A guide from
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1. Shock Warning2 2. Income is not wealth 3 3. No debt is a good debt4 4. Do things differently 8 5. Find out what your boss earns 9 6. Make sure you love what you do for a living 10 7. Recognise the value of time 11 8. Ideas are the new hard graft 9. Invest from your surplus13 10. Get a good broker 15 11. Be tax smart 16 12. Invest in money-makers, not flashy pipe dreams 17 13. Diversify, Diversify, Diversify 18 14. 'RQWLJQRUHJOREDOPDUNHWV 19 15. Invest for income 20 16. Understand how to recover from losses 25 17. Avoid Investment/Trading Seminar Scams 27 18. Understand that conflicting advice may all be correct 29 19. Investing on news 30 20. Understand the jargon and the charts 31 21. Do not under-estimate your life-expectancy 32 22. 'RQWIRUJHWJRRGROG-fashioned saving 32 23. Enjoy without addiction 33 24. All bulletin boards are positive 34 25. Aim for multiple income streams 35 26. You never know enough 36 27. $QGILQDOO\ 37
SHOCK WARNING This Guide is not going to make you rich overnight (at least not tonight, unless you are extremely lucky). This guide is not for those who are hoping for a get rich quickVFKHPHbecause, although it is unfashionable to say it there is not really any such thing. No, this guide is different. You have not just wasted money on yet another scheme or system which will ultimately fail despite the claims made in the advertising. What is it then? Well this is a guide to help you accumulate wealth steadily and sensibly. You may indeed have great rises in financial wealth in short periods of time. You may also have to take some losses. That is all part and parcel of this experience. What we are aiming for is that in the long term, your gains will outweigh your losses by some considerable distance. You should also avoid some of the mistakes that many people make. In fact, you should be able to avoid making the mistakes that MOST people make.
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Secret Number 1
Income is not wealth
Your biggest barrier to attaining wealth is yourself. It is no use blaming everything and everybody else if you are actually living your life in a way which is not helping you to build your wealth.
Ultimately, you will only become wealthy if you spend less than you make each month. Most people think that you need to have an enormously high monthly income to be considered wealthy. Actually there are many people who have lower level incomes but act more sensibly with their money and so overall are wealthier. Any fool can get a high income but the same fool will spend it all so that there is nothing left when that income ceases.
Please understand Income is NOT wealth.
In financial terms (for there are other types of wealth), your wealth is the part of your net worth that makes you money (either income or capital growth) without you needing to work hard for it. So for example, whilst a teacher may work hard each week to get their monthly salary, somebody with a property portfolio can be paid each week in terms of rental and capital gain on their houses, for doing relatively little. If they were to add to this some high dividend paying stocks, and maybe some regular returns on sales of a book they wrote some time ago, you can see how they would be considered wealthier than the teacher. They could actually continue to live in the manner they have become accustomed for as long as their portfolio paid out which would normally be longer than a normal salary. Even better, they would not have worked themselves into an early grave in the process!
Ask yourself this question.
How long could you continue with your normal spending habits, if your regular monthly pay were to be stopped? Your aim should be to make it so that a regular monthly salary from an employer becomes a nice bonus!
,I\RXGRQW- you will forever be bound by the lie that it takes a high income to become wealthy, and it requires working all the hours in the day and night to achieve that salary. Believe that - and financial independence and security will always be just out of reach.
Secret Number 2
Although most of us will go through life needing to borrow money at some point or other, be it to ease cash flow by the use of a credit card, or by taking out a mortgage on a family home the paying of interest will of necessity mean that we have paid back much more than we borrowed. This is a sure fire way to eat at your wealth. The more debt you take on, the more difficult it will be to get out of it. It is like a drug, and it can destroy you in the same way. Any debts you take on need to be targeted and cleared as soon as possible Yes, even your mortgage.
What should I do first clear the debts or invest?
