Are you wanting to start investing to make your money work harder, but don’t know where to start?
As a beginner, you are clearly going to need a certain amount of capital in the form of savings.
I often get asked questions like;
How much should I be saving? or How much do I need? and even How do I become wealthy?
It pays to have a plan, a strategy or a goal to be working towards and once you understand where you need to be, then you can play how to get there.
You should then consider using this Wealth Formula, that I learned from Tom Corley.
The 20% Rule – Pay Yourself First
I have heard many successful people state the you should pay yourself first, so let’s start with the 20%
Pay yourself 20% of your after-tax income the moment you are paid.
For every $100 you receive, this means $20 goes to you, as investment seed capital.
There are so many good Apps out there to assist with tracking where your money is going these days and they can come in very handy for this exercise.
I find the easiest thing to do, is to open a separate account, that you can immediately transfer the 20% across to.
I find by paying myself first, I am not tempted to buy an extra pair of shoes or allocate parts of my seed capital to needless spending.
I am committed to my goals and can’t be side-tracked.
The 80% Rules – Living Expenses
Next up, after subtracting 20% of your after-tax income, you are left with the remaining 80%
So, for every $100, after paying yourself $20, you will be left with $80.
80% of your income is for pretty much everything else and I am certain that there will be many sub sections here…….
Things like, your rent or mortgage payments, food, utilities, entertainment, holidays, gym etc, etc.
This is where it can become tricky, as many people don’t track or understand what they are spending at certain times.
This is where a money tracking app can become invaluable.
Once again, this is also why it is so very important you pay yourself first, otherwise you can easily run over and into your 20% and you get further behind in your savings.
Where to Next?
Well done!
Once you’ve reached your savings goal, it may have been 3 months or 3 years, but by sticking to the Wealth Formula you can decide on step 2…
Investing… And the questions come again where do I start, how? etc
Here are some valuable resource tools I have written to enlighten you;
While I feel it valuable to have both — a balanced portfolio, there are certain advantages that property has over shares when you start investing and building an asset base.
Should I be looking for long term capital growth or short-term cash flow?
Both would be nice and may be achievable once you move to the next level, but to start with, you need to choose one.
While most people would like more, they really don’t need extra cashflow now, they work for a living, they will need cash flow once it comes time to slow down or retire.
That’s why successful investors go through the following 5 stages of their journey:
The education stage – learning what property investment is all about.
The savings stage – they spend less that they earn and trap this extra cash flow in a saving account, to up a deposit to invest.
The asset accumulation stage – it will take 2 or 3 property cycles to build a sufficiently large asset base of income producing properties to move to the next stage…
Lowering their Loan to Value Ratios – asset accumulation requires borrowing and gearing but eventually your LVR must slowly come down so you can…
Live off the Cash Flow from your property portfolio
In summary
The best place to start to invest is by having a strategy and then a goal to start working toward.
Many successful people have a wealth formula like the 80/20 rule that they can apply to reaching their goals.
By using percentages, they can continue to adapt and save as their pay increases over time.
Successful people pay themselves first (20%) and live off the remaining 80% of their after-tax income.
They are making their savings goal a priority and make concessions around their lifestyle to fit the 80% — not the other way around.
Once they meet their goals, they can start to put their money to work harder for them to create a level of wealth.
It can be small steps at the beginning, but BIG results at the end!
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Read more: propertyupdate.com.au