In his latest book, Sort Your Money Out & Get Invested, former financial adviser and host of the top-rating My Millennial Money podcast, GLEN JAMES, provides a practical, no-bullshit guide on changing your money mindset and getting your finances on track. In this edited extract he takes a look at investment and common ways you could become wealthy…
As humans, we are wired to take the path of least resistance where possible. Think of all the innovation that history has presented thus far — it’s all about less work for more. It makes sense. I’d rather say, “Hey Google, turn off the TV!” Actually, if you’re an ’80s child you may remember when your family got their first VCR (that’s a video cassette recorder, if you’re under 30) with a remote… on a wire that wasn’t long enough to even reach the lounge.
Usually, more times than not, wealth happens in the following ways like solving people’s problems (think Microsoft’s Bill Gates or Amazon’s Jeff Bezos), by creating a product people find pleasure in using (think Instagram) and by creating a product to fill a need in the market (think Melanie Perkins of Canva). These are extreme examples and I actually hate using them because they are ‘unicorns’. So let’s learn some garden-variety ways you could secure your financial future.
MANAGE YOUR MONEY WALL
Building wealth is all about wealth-based habits, and good money management is a key habit to include in your long-term plan. Part of managing your money well is learning good money habits day on day, week on week. To manage your money you need to take stock of the waste in your life; understand that it begins with a habit, not an amount of money; get on the same page as your partner if you’re in a long-term, committed relationship; and take small steps and celebrate the wins.
BUY AND HOLD ASSETS FOR THE LONG TERM
Investing is all about choosing your strategy, making the moves to suit, then sticking with your strategy to see it through. Changing your plans every two minutes won’t bring about lasting results. Think of the concept of a money tree: plant it, water it, give it some sunshine, throw on some fertiliser and let it grow. Don’t pull it out of the ground, check the roots and replant it every day — let it do its thing. For now, keep in mind that you should not start investing in growth assets until you have your foundations in place; ensure you have a clear strategy: if things change, you won’t be able to hold an asset for the long term; and understand that your investment does not have to be complex to be a good investment for the long term.
HAVE THE MINDSET OF AN INVESTOR, NOT A SAVER
A principal we’ve heard many times is ‘save, save, save’. Maybe that’s something you learned growing up. The problem with having cash savings is you may be tempted to transfer money out and buy stuff. I want to challenge your thinking to be more about making your dollars work for you, for example, invest into a good diversified fund (it doesn’t have to be complex) and just keep pumping it. I urge you to make the decision right now that you are an investor, not a saver; remember that you’re already an investor if you have retirement savings; and gamify your investing by adding to your investments and enjoying seeing your account balance grow over time.
SET GOALS
You need goals. Without goals you have no framework or direction for a strategy. Whether it’s a new small business you want to build, aiming for a renovation on your house, a holiday a new career or study. Keep your goals relative and relevant. Double-check your goals: are they actually yours or do they belong to an influential person in your life? Check the order of your goals: your first goal might need to be a career move or house deposit. Finally, bounce your goals and the order of your goals off a trusted friend, family member or mentor.
SPEND LESS THAN YOU EARN
Get to the basic minimum of what you need to live and see where you stand. Can you think of one or two small habits you could adopt to change your behaviour so you don’t default to spending without thinking? Get to know your money personality; become self-aware. Catch yourself before your natural spending habits kick in. Set time between big purchases or make sure you have thresholds. If you’re unsure whether you’re spending more than you earn, look at your savings and investments to see if they are they growing each year.
It’s important to define what ‘rich’ is to you. Big income does not mean big wealth. Sounds basic, but it’s essential to know. Make the most of what money you have, whether that’s heaps or not much at all.
Get Started With Share Investing: THE VERY BASICS
I believe you can start investing when you are consumer debt free, you have a spending plan in place, a cash reserve and possibly some short-term goals nailed. You should only invest in things you understand and it’s not worth starting anything until you learn some basics — so here we go…
OWNERSHIP OVERVIEW
Without a doubt, if investing is for the long term you need to understand the ownership of your investments because if you have to sell or move these investments, it could have tax consequences. Further, ownership structures can be important for year-on-year tax efficiencies, asset protection and ease of management.
Direct ownership could be seen as the most beneficial way to own your investments as you have the most control over the long term. In some cases, it will mean you need to keep your own records (see below) and to compile statements for tax (which is easy). With direct ownership, you have control over the asset. If your broker ceases to exist, you just change brokers and your holdings will appear in your new broker login. The only risk is the underlying investment itself (investing in companies with a long-term track record can help reduce this risk).
UNDERSTANDING FEES AND COSTS
It’s actually OK to pay fees. While fees matter, nothing is free and companies who advertise ‘no fees’ may well be making their money out the back in the shadows (with buy/sell fees or other up-selling activities), a fee that does not need to be disclosed (yes, this is real!) or some marketing loss leading strategy to get you into their echo system so they have a database to sell to. You actually want your investment product and product providers to make a profit. This ensures their business model is around for the long term and you can count on them when you need to (i.e. drawing down your investments).
There are no investment or superannuation products available to purchase in Australia that have built-in hidden commissions to either the fund manager or a financial adviser. Thankfully, it’s no longer the 1990s when it comes to investment product transparency in Australia. If you’re going to get screwed by fees, at least they tell you how much you’re getting screwed for.
PLACING YOUR FIRST TRADE
You will need to decide if a one-stop shop or investment platform suits your circumstances, or if you’ll be using an online broker and have to place trades yourself. Placing your trade online is as easy as selecting your stock, choosing your order type, choosing the quantity or value, selecting a price type, entering an expiry date and reviewing your order. Before you click ‘go’, you’ll be able to review your order to confirm that you do want to commit to the trade. You’ll also be able to see how much cash is in your cash account, approximately how much the trade will cost and any brokerage costs.
It can take three business days for your trade to settle. Some brokers will instantly show your trades in your portfolio. However, there are others that you may not see until after the three days. Likewise, when you sell you won’t have access to the proceeds until after three days.
RECORD KEEPING
Record keeping is a big part of your investing life. Those financial years come around very fast. If you’re not using an app, you’re going to have to track the name of investment and ticker (e.g. CBA, VDGR, IVV), the date and amount invested (including number of shares in company or ETF purchased), the amount of brokerage for each trade, the share price for each share or ETF purchased, the date and amount for additional investments (including number of shares and price), the date and amount of dividend. If it’s a dividend, record the dividend reinvestment date; if you’re selling shares, record the date of sale, number of shares, share price and brokerage.
The share registry will provide records such as the dividend information and this can be accessed online via the registry online portal. There’s no good reason to keep your long-term electronic records stored locally. I think it’s appropriate to have a folder for each financial year and within that a folder for each holding. This will help with year-on-year income taxation. I would also suggest a folder that is just used as a record of share purchases. ■
ABOUT THE AUTHOR
Glen James is a retired financial adviser with experience helping countless people get on top of their finances and is host of the top-rating My Millennial Money podcast. With his own personal financial success behind him, Glen has a passion to help people achieve financial freedom as he has. He speaks to regular people and financial planning professionals at various events nationally and is a regular contributor to a variety of national money publications. For more info go to sortyourmoneyout.com or follow the Instagram account @mymillennialmoney
SORT YOUR MONEY OUT & GET INVESTED by Glen James (published by Wiley, $32.95rrp), is available where all good books are sold
For the full article grab the November 2021 issue of MAXIM Australia from newsagents and convenience locations. Subscribe here.