As I said, we all have some debts at some point in our lives. It may be that we are still faced with a student loan after university. It may be that we needed to take on a loan to buy a new car (more on that later), or it PD\EHWKDWZHKDYHVRPHIXUQLWXUHRQDEX\QRZSD\ODWHUGHDO$OPRVWwithout exception, we will have a mortgage. And then comes the quandary: If all my money is pumped into paying off the debts, I will not be doing any saving for a rainy day or for my life when I have retired. Thankfully, this dilemma can be solved with a fairly simple calculation.
The answer depends on two variables:
1. How much interest you are paying on your debt, after tax. 2. How much interest you expect to earn on your investments, after tax.
Please note that there are two types of debt. At one side we have the worst kind - very high-interest debt that comes from things like credit cards and store cards. This kind of dead is lethal and should really be avoided unless absolutely necessary. It should only really be used to aid cash flow, and it should be paid off each and every month if at all possible. The second kind of debt is the lower interest variety; things like the mortgage or student loan. Often, the interest on this kind of debt is low enough that it may worth holding onto the debt for its full term.
The bottom line is:
If you can guarantee a higher after-tax return by investing than the after-tax interest rate you would pay on your debt, you should go ahead and invest. If not, you should clear the debt first.
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Here are some examples for you:
Example 1 Imagine you have a 30 year, 150,000 mortgage with a 4 percent rate. If you expect to earn an after-tax return higher than 4% on your investments (the odds are reasonable that you will if you have a long-term view), then you should invest rather than pump additional funds into the mortgage.
Example 2 Imagine you have a 10,000 credit card debt with a 22% interest rate. You should only invest if you think you can earn a 22% after tax return on your investments. The average return on the stock market has been somewhere around 11-13%, so this seems a risky proposition. In this case, it would be foolish to invest and you should instead work on clearing the debt first.
You need to do what is best for building wealth long term. Many people cannot see that paying off a debt is actually saving them more money than they would be able to make any other way. Do the calculation and work out what is best for you.
Credit Card Debt is Deadly
How to find the money get out of credit card debt
Many people struggle to pay more than the minimum balance off each month, and as such, they never eat into the debt. Here are a few tips about how to get rid of the most deadly debt of all. Until this has gone, \RXGRQWVWDQGDFKDQFHRIEHFRPLQJZHDOWK\
1. Do you have any investments you can use at this stage?
As you will have seen from the last calculation about whether to invest or pay off the debt with credit cards it is always better to pay it off first. Therefore, if you have money in savings accounts or invested in bonds or stock, it is more than likely in your best interests to use that investment to clear your debt at this stage. Remember, if your investment is not inside an ISA, it is taxable. It is subject to capital gains tax and you will pay tax on the dividends. As pointed out earlier, it is debateable whether you will ever beat the 25-29% needed to make it worth keeping the investment rather than paying off the debt first (even if it is inside an ISA). Cash in the investment and use it to lower your debt.
2. Do you need all that stuff?
A life-laundry is a useful way of cutting down our debts. When was the last time you read those books or rode that bike? Are you likely to use the tent again? Why not sell it all on eBay or Amazon Marketplace. Making a few hundred pounds at a car-boot sale could also help to cut down your debt.
3. Ditch the subscription lifestyle
Many of us subscribe to Sky and to a daily newspaper, or a monthly magazine. We also pay for extra insurance plans on our mobile phones and electrical appliances. We love the fact that we can use 900 minutes of talk time and 3000 texts, with unlimited data download on our mobile plan. However, all this adds up and we need to decide whether we want to become wealthy or not! When was the last time you exceeded the data download of the mobile package below yours? What about the talk time? 'R\RXXVHDOOWKRVHIUHHPLQXWHV"'R\RXQHHGFKDQQHOVRQ\RXUTV? How often do you actually read the paper? Could you pick one up on your way to work instead of having it delivered?
Small changes in your monthly subscriptions can actually save hundreds of pounds which can be channelled to paying off debts.
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