Thursday April 9th 2020

More Money, money, money…

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Dave Reynolds International 3Let’s take a look at the financial situation of people in the United Kingdom today:

 

2% are exceedingly wealthy.

 

These are people who live in total luxury, probably own several very expensive homes, fly in private jets, possibly own a yacht and are featured every year in the Sunday Times Rich List.

Frankly I don’t aspire to have anywhere near that kind of wealth and I’m certainly not qualified to show you how to join this elite group.

5% are comfortably well off.  They live in a decent house with a small or zero mortgage, they drive a new car, and they take at least two holidays each year. They have enough money for most of the things they need, but they are not mega wealthy.  They have become financially independent and are free from debt, free from stress and free to choose.

Being able to join this group one day is definitely within your grasp.

53% are scraping along.  They struggle from payday to payday. They are just about keeping their heads above water but there is seldom any money left over for luxuries. Also, they live in constant fear of the large unexpected bill. They spend sleepless nights worrying about the future and are regularly lurching from crisis to crisis.

40% are in dire straits. Their past mistakes and failures have created a crippling burden of debt which they have not the slightest hope of paying back through working at a normal job. The crushing weight of their errors and the cumulative effect of years of overspending, wastefulness and lack of discipline have created a desperate situation. Each month the hole they are in gets deeper and deeper. Without urgent and immediate action, the outcome is inevitable. Total misery!

Now I’m pretty sure you would want to be amongst the top 7% in due course and, if you follow the plan, you certainly can be.

Once again I have to stress the fact that income from earnings alone won’t get you there….you have to start saving at least 10% of your gross income and invest it from today!  It’s passive income that makes people rich.

So here’s the plan:

 

 

1.       Take stock of your current financial situation.

 

Take a large sheet of paper or a notebook and in the left hand column make a list all of your assets. For example:-

  • The current value of your house if you own one
  • The current resale value of your car if you own one
  • The total amount you have in the bank or in savings accounts
  • The value of your investments in ISA’s, unit trusts, company shares etc
  • The current surrender value of any endowment policies you may have
  • The realistic resale value of the total contents of your home and all your possessions (be very conservative here, as the resale value will be much lower than what the replacement cost would be)

 

There may well be other things to add, for example the current value of your pension fund or any investment properties you may own etc.

Make sure you list everything you own as if you were about to turn it all into cash.

Then in the opposite right hand column make a list of all your liabilities.

  • Amount of Mortgage outstanding on your house
  • Mortgages outstanding on investment properties
  • Credit card balances
  • Personal loans outstanding
  • Bank overdraft
  • Hire purchase agreements
  • Unpaid income tax or potential capital gains tax liabilities

 

Include any other liabilities you may have.

Then add up the two columns and deduct the total liabilities from your total assets.

Hopefully your assets exceed your liabilities and you have a positive net worth. But if you have a negative value then cheer up….things are going to get better!

If you are still quite young, and are just starting out, many of these assets and liabilities probably aren’t relevant to you at the moment…but they eventually will be. The principle here is to know exactly where you stand financially.  You should do this at least once a year either at the beginning of January or the new financial year on 6th April.

 

 2.      Start saving at least 10% of your gross income.

 

Regardless of your debts and the interest you may be racking up on them you must start to save now. Not tomorrow, not next week, not next month. Now!!!

You will only accumulate wealth through passive income; income that will continue to come in even if you gave up working.  And you achieve that by making money work for you. But you can’t do that without the money to put to work!

If you don’t already have a savings account then open one at a bank or building society just to get started.  I’ll tell you shortly what you can do as soon as you’ve saved your first £500.

 

 

3.      Do everything you can to increase your income.

 

The way to do this will depend somewhat on how you currently earn your living. If you work for a company then you may need to work hard for a promotion. If you run your own business then you will have to find ways to make it more profitable.

Maybe you could do more overtime? Or get an additional part time job?

Bear in mind that if you have taken on board the things we’ve discussed in the earlier articles in this series, then it’s not difficult to make a quantum leap in your effectiveness.  It may not happen overnight but eventually the law of compensation will kick in. You will earn what you are worth.

 

 4.      Look for ways to reduce your expenditure.

 

I’m not suggesting that you shouldn’t treat yourself occasionally. That’s fine. We want you to enjoy life!  There’s nothing wrong with spending money, but don’t waste it! Look for ways to reduce your utility bills for example. Check to see if you can get a lower rate on your mortgage. Shop around to get the best deal before buying something. Don’t buy things on impulse that you don’t really need.

 

 5.      Read the financial pages of your newspaper.

 

OK I know that reading Hello Magazine or GQ is more fun…but they won’t help you make money. They’ll just make you wish you had more money!

You do need to build your financial ‘savvy’.  I don’t recommend the Financial Times because that’s heavy going and is far more focused on business finance as opposed to personal finance. The personal finance pages in the Sunday Telegraph or Sunday Times or the Daily Mail are full of information you will benefit from reading.  It doesn’t follow that the advice is always ‘bang on’ but if you become a regular reader you will soon develop the confidence and ‘know how ‘to form your own opinions. There’s so much to learn…so now’s the time to begin improving your knowledge.

 

 6.      Invest wisely.

 

There are so many investment strategies you will come across as your interest in building your wealth continues to grow.

To give you a few examples the most popular investments over the years have been in the stockmarket, property, art, wine, and commodities like gold and silver.

Each has shown substantial returns over a sustained period during the last couple of decades. So where do you begin?

Before I answer that I must emphasise that all investment carries some form of risk; some greater than others.  As your savings grow so should your understanding of the opportunities and pitfalls in investing.  You’ll never stop learning.  It’s inevitable that you’ll make some mistakes too.

If you are only now beginning to amass some capital as a result of saving 10% of your income my strong recommendation is that you begin by investing in the stockmarket.  There are two ways to do this as a beginner.  One is through what is known as a collective investment where you allow a fund manager to select the portfolio of shares. The other is to select the shares yourself. Remember this is a long term investment plan you are embarking upon so you don’t have to get in a panic if the market falls. It will eventually come back up again sooner or later.

Whichever you choose to do you should use the tax free benefits of holding your investments in an ISA. Currently the annual allowance is £10,200 a year. You can pay monthly amounts into an ISA.

I use a company called Hargreaves Lansdown which has a brilliant internet facility for investing as well as giving stacks of free investment advice.

If you prefer to choose your own shares then I suggest you select shares that pay good solid dividends that you must re-invest.

There is a simple strategy for picking these shares that I came across about twelve years ago. The returns have been really excellent…averaging over 17% a year.  If you would like me to send you details of this very simple strategy I’ll be happy to do so.  Send me an email at dr@davereynolds.com and you’ll receive it by return.

 

 7.      Be patient.

 

You are not going to become rich overnight by following this plan.  But you will become rich.

Just remember this is a long term plan, not a ‘get rich quick’ scheme. The most important thing is to never touch your savings or any of the dividends or other form of income you may receive from your investments. Regardless of what crisis may occur from time to time.

You may find it difficult to believe right now but as your capital begins to grow you will really get into finding ways to earn more and make more. You’ll actually start to attract wealth in ways you can’t possibly imagine right now.

As evidence of this there are now quite a few investors who have more than £1 million in their ISA accounts through regular saving and astute (and possibly a bit lucky) investing.

There’s more to come on’ How to get from where you are to where you want to be.’

I’ll be back soon.

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