Building Financial Security Steps 1 to 6.
We would all like to think of ourselves enjoying the good things in life, not having to stress about finances, and not having to be concerned about growing old, poor.
But if we are currently living from pay cheque to pay cheque, never seeming to get ahead or having any savings, how do we change things? Where do we start in our quest for financial security?
The best thing we can do, is sit down, take a deep breath and contemplate the differences between the haves and the have nots, the achievers and the laymen. What is it that the successful and wealthy do, that is different to us? What are the principles that they utilise to create wealth?
Once we find out the principles that others who have created financial security have used, it seems that then the only step left would be for us to try and duplicate the process.
Following is a list of some of the wealth building principles that I have discovered in my study of and conversations with successful people.
These concepts have been utilised extensively by those who have already created enormous wealth.
1. Use the power of Compounding Interest/Growth.
John D. Rockerfeller once described compounding interest as the “Eighth Wonder of the World”.
Compounding is also referred to as Rate & Time because the longer the time, and the higher the growth rate, the greater the effects of compounding become.
Compounding works by letting any interest earned get added to the initial investment, and then the next lot of interest is calculated on the sum of the two, and so on. Interest is earned on interest. This gives the effect of exponentially increasing the value of an investment.
One of easiest ways to calculate how compounding interest works with different rates of return is to become familiar with the Rule of 72. This rule states that “The number of years that it will take for your money to double is 72 divided by the interest (growth) rate”.
Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2000.00 is 7.2.
72 divided by 10 = 7.2
2. Use the tried and true method of investing in residential real estate.
Statistics show that over 98% of the world’s millionaires have made their money through property.
It should really not come as a surprise, because everyone needs a place to live, and generally at least one third of the population are renting. Property is a necessity, so it can never go out of fashion.
As the population increases, so does the need for housing. The laws of supply and demand therefore will ensure that prices keep rising.
Banks consider property to be one of the most secure investments and because of this they will loan you a high percentage of the value. This leads to the next principle.
3. Using Other Peoples Money or Gearing is a tool used extensively by the wealthy.
Why is using Other People’s Money so important? The reason is that it is possible to use “leverage”, also known as “gearing” to obtain a greater result, than you could have obtained using only your own contributions. The word leverage comes from “lever”. As you know a small amount of force applied on one end of a lever, can produce force far greater than what was initially exerted. A lever has the effect of multiplying the power exerted.
In the case of investing, it is referred to as leveraging when you use just a small portion of your own money, say 10% deposit on a $300,000.00 house, and borrow (leverage) the rest, in this case 90%. The capital growth that you benefit from is then calculated on the full $300,000.00, not just the $30,000.00 that you personally contributed, having the effect of multiplying your capital gain.
Gearing allows you to purchase a far more expensive property than you could if you were using only your own money. Controlling assets of a higher value means that compounding growth has more to work on, and therefore your net worth will increase much quicker. Gearing allows you to build an investment portfolio more quickly than would otherwise be possible.
4. Learn to Set Goals
Most self made, successful business people and investors have achieved their success by planning to do so.
They have set goals for themselves and achieved them. They invest time in reading and learning about wealth creation and are happy to learn from other people’s mistakes and experiences, as well as their own. They set goals, and realise that they will be far better able to achieve them if they familiarise themselves with the ways in which other people acted and the things that others have done to succeed. Wealthy people create wealth by carefully utilising the income that they have available to them to their best advantage. They know that working harder and longer hours is not the way to achieve financial freedom, instead they have to utilise what they have, and make it grow.
Having a goal enables you to focus your energies on devising ways to achieve it. When someone makes a decision and begins focusing on achieving a specific goal (and even better in a specific period of time), the powerful subconscious mind goes to work and begins playing with ideas and developing strategies of various ways to bring about the successful completion of the goal.
When you set yourself a goal both your conscious and subconscious start working on it and begin to develop an action plan. You will begin asking yourself questions about what needs to be done to enable you to reach your goal. Many find themselves coming up with amazing ideas and solutions to problems or obstacles that have been in the way of achieving their goal. The subconscious is an extremely powerful tool. The more often you remind yourself of your goal, the more your mind will work on ways for you to achieve it. Some people find answers come to them when they are asleep and dreaming.
