If you want to find freedom from financial stress, Jason Cunningham has devised a guide to help you achieve it.
One of the biggest issues facing Australians today is a lack of sound financial literacy. We aren’t taught the basics of finance and how to manage money in the real world. A lot of people get into financial difficulty and struggle to see light at the end of the tunnel because of this absence of financial basics.
These next 10 steps are designed to give you the basic tools to help you on the path to financial freedom. Anyone can achieve financial prosperity – provided you follow this 10-step action plan. Knowledge is power, but often what separates the haves from the have-nots is putting that knowledge into action. A marathon begins with a single step – so let’s get started.
1. Get your head right
Understand the difference between needs and wants, and the relationship with that Aussie trait of keeping up with the Joneses. Write down your goals, visualise what you want to achieve. Use a vision board – a collage of pictures and words that represent your goals. Do whatever it takes to document your goals. Put time frames on achieving these goals.
2. Understand your risk profile and protect yourself
Understanding the risks of investing can have a profoundly positive effect and help you become a better investor. The biggest financial risk facing most Australians is the risk of being underinsured and/or having wrong types of cover. It’s irresponsible and financial suicide to be underinsured.
3. Consolidate bad debt
Bad debt (credit cards, personal loans) can be like a noose around your neck. With interest rates for credit cards almost three times that of home loans, it often compounds into financial disaster. Do everything in your power to get rid of bad debt.
4. Create a budget
Every successful business and person has a budget. It’s boring and methodical, but it’s critical to your financial success. The golden rule is bottom-up budgeting – let profit drive the outcome. Reduce your expenditure where possible to ensure you achieve the level of net disposable income (NDI) that will help you achieve your goals within your time frames.
5. Maximise your income-earning potential
Increase your NDI. After exhausting all avenues of expense reduction, address the other half of the equation – your income. Speak to your boss and let them know that you want to excel at work – and you’d like to know what you need to do to get a promotion (and subsequent pay rise). Perhaps get a second job or start a small business from home.
6. Buy property – the smart way
You can buy (and keep) at least two properties in your lifetime. How you structure your property purchase is crucial to ensuring you minimise the interest you pay, while maximising any tax benefits you may be eligible for.
7. Have a crack at the share market
Over the long term, the share market offers a lot of good news. If your investment horizon is five years or longer, do yourself a favour and participate in the market. It’s best to do this with a professional who can guide and advise you on this journey.
8. Business – the ultimate in leverage
Step 8 is the only one that isn’t compulsory. Business isn’t for everyone. For those of you in business (or contemplating the leap), there are four things you need to focus on and get right: your mission statement; your core values; a vision of where you see your business in the future; and an action (business) plan.
9. Protect your assets
We have a hard enough time accumulating wealth without having to worry about the threat of someone trying to take it from us. Put as many firewalls around your assets as possible so they are protected from attack and litigation.
10. Get help
Tax, estate planning and having a team of advisers is vital. Surround yourself with professionals who you feel comfortable with and you can trust, and don’t be frightened to pay for professional advice.