“Imitation is not just the sincerest form of flattery – it’s the sincerest form of learning.”
– George Bernard Shaw
The smartest way to achieve any goals in life, whether they be financial or otherwise, is not to reinvent the wheel, but rather to identify those who’ve already achieved those goals and mimic their behaviours. While many people would like to achieve complete financial freedom as early as possible in life, very few people actually make it. This week we explore the behaviours of the wealthy, of those that have truly ‘made it’ financially so that you can start to implement some of these in your day to day lives.
We have compiled this list of top money behaviours from our clients, interviews with those that have achieved financial independence, and previous reports to identify those tips that we feel most resonate with us and our clients.
1. They know that TIME ≠ MONEY
1 year, 12 months, 365 days, 8760 hours, 525,600 minutes, 31,536,000 seconds – this is the amount of time that each of has to make the most of each year and decide how to allocate. Nobody is given more or less, so the difference between those that are financially successful and those that aren’t surely must lie in how this time is spent. The key difference between these two groups is that the wealthy understand that they can leverage their time. We’re not referring to leverage as borrowing money to invest, but quite simply knowing how your time can be put to its most efficient use. Recognise that you can not and should not try to do everything yourself, your time is valuable and should be put to its most profitable use. You can always employ others to handle the tasks that do not provide enough of a return on your time invested.
Pro Tip: Start making notes of how your time is spent each day and do so for a few weeks. There are many apps that you can use to do this or you could create your own Excel spreadsheet or simply keep a notepad. Once you’ve tracked how you spend your time each day and week, start to analyse what percentage of time you spend in different areas. You may quickly identify that you’re spending too much time watching television, or that you’re not allocating enough time to spend on growing your business. Start setting goals for each area of your life and continue to track your progress – you’ll be amazed at how quickly you can generate your results by simply re-allocating your time.
2. They leave the EMOTIONS at the door
Fear and greed are two of the key emotions that impact investment returns and lead to poor financial decisions. This is evidenced each year by the DALBAR study, which is published to reflect just how poorly the majority of DIY investors perform relative to the markets. Those that have achieved financial independence and are truly wealthy know how to avoid fearing change, being concerned about making mistakes and the fear of failure. They have developed processes to put in place to conquer these fears and remain objective when making financial decisions and you can too. Note that this doesn’t mean they blindly proceed down any path that looks exciting, but rather that they have a strict set of criteria for their financial decision making, thereby removing emotions from the equation.
This could be through employing external experts to ensure you remain on track and remove the emotions, or defining your decision making process to remain objective, or a combination of the two.
Pro Tip: Develop your own set of criteria to guide your financial decisions, or if you’re not comfortable in doing so or don’t have the time, employ a trusted Adviser to provide this role for you. By removing emotions from your financial and investment decisions, you can ensure that you remain on track to achieving your financial goals.
3. They take CALCULATED risks
Wealthy people recognise that true financial reward takes some risk, and we are not referring to heading down to the casino with your retirement savings, or playing the lottery every night with the hope that you’re going to be that 1 in 14 MILLION who takes home the jackpot. Truly wealthy individuals and families know how to calculate the risks of their financial decisions, or employ experts who do, and make objective decisions about whether they are happy to proceed or to wait for other opportunities.
Do you know how much risk you are currently taking on with your investment strategy? More importantly, do you know how much risk you’ll need to take on to achieve your financial goals, whether they be retiring comfortably on the beach in Australia, saving for your children to attend university or setting sail around the world…?
Pro Tip: Be sure to have a clear understanding of both how much risk you should be taking on to achieve your financial goals, as well as how much risk you’re comfortable taking with your investments. It’s also important to continually track the risk of your portfolio and overall personal balance sheet. Different asset classes perform differently over time, and you may find that you’re in a position of taking far more or far less risk than you should be.
4. They recognise their STRENGTHS and OUTSOURCE the gaps
It is true that there is a price to pay for true wealth and those that are truly wealthy clearly understand this, and more importantly, ACT on it. It’s important that you engage a team of finance professionals to help you remain on track to achieve your financial goals. This includes hiring an experienced and trusted financial planner who works with clients that fit your demographics, an accountant familiar with Australian expat strategies and rules, an estate planner and in some cases, legal counsel if and where required. There are certainly areas of your finances for which you can employ a DIY model, but the expertise and professional guidance of your finance team will allow you to avoid the common pitfalls.
