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Reaching Financial Success

5 Tips for Financial Success

Reading time: 2 - 4 minutes

What are they? We've put together the top 5 tips for helping reach financial success...  

Tip 1: Whats right for you is not right for someone else.

The biggest tip is to ignore the hot tips and helpful hints you might hear from friends, family and even the media, and chart your own course.

Your decisions need, first and foremost, to be about your time frame, age, risk appetite (read "willingness to lose your money") and your reasons for investing - the early retirement, the boat, the trip to Antarctica.

Once you have a clear picture of those things, you can set about dividing your money into appropriate portions across a range of assets along the risk continuum.

Tip 2: We all make bad decisions, and when money and emotion are together, it gets worse.

Once you have split your portfolio among the asset classes (then split it further among a big enough selection of top investments within those assets), you need to do your best to leave it there. Not necessarily in particular investments, but definitely in the assets.

You need to get a grip on your fear and greed so you are not panicked into selling at the bottom or lured into buying at the top.

Tip 3: Regular and early saving is your ticket to future wealth.

Lets say you manage to stash away $100 a month from age 30 - thats probably the equivalent of cutting out one coffee or sweet treat a day - and earn a pretty realistic 6 per cent average return on it. By 55, you'll have more than $70,000. Better still, what you have actually squirrelled away represents less than half that figure - most is earnings during that time. But wait 10 years before you start and to reach the same balance, you'll need to save $240 a month. You'll have to save $43,000 of your ultimate $70,000 yourself.

Procrastinate another decade and you'll need to find a painful $1,000 a month to total $60,000 of your $70,000.

The sooner you start, the easier building wealth is. And the less you have to rely on big returns - and the extra risks they entail - to get you across the line.

Tip 4: Debt is like quicksand.

One of the best money moves you'll make is to get rid of personal debt. That means credit cards, personal loans and mortgages - anything for which you don't earn tax deductions. This is a tax-free, risk-free effective return equal to your interest rate, which - on even the cheapest form of debt, your mortgage - will be higher than you can earn in a savings account.

If you're on the top tax rate, you would need to earn about 11 per cent on an investment for that to be a smarter strategy than simply paying down your mortgage (based on a 7 per cent variable rate).

Tip 5: You've got to be in it to win it.

There is a real danger right now that investors who have been burnt the most in the market downturn of the past five years will struggle the hardest to rebuild balances. This will happen if they become too risk-averse and shelter too much money in low-risk, low-return investments to preserve whats left. Sure, every portfolio needs this component to anchor returns. But after inflation and tax, it can be very unrewarding indeed.

Please note that nothing in this post constitutes financial advice and you should seek the advice of a professional licensed under AFSL regulations.

Thanks to Nicole Pedersen-McKinnon and SMH for the R&D

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