This is done to get a clear picture of all your monthly transactions, as this is the basis to all wealth creation. You need to know what your total income is minus all of your expenditures so you can work out the best steps and strategies to take in wealth creation. You must start taking responsibility of your finances as no one else will.

Here is a list of the three most basic steps we need to take in order to start your wealth creation journey:

1. Create a budget
2. Debt Reduction
3. Savings Plan

Create a Budget

So the first step is to create a budget by adding all of your incomes together and then subtracting all of your expenses. The more honest you can be with this the better, as it will give you a true picture of your financial position. If this isn’t done right here, it will only distort the final result and you’ll find that the outcome will be different in the real world.

When my wife and I did this about 2 years ago we were so shocked that we were living outside of our means. With a wedding just around the corner and a baby on the cards, doing the budget changed the way in which we spent, saved and reduced our debt. It was like switching on a light in the darkness of our finances.

Creating a Budget can be a boring and time consuming process, but it’s so important to get this right as your financial future depends on it. So take as much time as need to get this right. We found that we needed to tweak the budget over the months as hidden expenses would pop up from time to time.

So how do I start a budget?

There are plenty of budgeting spreadsheets and programs on the internet. Some are free and others you will need to pay for. If you are well versed in MS Excel then you could easily build your own customised spreadsheet. I have done a bit of  research and come up with three budget spreadsheets/programs.

1. Money Tree: This is a great program that has all the bells and whistles that you could ever need and it’s easy to use. The feature that I really like is that it has an icon on your task bar that alerts you of payments that are due that day and how much they are. It takes some time to log all of your transaction details into the program but it is well worth the effort. You also get plenty of bonuses when you buy the package. You can go to Money Tree and see their website plus view their demo video.  It’s a great program for under $25.00 US.
2. Money Advise: This is an Excel based budget spreadsheet that has five free online tools and the template is easy to use. It has all that you need for a basic budget and for $10.00 US it’s well worth the money. Go to Money Advise and have a look.
3. Free Excel Budget Spreadsheets: This website has heaps of different Excel budgeting spreadsheets that can accommodate any type of budget from family to a wedding budget. Just “Click Here” to go to their website and look through the different ones until you find the one for you.

I hope that these spreadsheets help with your budget. Don’t forget, take plenty of time and get this right as it will save you heaps of money in the long run.

If you want to create a budget by going  it alone, you can make up your own spreadsheet. Here are the most common items that need to be accounted for:

Income: You must add up all the forms of income you receive.

1. Salary/Wage for you and your spouse.
2. Pension, benefits, baby bonus and family allowance.
3. Rental income and board money received.
4. Tax rebate.
5. Investment dividends and option premiums.

Expenses: Now you must add up all of your expenses.

1. Housing: boarding, rent and mortgage payments.
2. Utilities: electricity, water, gas, phone and pay TV.
3. Insurances: car, health, home and contents, income protection and life.
4. Transport: petrol, registration, repairs, tyres, tolls, public transport and license.
5. Food.
6. Medical.
7. Personal: clothing, grooming, gym fees, entertainment and holidays.
8. Other: Savings, special projects and individual spending.
9. Loan expenses: personal, car, boat and credit cards.

Now that you have created a budget you have to subtract the expenses from your income to get a total picture of how you’re fairing. If you are in the black then you can use the extra money for paying off debt or saving it for investments.

If you’re in the red then you’ll have to go through and work out where you can cut back on some of your expenses. We will look at Debt Reduction strategies in the next blog post.

All the best in your wealth creation journey,

Jon Symonds

Introduction

Hi Readers,

Wealth Creation is a subject that I have been studying for over 2 years now. It’s one that I find really interesting and fairly easy to implement once you develop the right mindset.

When I started researching wealth creation I was a lost soul continuing along in life working hard at my job, as we all do, wondering if this was all that life has to offer. I was stuck in a rut with not much hope of escaping the rat race unless I won Lotto. How many of us have been there or are there right now?

As I continued learning the light at the end of the tunnel was getting brighter and brighter.  I was learning amazing wealth creation strategies that would help me change my life forever. To my amazement I was surprised that as kids growing up we were never taught these simple financial rules and strategies at school or by our parents. This to me is a mystery as this stuff is the basis of living a financially abundant lifestyle which in a developed nation should be accessible to everyone but it’s not.This point is made all too well in an e’book that I downloaded from the internet for free.

My journey started when I found  Sean Rasmussen and through his website Universal Wealth Creation I was linked through to Jamie McIntyres book titled “What I Didn’t Learn At School But Wish I Had”.

This book is like a bible for people seeking to gain financial freedom through educating themselves. I’ll be using this book as a resource along with a few others from Robert Kiyosaki’s “Rich Dad Poor Dad” and the founder of wealth creation Napolean Hill and his book “Think and Grow Rich“.

These books hold all the knowledge you need to become financially independent. So invest in one of these books as they will assist you in your search for a better life.

The next post will be on “Where Do You Start” and how to budget.

See you then.

All the best in your wealth creation journey,

Jon Symonds.