One in three Australians invested for the first time in 2021, according to research by Canstar. If building wealth is one of your goals for 2022, our money expert Effie Zahos gives her top five tips to help you get started. Credit: 99Art/Shutterstock.com. Canstar’s Consumer Pulse Survey revealed that while a large number of people started their investing journey last year, only around two in five Australians (39%) responding to the survey said they thought they were on track to reach their retirement savings goal.
Of course, investing on its own may not be enough to help you build wealth. It’s just one of five steps Effie suggests for people who are keen to set up some good financial foundations on which they can grow their wealth.
> Get on top of your spending
Build a cash cushion
Start (or continue) investing
Supercharge your super
Get a helping hand from technology
1. Get on top of your spending
“It’s not what you earn that matters, it’s what you spend”. Effie says this is one of the money lessons that has stuck with her throughout her 25 years of working in finance.
“I’ve met people earning a ridiculously high income, and they don’t know where their money is going and they’re living from pay to pay ,” she explains. “Then I’ve met others on a much more modest income, but because they manage their spending , not only are they putting food on the table, they’re putting their kids through school, they’re saving, they’ve bought an investment property.”
According to Effie, analysing your past spending can be a smart way of getting to grips with future outgoings.
“Have a look at what you did last year. Go through your bank statements and highlight the things that make you stop and think ‘I spent that amount on THAT?!’”
This exercise can help you identify the areas where you can cut back easily, Effie says. She also recommends trying to better understand your own money habits and behaviours as a way of getting on top of spending and your finances overall.
Creating a plan to pay down any debt you have, such as personal loans and credit cards, as quickly as possible could also be a helpful step at this stage. 2. Build a ‘cash cushion’
“While I hate the thought of leaving money sitting in the bank doing nothing, I keep a healthy amount in a cash account,” Effie says. “We saw what happened early in the pandemic when some people were withdrawing money from their super because they didn’t have a cash cushion.
“Having that cash cushion empowers me because I know if I lose my job tomorrow, I’m okay, I’ve got that money.”
Effie says it can still be wise to take an active approach here, by regularly reviewing where your emergency fund is parked.
“I move it around to chase the best rates , which are often introductory rates that only last about four months. Otherwise, it can just sit there not earning anything.” 3. Start (or continue) investing
“Don’t expect money in the bank to make you rich,” Effie says. Instead she explains that investing and taking advantage of the potential for long-term compounding returns can be a key step towards building wealth.Effie invests in a mixture of exchange traded funds (ETFs) and in individual companies’ shares , but says the approach that works best is different for everyone depending on their circumstances.The important thing is to get into the habit of investing regularly over time, as this can be a powerful wealth-building strategy. To illustrate this, the chart below shows how much wealth a person could have built up by investing different amounts each week over the past 10, 15 and 20 years, based on the returns of the S&P/ASX 200 index (made up of the shares of Australia’s largest 200 public companies) over those time frames. Investing regularly over time Remember, though, that these past returns are not an indication of what future returns will be. Investing can be risky and the value of your investment could fall. It’s important to note, too, that there are other types of assets you can choose to invest in , not just shares and ETFs. If you’re unsure which approach will be best suited to you, consider speaking with a financial advisor. 4. Supercharge your super “Super is the most effective wealth creation strategy as far as I’m concerned, because it forces you to save,” Effie says. “And let’s face it, most of us need to be […]
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