Pro Tip: When you’re searching for your own finance team, and particularly your trusted financial planner, be sure to understand exactly where their incentives lie and that they genuinely have your best interests front of mind.
5. They understand that TRUE WEALTH is not created through SAVING
Let’s assume that you want to generate a retirement income of $200,000 per year, and we’ll ignore inflation for now, as this will only increase the figures. To achieve this income, you would need approximately $4M – $5M in your retirement portfolio, which is by no means a small sum of money. If we assume that you’re currently 45 and wish to retire at 60, then you have 15 years to amass your retirement sum to achieve your financial goals.
To achieve this goal, assuming an annual growth rate on your savings of 5%, you would need to save approximately $190,000 every year up to retirement, a task that for many is unlikely and in some cases, genuinely impossible. The truly wealthy clearly understand this and know how to utilise leverage (borrowed funds) to grow their asset base in a sound and strategic manner. It’s important that you clearly understand all of the risks and work with professionals with whom your interests are aligned to help you grow your asset base in the right way.
Pro Tip: Where you are seeking to take on leverage, be sure to model your strategies to factor in changes in interest rates, and also explore what exit strategies are available to you. Leverage will typically magnify both gains and losses, so it’s important that you have a sound understanding of both.
6. They remain focused on their NET WEALTH, not their income
To really highlight this point, let’s start with a simple case study.
Stuart is a Managing Director in Singapore and earns a salary of $600,000, plus an annual bonus of $200,000, taking his annual income to $800,000 before taxes. On an after tax bonus, Stuart’s net income is $662,650. Every year, Stuart spends $650,000 on family holidays, entertainment, school fees and a range of other expenses.
Mary is an IT Director in Singapore and earns an annual salary of $180,000, without any annual bonus. Her annual net income after tax is $163,650. Mary has put in place a regular budget and on an annual bonus, spends $80,000.
Stuart is left to save just $12,650 towards his retirement and other financial goals, while Mary is saving $83,560…over 6 TIMES what Stuart is currently saving despite his income being much higher. Mary knows that in order to achieve her financial goals she must ensure her personal financial plan allows her to do so, by saving and investing on a regular basis, and diversifying her portfolio across the key asset classes.
Pro Tip: Far too many people operate with the assumption that they just can’t afford to save any of their income but that they’ll get around to it when they earn more money. This ‘head in the sand’ approach isn’t going to work, and you’ll simply find that your expenses will typically climb in line with your income. It’s important to remain disciplined toward achieving your financial goals, and continue to monitor where you can be making savings.
7. They know their ‘MAGIC NUMBER’
‘If you don’t know where you’re going, any path will take you there’
If we do not know how much we need to retire and achieve our financial goals, how can we ever hope to get there. For some, they choose the ‘head in the sand’ approach, being afraid that the number will be too large and they’ll never have any hope of reaching it, while others are just simply too ‘busy’ to sit down and outline their financial plan. The wealthy, on the other hand, spend the time to clearly identify and map out their financial goals. They know exactly how much they need to achieve their financial goals, whether it’s to only have to work part-time to live the lifestyle they desire, or to own holiday homes and ski resorts and spend the rest of their time travelling the world.
Pro Tip: Sit down with your partner and financial planner and truly explore your goals in retirement or financial independence. The earlier you start exploring how much you’ll need to have saved by the time you retire, the easier it will be to get there.
8. They ensure that their money is WORKING HARD for them
How are your funds invested? Could it be improved? While the wealthy recognise that true wealth comes with a price, and that it is clearly beneficial to engage the professional services of a trusted financial planner, they also have a clear understanding of exactly where their money is going and why. They review their investment strategy on a regular basis and ensure that they remain on track to achieving their financial goals, in both the good times and the bad. They also understand how to benchmark their portfolios correctly and compare apples with apples. It is all too common for many investors to compare their conservative portfolio with their friend or colleague’s high growth investments and wonder why their investments haven’t grown as much.
Pro Tip: Set relevant benchmarks for your own investment portfolios, and continue to monitor over time how you’re performing. Also be sure to allow for enough time to pass to truly measure your performance, as to track a portfolio of equities over a 3-month or even 12-month basis and make comparisons, you may find that you draw skewed conclusions.
I hope you find these tips helpful and are able to implement some of them into your own lives.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.