Have you ever noticed that there is no correlation between being wealthy and having a high IQ or a university degree? If there were, every doctor and university graduate would be wealthy, and as statistics show, most of them end up in the same situation as 95% of the population.
Setting Goals helps you to focus your energy on developing workable strategies. Setting long term goals helps you look at the big picture. Once you can see the big picture, you can develop small sub goals. Sub goals are small simple goals that can be followed one step at a time. When you progressively achieve your sub goals, you will get closer and closer to your major goals. Goals are simply plans to succeed. It is said that if you “Fail to plan, then you plan to fail”. Goals help you keep motivated. Progressively achieving your goals can lead to a wonderful feeling of fulfilment.
5. Learn how to Budget.
Budgeting does not have to be tedious. All you need to do is to work out:
What your incomings are. What your regular outgoings are and then make sure that all of your other expenditure is less than the amount remaining. This will allow you to start saving and investing. Budgeting puts you in control of your finances.
6. Learn about investing – in particular about property investing.
Learn to research the property market, so that you will be able to purchase properties that will not only give a good rental yield, but they will also return the best capital growth possible. Read investment books. Read auto-biographies of successful people. Speak to people who have succeeded in doing what it is that you want to do. The more you learn, the easier it will be to recognise a good investment.
Find out about Negative, Neutral and Positive gearing – and why gearing is an invaluable tool, which will enable you to build up a wealth base in accelerated time, compared to if you only invested your own hard earned dollars.
Once you have educated yourself and understand why investing in property is such a powerful tool, you will be able to embark on the road to financial security.
In Australia, and many other countries less than 5% of the population reach retirement able to support themselves, without government or family assistance. If you want to be one of them, then now is the best time to start striving toward financial security.
Debra Lohrere is the author of several books on property investment, creating financial security, goal setting and the power of compounding. Please visit her homepage Investment Property Books or storefront at http://www.lulu.com/DebraLohrere
But if we are currently living from pay cheque to pay cheque, never seeming to get ahead or having any savings, how do we change things? Where do we start in our quest for financial security?
The best thing we can do, is sit down, take a deep breath and contemplate the differences between the haves and the have nots, the achievers and the laymen. What is it that the successful and wealthy do, that is different to us? What are the principles that they utilise to create wealth?
Once we find out the principles that others who have created financial security have used, it seems that then the only step left would be for us to try and duplicate the process.
Following is a list of some of the wealth building principles that I have discovered in my study of and conversations with successful people.
These concepts have been utilised extensively by those who have already created enormous wealth.
1. Use the power of Compounding Interest/Growth.
John D. Rockerfeller once described compounding interest as the “Eighth Wonder of the World”.
Compounding is also referred to as Rate & Time because the longer the time, and the higher the growth rate, the greater the effects of compounding become.
Compounding works by letting any interest earned get added to the initial investment, and then the next lot of interest is calculated on the sum of the two, and so on. Interest is earned on interest. This gives the effect of exponentially increasing the value of an investment.
One of easiest ways to calculate how compounding interest works with different rates of return is to become familiar with the Rule of 72. This rule states that “The number of years that it will take for your money to double is 72 divided by the interest (growth) rate”.
Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2000.00 is 7.2.
72 divided by 10 = 7.2
2. Use the tried and true method of investing in residential real estate.
Statistics show that over 98% of the world’s millionaires have made their money through property.
It should really not come as a surprise, because everyone needs a place to live, and generally at least one third of the population are renting. Property is a necessity, so it can never go out of fashion.
As the population increases, so does the need for housing. The laws of supply and demand therefore will ensure that prices keep rising.
Banks consider property to be one of the most secure investments and because of this they will loan you a high percentage of the value. This leads to the next principle.
