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Welcome To The Course, Mastering Money The S.M.A.R.T Way Without
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Lesson #4
HOW TO ACCUMULATE WEALTH OVER TIME
In this module, we are going to cover saving, investing, and
accumulating wealth.
If you cannot
save money, the seeds of greatness are not in you.
W. Clement
Stone
Get into the habit of saving until you get more
satisfaction from rationally putting money aside than you do from irrationally
spending it.
We all need savings to fall back on and to enable us to stop
working or at least stop exchanging our time for money. If you have no form of
passive income, you can never stop working.
In simple terms, savings can be categorised into three
general areas:
1.
Short term
2.
Medium Term
3.
Long term
Short term savings can be for a contingency fund for
emergencies, holidays or to buy something you need.
Medium term savings can be for larger items, like a deposit
for a house, an investment into a business or a car.
Longer term saving is generally for retirement but can also
include children’s college education.
Pay yourself first
A basic principle is to pay yourself first before you
pay everyone else.
Think of saving as paying yourself rather than
depriving yourself of candy when your pocket money was taken away from you by
your parents.
Savers automatically transfer a percentage of their
income into some form of savings vehicle as soon as they receive it and live on
the rest.
Spenders spend and live on their salary and save whatever
is left over, if any.
Who do you think saves the most money?
Money Master savers also maximise their tax-free allowances
into things like tax-efficient pensions and schemes to make sure their money is
working hard for them and they are paying less tax.
The poor work hard for their money, the rich make
their money work hard for them.
Robert Kiyosaki
An easy way to save is to use the ‘jam jar’ method that your
grandparents used when money was tight, everything was paid in cash and people
didn’t use banks as they do today.
When the weekly wage came into the household it was divided
up, usually by the women, and put into various empty jam jars to cover the
rent, fuel, food and replacement items like children’s shoes. People also saved
for birthdays and Christmas.
You can use this method by dividing your monthly salary into
virtual ‘jam jar’ separate bank accounts rather than one account.
You can name the accounts whatever you like, but I would
suggest something along the following lines:
·
Emergency or contingency fund
·
Medium term savings
·
Long term savings
·
Play account – fun things for yourself including
trips, meals out and clothes
·
Giving account – for charity donations.
You could also add a training and development account to be
invested in yourself in the form of books and courses.
The percentages will vary according to your means.
But the important point here is to get started, even if you
can only save 10% of your income. Start this process online right now. Many of
the newer “challenger” banks operate entirely online and can set up an account
within minutes.
If you’re thinking that you cannot possibly save 10% of your
income, look at your income and expenditure sheet. If you haven’t done one yet
check your bank and credit card statements to see where your money goes.
If your budget is so tight and you have economised
everywhere and still have absolutely nothing leftover, you may have to consider
ways of increasing your income by getting another job or starting a home-based
business in your spare time.
I have helped people transform their wealth through my book
and coaching programme.
The multi-millionaire
entrepreneur advises that you divide your income in the following way:
·
10%
Giving
·
10%
Investing – for the long-term needs
·
10%
Saving – for short to medium-term needs
·
70%
to live on.
Pensions
Start
saving for your pension as early as you can and save as much as
you can.
As a
rough guide, every 5 years of delaying a pension savings plan means your
eventual fund will halve in value. In other words, every 5 years you wait,
means you will need to pay in twice as much to get the same result.
When
we are young, we think we have all the time in the world. But you may not have
as much time as you think.
For
instance, if you are aged 30 now, you have roughly 30 years of working life
ahead of you if you plan to retire at 60. Thirty years sounds like an awfully
long time, however, if you break it down into pay or salary cheques, 30 years
is just 360 salary payments - 12 per year times 30 years assuming full
employment.
At
40, you have just 240 salary payments left, and at 50, just 120, assuming you
manage to stay in work and in good health.
Even
a full working life of 40 years is only 480 pay cheques. If you save $100 per
month for 40 years, it will give you a fund of $48,000 plus growth, less
charges. You couldn’t live on that for the rest of your life today, let alone
in 40 years’ time. Even $1000 per month would still only be $500,000 plus
growth.
You
can still combine pensions with other forms of investing, such as property,
stock market and business, and even use your pension scheme to buy shares and commercial
property, subject to the rules. This is a specialist subject, and you should
take independent professional advice.
Before
you jump into something like property, remember that buy-to-let investing does
not suit everyone and is certainly not a passive form of investment. Buying
property requires knowledge and expertise, as well as a diligent work.
Take
independent financial advice on this important area of your life. Don’t leave
it to chance and risk living in poverty in your old age. If your employer
provides a good pension scheme, that’s great, if not, or you are one of the
millions of self-employed or casual workers, you’re on your own and will have
to “row your own boat” to retirement.
Don’t
rely on the government Pension ‘Ponzi’ scheme to look after you in retirement
Most
government state retirement pension schemes have no actual fund.
Benefits
are paid to retirees out of tax collected by working people. If I ran a pension
scheme using the ‘Bernie Madoff method’ – keep collecting money and use that to
pay investors – I’d be put in jail!
The UK Institute for Fiscal Studies (IFS) research found
that in 2004, there were approximately 4 working age individuals (aged 20-64)
for every 1 person aged 65 and over.
By 2056 this ratio is predicted to fall to about 2:1 or half
the current level.
How can the government afford to fund state pensions at the
same level if the income from working taxpayers drops by 50%?
The UK government has already started pushing back
retirement ages for men and women and more cuts will be needed.
People are also living far longer in retirement than they did
to when the state pensions schemes were introduced after the Second World War. The
numbers no longer add up, if they ever did!
These schemes are bust!
Summary Day 4
Saving
is a habit. If you cannot save money you will struggle with money and debt for
the rest of your life and will never be able to afford to retire comfortably.
Action Steps
·
Pay
yourself first.
·
Set
up an automatic transfer of a percentage of your income into ‘jam jar’ accounts
the day your salary hits your account.
·
Save
for retirement as soon as possible.
·
See
an adviser or research pensions.
·
Always
learn and do your own research before investing in any asset.
Congratulations on completing this module. In the next lesson,
we will be looking at reviewing your finances to keep you on track.
If you would like to learn more
about investing and managing your money, become a professional property
investor, or would like to be financially free without
working any harder, watch this free
on demand training.
I will give a special free
gift which can help you to immediately transform your finances when you attend
the online training.
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