The first step in becoming a millionaire
– This blog was first published on The Hip Pocket –
From that glorious moment you receive your first lump sum in the form of pocket money, you begin to make financial decisions.
At that point, these decisions may involve choosing between saving that exciting gold coin in your piggy bank, or using it to buy candy, a bouncy ball, or even a fidget spinner. If only our financial decisions could remain so simple throughout our lives!
Fast forward to adolescence, and a regular paycheck may be coming in, increasing the complexity of your financial decisions. Add a university degree to the mix, and now we have debt. Include our savings account, and we’re now making choices between saving to accrue a low interest rate, versus the opportunity cost of investing that cash elsewhere.
And it’s at this point – the addition of opportunity cost – that suddenly our financial decisions are as infinitely complex as the number of investment products and assets that exist.
Managing the complexity
When it comes to financial planning, many Australians falsely believe that seeking professional help is only needed once you’ve already accrued vast sums of wealth, have a complex financial set up, or are old enough to have to begin planning for retirement.
But often, the greatest wealth is built by developing a mindset from the very beginning that you will be wealthy, so a proactive approach is needed from the outset. And seeing a financial planner at this early stage doesn’t have to be time-consuming or expensive – it may even involve just one simple session to set you off on the right track.
As the saying goes, “Whether you think you can or whether you think you can’t, you’re probably right” (thanks, Henry Ford). So, deciding you will be wealthy means you should begin planning for this inevitability – now.
Below are three more reasons why young Australians might benefit from seeing a financial planner early.
1) It sets you up for success
It probably goes without saying – it’s impossible to achieve goals you haven’t actually set for yourself. And you may be surprised to find that “being really, really rich” isn’t actually a goal!
The earlier you can work out what you want out of life, the earlier you can develop short and long term goals that will help you to achieve this. This will also give you confidence that each financial decision you make along the way each day is contributing to you achieving your goals.
As an example, if your end goal is to retire at 50 with a dozen investment properties, your current priority might be to enter the market as soon as possible. This would mean delaying repaying your university HELP debt, as the interest rate on this debt is probably lower than the current rate of property market growth – even though intuitively you may have thought repaying debt should have been your first priority.
If you have no interest in property, on the other hand, paying off your HELP debt may be far more important. It’s all about working out what you personally want to achieve.
2) The experts want you to start early
It was Albert Einstein who apparently said that “the power of compound interest is the most powerful force in the universe.” Good call, Einstein! Because the benefits of compound interest increase over time, it goes without saying that the earlier you can begin tapping into this super power, the more wealth you will be able to create.
But this approach isn’t just limited to compound interest. It can apply to all types of investing. The world’s most successful investor, Warren Buffet, said that it’s “the investing you do systematically and consistently over time will make you wealthy”.
And who are we to argue with the experts? Start early, take a long-term approach, they say. And set yourself up to succeed.
3) You don’t have enough time not to
These days, in a world of information overload and seemingly unending choices, we are faced with almost never-ending demands on our time.
So, it’s becoming increasingly important to outsource as much as possible of our non-core tasks that we can’t complete efficiently or with confidence.
As an example, if it will take you days – or even weeks – of research to make a certain decision, doesn’t it make more sense to outsource that decision to someone who already has the answer? This is basically what a financial planner can do for you.
When you purchase an hour with a planner, what you’re actually buying is decades of experience, training, and education. That’s a pretty good deal with you think about it!
Working smarter not harder may be an overused saying, but that doesn’t make it any less true.
So, what are you waiting for?
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Katrina Haskew is Managing Director of Leading Advice
DISCLOSURE: Katrina Haskew & KGH Financial Pty Ltd trading as Leading Advice ABN: 52 146 015 885 is a Corporate Authorised representative of Millennium3 Financial Services Pty Ltd ABN: 61 094 529 987 Australian Financial Services Licensee No. 244252. | 7/50 Borthwick Ave Murarrie QLD 4172
The views expressed in this publication are solely those of the author; they are not reflective or indicative of Millenium3 Financial Service’s position, and are not attributed to Millenium3. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.