3. Using Other Peoples Money or Gearing is a tool used extensively by the wealthy.
Why is using Other People’s Money so important? The reason is that it is possible to use “leverage”, also known as “gearing” to obtain a greater result, than you could have obtained using only your own contributions. The word leverage comes from “lever”. As you know a small amount of force applied on one end of a lever, can produce force far greater than what was initially exerted. A lever has the effect of multiplying the power exerted.
In the case of investing, it is referred to as leveraging when you use just a small portion of your own money, say 10% deposit on a $300,000.00 house, and borrow (leverage) the rest, in this case 90%. The capital growth that you benefit from is then calculated on the full $300,000.00, not just the $30,000.00 that you personally contributed, having the effect of multiplying your capital gain.
Gearing allows you to purchase a far more expensive property than you could if you were using only your own money. Controlling assets of a higher value means that compounding growth has more to work on, and therefore your net worth will increase much quicker. Gearing allows you to build an investment portfolio more quickly than would otherwise be possible.
4. Learn to Set Goals
Most self made, successful business people and investors have achieved their success by planning to do so.
They have set goals for themselves and achieved them. They invest time in reading and learning about wealth creation and are happy to learn from other people’s mistakes and experiences, as well as their own. They set goals, and realise that they will be far better able to achieve them if they familiarise themselves with the ways in which other people acted and the things that others have done to succeed. Wealthy people create wealth by carefully utilising the income that they have available to them to their best advantage. They know that working harder and longer hours is not the way to achieve financial freedom, instead they have to utilise what they have, and make it grow.
Having a goal enables you to focus your energies on devising ways to achieve it. When someone makes a decision and begins focusing on achieving a specific goal (and even better in a specific period of time), the powerful subconscious mind goes to work and begins playing with ideas and developing strategies of various ways to bring about the successful completion of the goal.
When you set yourself a goal both your conscious and subconscious start working on it and begin to develop an action plan. You will begin asking yourself questions about what needs to be done to enable you to reach your goal. Many find themselves coming up with amazing ideas and solutions to problems or obstacles that have been in the way of achieving their goal. The subconscious is an extremely powerful tool. The more often you remind yourself of your goal, the more your mind will work on ways for you to achieve it. Some people find answers come to them when they are asleep and dreaming.
Have you ever noticed that there is no correlation between being wealthy and having a high IQ or a university degree? If there were, every doctor and university graduate would be wealthy, and as statistics show, most of them end up in the same situation as 95% of the population.
Setting Goals helps you to focus your energy on developing workable strategies. Setting long term goals helps you look at the big picture. Once you can see the big picture, you can develop small sub goals. Sub goals are small simple goals that can be followed one step at a time. When you progressively achieve your sub goals, you will get closer and closer to your major goals. Goals are simply plans to succeed. It is said that if you “Fail to plan, then you plan to fail”. Goals help you keep motivated. Progressively achieving your goals can lead to a wonderful feeling of fulfilment.
5. Learn how to Budget.
Budgeting does not have to be tedious. All you need to do is to work out:
What your incomings are. What your regular outgoings are and then make sure that all of your other expenditure is less than the amount remaining. This will allow you to start saving and investing. Budgeting puts you in control of your finances.
6. Learn about investing – in particular about property investing.
Learn to research the property market, so that you will be able to purchase properties that will not only give a good rental yield, but they will also return the best capital growth possible. Read investment books. Read auto-biographies of successful people. Speak to people who have succeeded in doing what it is that you want to do. The more you learn, the easier it will be to recognise a good investment.
Find out about Negative, Neutral and Positive gearing – and why gearing is an invaluable tool, which will enable you to build up a wealth base in accelerated time, compared to if you only invested your own hard earned dollars.
Once you have educated yourself and understand why investing in property is such a powerful tool, you will be able to embark on the road to financial security.
In Australia, and many other countries less than 5% of the population reach retirement able to support themselves, without government or family assistance. If you want to be one of them, then now is the best time to start striving toward financial security.
Debra Lohrere is the author of several books on property investment, creating financial security, goal setting and the power of compounding. Please visit her homepage Investment Property Books or storefront at http://www.lulu.com/DebraLohrere
posted by Believer @ 9:06 pm
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