Analysis Paralysis!
If you want there to be a lot to think about in your financial world, then there will be. We know the media will try to sell us fear and advise us (poorly in our opinion) as to what we should and shouldn’t focus on. The financial industry and all its players try to suggest that making smart money decisions is a complex matter, where you need them to solve your problems or find that needle in a haystack investment that will make you rich.
If you pay too much attention to these parties you’ll likely end up going around in circles chasing your tail and become stuck with analysis by paralysis.
The good news, however, is it doesn’t have to be this way. We suggest you start by blocking out all the noise and opinions and follow a simple pathway that works, a pathway designed by highly qualified independent money experts - psst, that’s us!
We always try to keep money matters simple for you. That’s not because any of us are simple, far from it, it’s because when it comes to money what’s simple really does work!
Here’s a reminder as to what we see as four of the most important items you need to take care of. Do these things well and you’re well on your way to bulletproofing your financial world.
- Pay yourself first
Paying yourself first is an absolute must! Just about every single independently-minded financial guru will tell you it’s the golden rule for anyone wanting to be financially successful. When you get paid you need to take some of your income and put it away for your future ON THE DAY YOU GET PAID (it’s not to be spent!). No ifs or buts, just do it!
- Rainy Day money
Just like paying yourself first, a well-stocked Rainy Day fund is a foundation of your financial house and is essential during uncertain times. Three to six months of your household essential expenses is the goal here. Remember: We don’t need to cover discretionary spending, just the costs that you need in order to survive. This cash reserve should ideally be stored in either your mortgage offset or redraw account, or otherwise a high-yield savings account. Unexpected financial emergencies have a habit of coming at the worst of times. This is your get-out-of-jail card!
- Renegotiate your mortgage
We’ve beaten our drum to death on this one and with good reason. Ensuring you are getting a good deal when it comes to your mortgage WILL make a huge difference to how much money you end up paying the lender and how quickly you can become debt-free. It is therefore paramount that you ensure the interest rate and other costs you’re paying the lender are not only competitive but the best you can get in the current climate, whilst ensuring that the loan addresses your needs.
When you succeed here, the savings will further enhance your ability to pay yourself first as well as building up your Rainy Day fund. We hope you can appreciate why we stress the importance of making the effort to tackle this task.
Put it this way... paying a lower interest rate on your mortgage is free money!
IMPORTANT: Please speak to your mortgage broker or do your due diligence prior to changing loan products. The ideal outcome here for most people is your existing lender simply lowers the interest rate with no change to your mortgage product. Refer to our Wages to Wealth program or past MiMs for more guidance on this.
- Stay invested
Just like nature goes through seasons, so does our economy. The only certainty we can be sure of is that our economy goes up, down and sideways. During a downturn like we are sure to experience (again and again), far too many people get spooked and feel like they need to do “something”. This is incorrect and often results in people selling off their investments when it’s the last thing they should be doing. We know investing comes with risk, but if you understand why you’re investing and for how long, and you’ve diversified your investments, the risk is significantly reduced, i.e. just like every other aspect of life, the risk can be managed. There’s very likely much more needless risk in selling, potentially placing your goals, maybe even your retirement, at great risk. To make matters worse, there are often tax penalties, locking in of losses, and likely the loss of future capital growth when the season changes (as it has always done). We hope that when you add up all the disadvantages of pulling your investment out of the market early, it should overcome your fear of any volatility. Remember, volatility is normal!
There you have it, four hopefully simple action items for you to focus on. Forget all the noise and all the opinions. These actions done over and over will see you combat nearly any downturn in the economy or change in your personal circumstances.
If you haven’t yet deep-dived into the Wages to Wealth program, you should. It’s got everything of importance you need to know and do, based on all the learnings we’ve collected over our decades of experience as independent money experts.
Cheers,
Dan and Dave
