Time and Money

In the harsh world of economics, the value of a person is not difficult to quantify. In simple terms, the value of a person at a given point in time is based future earnings, which is the number of hours the person is able to work for the remainder of their life, multiplied by the hourly rate the person is capable of earning.

There is a common saying; ‘time is money’ and there is no doubt the two are inextricably linked.

The corollary is that the income you earn from personal effort is determined by how you manage your time as well as by how you manage the hourly rate you earn.

Without getting too complicated, let’s look at this in a bit more detail. One of the first things to be aware of is that people are more likely to waste time than money. The irony is, because time is money, wasting time is equivalent to wasting money. Unfortunately, time is limited.

If your income comes only from personal effort, there is an absolute limit to what you can earn in your lifetime. Super wealthy people are those who find ways to make money without being dependent on personal effort, for example by setting up a business which makes money out of other people’s effort, borrowing to invest, or selling intellectual property.

If you earn a high hourly rate, spending your time doing things that someone else can do at a lower hourly rate is not effective use of your time and lowers your potential income.

If you earn a low hourly rate, it is worth spending time to look at ways of increasing your hourly rate through study, training or finding alternative work.

The ultimate winning strategy is to find ways of making income without using personal effort.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

What is your Why?

Setting your financial goals is not a simply a process of deciding how much money you need. Examples of common financial goals are:

• To save $5,000 over the next year
• To save $500,000 for retirement
• To have a passive income of $50,000 a year

Goals such as these are unlikely to be achieved. That’s because money has no intrinsic value; its value comes from what it is used for.

Unless you are clear about what purpose money serves in your life, you will never be motivated to accumulate it. Finding your purpose is simply a matter of asking yourself ‘why’.

For example, the reason why you have a goal of $50,000 passive income a year might be ‘to achieve financial independence’ . Now ask yourself why financial independence is important.

The answer might be ‘to have financial security’. In turn, the reason why financial security is important may be ‘to provide for my family’.

The trick is, to keep asking yourself ‘why’, until such time as your discover what is fundamentally important to you. Ultimately, you may uncover higher level objectives such as pride, satisfaction and personal fulfillment.

These are the things that will motivate you to achieve your financial goals.

For most people, lasting satisfaction and fulfillment come not from possessions but from intangibles such as relationships with family and friends, good health, or broadening your life experience through education and travel.

When you truly understand what motivates you and what you want to achieve in life, rewrite your financial goals to include how much money you need and why, for example, ‘to achieve financial security and independence through having a passive income of $50,000 a year’. Writing your goals in this way makes them much more meaningful and powerful and more likely to be achieved.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Get to Know your Investments

It is not uncommon for investors, particularly those in superannuation or retirement savings schemes, to be unfamiliar with how their money is being invested. All too often, there is disillusionment when the investment does not perform in line with the investor’s expectations.

In most cases, this is not because the investment has been a poor performer, but because the investor either had unrealistic expectations of the investment or did not understand the nature of it.

An investment portfolio or retirement savings scheme needs to be treated like a member of the family. It needs to be understood, nurtured and brought back to health when it isn’t doing very well.

Having a stranger in your house brings about a degree of tension and discomfort, whereas with someone you know well, you know what to expect and what actions to take. Get to know your investments so you feel comfortable with them.

This means giving them attention rather than putting them into the bottom drawer. Read the investment statement and the performance reports you receive.

If you don’t understand them, ask questions and spend time on them so you do. If you are invested in managed funds, make sure you understand what kind of assets the funds invest in.

Stay in tune with what is happening in each of the main investment sectors (fixed interest, property and shares) and the global economy. This doesn’t mean you need a degree in financial analysis or economics; it just means you need to take an interest in financial matters in the news and to have discussions with other people who are experts, such as your financial adviser, or friends with particular expertise.

Each week, take time to learn something new about investing, perhaps by reading a book or going to an investing website or blog.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Financial Advice for Kids Leaving Home

There are times as a parent when you look forward to the day your children head off into the world to make their own way. When that day comes, it often comes with worries about how your children will cope with life as adults, and in particular whether they will succeed financially.

Here are three basic principles to teach your children before they leave home.

1. Set a limit for spending on non-essentials. Money that we spend falls into two basic categories: what we spend on essentials (things we need, like housing and food) and what we spend on non-essentials (things we want but don’t really need, such as dining out or movies). The best way to keep a limit on spending on non-essentials is to have a separate bank account for it. Each week transfer a set amount into that account and keep your spending within that limit.
2. Put aside money for unexpected expenses. There are some essential expenses that occur infrequently, perhaps only a few times a year. Often these expenses are unexpected, such as medical or dental costs, or car repairs. Spending all your income every week means you won’t have money on hand to cover these costs. Transfer money each pay day into a savings account to cover unexpected expenses.
3. Stay out of debt.  By following the two principles above, you should avoid being forced into debt to cover essential spending. The worst kind of debt is money borrowed to buy non-essentials such as new furniture, televisions and computers. This kind of debt is usually short term with high interest rates and the high repayments can prevent you from being able to set aside money for unexpected expenses.

Encouraging your children to use these principles should set them on the path to financial success.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

How to Make Smart Financial Decisions

Life is full of financial decisions. Whether you are deciding how much to spend on your holiday, how to finance your car purchase, which house to buy, or how to invest your nest egg, the consequences of your choices can have a lasting impact on your financial future.

Sometimes the way things work out is a matter of luck, but rather than leave your life to chance, here’s how to be smart with your financial decisions.

• Set your emotions aside. Decisions made in a state of excitement, nervousness, fear or greed are often regretted.  Financial decisions should be based on cold, hard analysis of the information at hand. If you are not sure what to do, sleep on it, get more information or seek advice.
• Look at the worst case scenario. If things don’t go according to plan, will your financial situation still be secure? How much can you afford to lose?
• Look at the best case scenario, but don’t make it too optimistic. Make your best case scenario your most realistic one.
• Do your financial calculations so you can see in black and white what the implications are. Read the fine print so you know exactly what costs are involved and how your decision will affect your financial situation in the long term.
• Write down the pros and cons on a piece of paper and consider alternative options.
• Make sure you understand exactly what you are committing to, especially when it comes to signing documents.
• Get professional advice. It’s not always possible to know all the aspects of a financial decision or how to accurately predict outcomes. A professional adviser can help you ask the questions you didn’t know to ask and learn from the mistakes others have made.

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

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