by Scott Pape - February 2nd 2008
The Ab-Blaster is already gathering dust, and my resolution to make it a “dry January” lasted till the first day of the second Test. Yet while I might never summon the discipline for a six-pack (abs or beer), one win I can bank on each year is making the most of my money.
Today, I’m going to walk you through a simple plan that will set you up for a cracker 2008 – and best of all you can get it done in under an hour. Feel free to rip this page out of the paper. Share it with your family and friends. Completing it could make you thousands.
The first week back at work can be tough, especially if you haven’t seen your colleagues since 3am the night of the Christmas party. To ease your way into the working year and muster up some motivation, take a look at your annual (post-tax) salary, and decide where you want it to go this year.
Sweat the small stuff
The trick to maximising your money is to sweat the small stuff. Most of us think our money goes on the big items: mortgage repayments, car loans and groceries.
Yet it’s also true that most of us spend thousands of dollars on things that have little to no value, and have zero effect on our long-term happiness – fast food, embarrassing mobile phone bills, bank fees, Ab-Blasters and credit card interest, to name but a few. The start of the year is a great time to consciously move this money to passionate pursuits.
Online high-yield account
Most of us don’t get paid in a yearly lump sum, so once you’ve figured out (a) how much you waste, and (b) where you really want it to go, set up an online high-yielding bank account and get your paymaster to direct debit a set amount into this account each payday.
If you’re thinking of glossing over this step, work out how much you earned (post-tax) last year, deduct your rent or mortgage payments, and spend five minutes thinking about where the rest of the money went.
Buy shoes
Next, buy some shoes. As Barefooters this is more about the box than acquiring pretty pumps.
The shoebox becomes your highly unsophisticated financial filing cabinet for 2008. Every time you receive anything that relates to money throw it in. Everything will be in the once place, plus next year you get another pair of shoes.
Nice.
As you’re completing this overview, you may notice that a large chunk of your change is paying off some bank executive’s BMW.
Australians are among the most heavily indebted people on the planet, and if you’ve got more than your fair share it’s time to take some drastic action.
This is not the year to have personal debt.
Stop spending. Don’t go out. Brown bag your lunch. Hang up the phone. Sell the Ab-Blaster (and anything else you haven’t used in the past six months) on eBay. Pay your bill in full. Escape the cult of credit once and for all.
Review investment portfolio
The next step in getting your money sorted for 2008 is to review your investment portfolio. You’d be forgiven for thinking that you don’t have much of an investment portfolio left after the media beat-up over the past few weeks.
Scary media reports about investors “losing” hundreds of billions of dollars were often followed the next day with news about investors “making” hundreds of billions of dollars when the market rebounded.
Unless you’re a sheep that enjoys being shorn, don’t base your financial decisions on reports from the rear-view mirror – it’s simply financial porn.
Short- and long-term
Put things in perspective – the market has had a great run over the past few years – property has done even better. Yet no asset continually climbs in an upward direction.
Just as they do when scoring a date to a dance, greed and fear drive markets in the short term (which explains why booms and busts are part of the economic landscape).
Long-term our economy is underpinned by the growth in China, but it’s not all one- way traffic. China could be derailed (albeit temporarily) by the global debt binge that has engulfed the Western world – especially with the US entering a recession.
At this point in the economic cycle it’s important to take a good look at your investments and discard anything you don’t understand.
Top of the list should be unlisted debentures, stock tips gone cold, managed funds charging more than 2 per cent a year and investments that use a high degree of financial engineering to turn a buck.
If you have borrowed to invest, take a look at how you’re financing the asset. During booms salesmen invariably sell interest-only loans for property, but this might not be the best strategy going forward.
Determine your ROI
Next, take a look at the real returns on your investments (after all outgoings), and then compare them to the fully franked dividends the banks are paying.
Go against the grain. Start putting some cash aside (about 10 per cent of your take-home pay is a guide) so that you can weather the storm when it comes. Just like your goals account, set up another online high-yielding saver and start the direct debits.
Sort your superannuation
Next sort out your superannuation. Go to the tax office website and consolidate all your superannuation funds into one account. Make sure the fund you choose has low fees (and no trailing commissions paid to a salesman), and strong historical returns.
Take away your age from 100 and that’s the rough percentage amount that should be allocated towards growth assets such as shares. Completing this simple step will ensure you don’t dine on a diet of dog food in your golden years.
Insurance is the only thing you spend your money on you’ll hope you never use (other than the Savage Garden CD you bought for your mum), so review all your policies and make sure you’re fully covered.
Check to see if you can save money by direct debiting your payments, increasing the excess you pay in the event of a claim, or both.
While K-Rudd and the Swanster are doing their best to beat Costello’s parting gift of rising inflation, don’t put too much faith in their 30-second news sound-bites about the economy being “resilient”.
With oil pushing a $US100 a barrel, interest rates on the rise and an impending US and Japanese recession, your best investment this year is by taking an hour to ensure you make the most of 2008.
Tread your own path!
Photo: www.flickr.com/photos/blueturbanphoto/4383503326/
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