Wealth action plan
SIX SECRETS FROM FINANCIAL PLANNERS THAT WILL HELP YOU MAKE CASH
Financial planners are no strangers to criticism or controversy, but for every bad experience there are many great advisers making big bucks for their clients. Some advisers’ strategies are barely known but extremely powerful, and sharing their secrets and strategies can help deliver Australians a brighter financial future.
In his new book Smart Money Strategy, financial planner Luke Smith says first consider your own personal “why”.
“Your ‘why’ is simply your goals,” he says.
“Many times as a financial planner I’ve sat around a table asking clients about their goals. Often they’ve never defined them for themselves or with each other.”
Goals can change, and as they do your strategies should also change, Smith says.
Here are six secrets behind adviser-assisted wealth.
BIG PICTURE PLANNING
While consumers and investors focus on their next wage or the latest stockmarket swing, advisers work on timeframes spanning many years, often decades.
MBA Financial Strategists director Darren James says advisers help people identify “what they want their life to look like”.
Big picture planning “is a cornerstone of what we do”, he says. This can include superannuation, retirement strategies, saving for homes and other lifestyle goals.
RESPECT YOUR EARNINGS
Smith says many people take their next pay cheque for granted and never think about its long-term impact.
“Let’s say you earn $80,000 a year on average over your working life. Over 42 years – from age 18 to 60 – that equates to $3.36m in earnings,” he says.
“If you think about that for a moment, you might actually do something differently and start sooner.”
RISKY BUSINESS
Everything in life comes with risk, Smith says.
“Think about the risk as well as the rewards,” he says.
“The secret to a good risk strategy is identifying the facts of a situation and making a rational – not emotional – judgment about them.”
Financial planners run clients through risk profiler tools to check their tolerance to investment volatility, but James says good advisers also have “deeper discussions”.
“The more someone is empowered to understand the financial side, the more likely they are to take a risk,” he says.
Another risk area that is often ignored is life insurance, and that
can be costly.
“Quite often we see people later in life over-insured because they keep it going unnecessarily,” James says.
HARNESS COMPOUND INTEREST
It’s been described as the eighth wonder of the world, earning interest on your interest on your interest and so on, and it’s a key reason why people with professional advisers usually end up wealthier.
Superannuation shines with compound interest because of its long-term nature, and investment strategies can deliver similar results.
“At the end of the day you are not working for every dollar you earn,” James says. “It’s money working for you outside your own personal exertion, and it keeps building.”
SPEND LESS THAN YOU EARN
Financial planners see many highincome earners who funnel every dollar of their wage – sometimes more – into their lifestyle. Regardless of how much you earn, the ability to manage what you earn and spend makes a big difference to the financial planning strategies you can use,” Smith says.
“If you haven’t spent some time listing out your income and expenses lately you probably should. It’s even more important in the environment we find ourselves in right now with the rising costs of living.”
STRATEGY STACKING
Smith says target more than one financial strategy at a time. So rather than focusing solely on debt reduction, you may also examine cash flow, risk assessment, regular investing and rewarding yourself.
“There is a mistake in trying to stack every financial planning strategy you can, thinking it will do more for you,” Smith says.
“In fact, it could result in an overly complicated and unstable stack. You also need to stack your financial planning strategies in the right order.” For example, making large, extra super contributions may not be the best strategy if you are paying off high-interest debt.