(03) 9020 2905It’s January hangover time. We’re faced with choices.
To lose weight, to reduce drinking, exercise more, spend more time with the kids.
Best of luck with that. There’s a remote chance you might succeed. Historical averages suggest not so much. January 1 – half way through your summer indulgence – is, frankly, a stupid time to make resolutions. (Try Australia Day, as the kids return to school.)
Me give anyone advice about reducing alcohol consumption, or spending time pounding pavements? Bwhahaha!
Finances are different. There, I am qualified to lecture.
So, I’m planting a seed in your head. It’s about the promise you’re going to make to yourself, and your family.
Ready? Repeat after me: “I will divert 10 per cent of my income from this year on to an investment strategy.”
Thud! Thud! Plop!
So, a few people passed out. That’s okay, I was expecting a few wimps.
But you have to do it. It’s a matter of life and death (literally, rich people live longer). And if you don’t do it now, as in January 2014, when will you?
For those still standing … let’s move on to how. I’m not going to suggest the “normal” way. Normal doesn’t work well enough. Most people die poor. It’s why superannuation was invented – but even that won’t be enough.
The normal way is to save, either in a savings account or your mortgage offset/redraw account. But that’s too easy to get and too tempting for too many.
How about a plan where chickening out is actually difficult, or a bit costly?
If you’re serious – and I hope you are – understand that the following are long-term commitments. But that’s the point – a financial plan has to run and run. We’re delving into riskier investments here – shares and property. Allow at least five years. By then, you’ll be hooked anyway.
As a minimum, start by having an amount automatically debited from your bank account, direct into a low-cost index fund made up of shares and property.
If you’re game, next up the chain would be a “geared investment plan”, where your monthly contribution is essentially matched, either by a margin lender. Again into a index fund.
Start salary sacrificing more into super. Serious access issue – you can’t touch it till you’re 60.
If you’ve been considering buying your home, do it. Nothing locks you into a long-term “investment” like having to meet a monthly mortgage. Research shows you will sacrifice almost anything to keep it.
Similarly, quality investment property. This requires a minimum of ten years. A truly grand-scale investment you cannot sell on a whim. But, the rewards for that illiquidity are often worthwhile.
Not the usual put-it-in-a-bank-account advice that you normally read in these pages. Why? Because constant saving requires amazing self motivation and denial … because the money is so easy to get at!
You need arm bending. You need it automated. You need choice taken away from you.
One day, after decades working, you get to walk off into an eternal summer holiday called retirement. If your eternal summer break is to have indulgences, you have to stop being so indulgent now. This is your last summer.
Once you finish this holiday, you must invest 10 per cent of your income – failure is not an option.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.