$1 Million for Life

How to Make It, Manage It, Maximise It

Ashley Ormond

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781742168654
• Edition: 1
• Topic: Desarrollo personal
• Subtopic: Finanzas personales

Want to build wealth that will last you a lifetime?

Then $1 Million for Life is the book for you! In this step-by-step guide to financial freedom, investor and best-selling author Ashley Ormond outlines dozens of practical ways to increase your wealth by tens of thousands, or even hundreds of thousands, of dollars. It doesn't matter how much you earn-- it's what you do with the money you have that makes the difference.

Inside you'll learn how to:

• save money and pay off debts quickly
• use low-cost, tax-effective ways to invest in shares
• invest in residential and commercial property
• maximise the performance of your superannuation
• protect your investment plans and your lifestyle.

There are no get-rich-quick schemes or trading systems-- just practical steps almost anybody can take. $1 Million for Life gives you the tools to build enough wealth so you can start doing what you really want to do for the rest of your life.

Chapter 1

The problem

1.1 Life’s great!

Let’s take a snapshot of a typical Australian family. You and your partner, if you have one, are aged between 30 and 50. You have one or two kids in primary and/or high school. Family income is between $50 000 and $150 000 per annum, and you live in a nice house in the suburbs of a major Australian city.

You may have recently upgraded to a bigger house or completed some renovations — the house now has new appliances, kitchen or bathroom, a rumpus room or study, or perhaps a pool. Your house is double the size of the house you grew up in, but there are fewer people living in it. It always seems to be full of ‘stuff’ and you need all the space you have. You may even rent a storage shed somewhere to keep all the stuff you can’t fit into the house. You may pay a cleaner, gardener or pool cleaner to help look after things because you are so busy. You may also pay for child care while you both go out to work so you can buy more ‘stuff’.

There are a couple of cars sitting in the garage, and you plan to buy a car for each of the kids when they reach 18. One of your cars may be a four-wheel drive. You never take it off road and they cost a fortune to run, but it’s okay because they’re safer, aren’t they?

Schooling is expensive, as one or more of the kids go to Catholic or private school. Even though you and your partner probably went to state schools when you were kids, you feel that standards have deteriorated since then and you can now afford private schools.

On top of school fees, there are all of those extras that seem to add up — books, uniforms, ‘voluntary’ building-fund donations, fundraisers, school trips, music lessons, private coaching. Then you’re looking down the barrel at HECS/HELP (university fees) because it seems every kid in Australia wants to go to uni and study ‘communications’ (whatever that is!) because you don’t want your kids to be burdened with university debts for the next 20 years, so you are aiming to help them out financially with the fees. Perhaps you are undertaking part-time study in order to keep up in your field. The courses are expensive but you’re getting a tax deduction for the cost, and they may lead to more income down the track, so it’s okay.

You have accumulated two or more computers — it seems you need to buy a new one every couple of years just to keep up with the endless upgrades in operating systems and software you need to run. Or the old ones died due to viruses. The kids need their own computers to do their homework. Then there are PlayStations, Xboxes, Game Boys and the like, plus all the games at $80 a pop!

Everyone in the family has a mobile phone and the phone bills could finance a small country. It seems everybody needs their own phone these days. There are 20 million mobile phones in Australia — that’s one for each person across the entire country. You can’t imagine what they’re all saying to each other that is so earth-shattering or interesting, but you couldn’t dream of life without your mobile.

You have lots of audio-visual and music gear — plasma TVs, DVD players, music players, and a growing bank of DVDs because it’s more convenient and cheaper than renting them all the time. You seem to have somehow accumulated three TVs (or more). It seems that cable TV is a necessity due to the low quality and variety of free-to-air TV — so you tell yourself that it’s worth the $60 or so per month.

You take holidays to the coast or snow every few years, plus shorter trips on weekends and an occasional trip overseas. When you were a child the holidays were probably limited to the annual trip hauling a caravan up to Ettalong, Lakes Entrance, Surfers Paradise or Victor Harbour. None of that for this family — the kids would revolt!

Then there’s the dog or cat and all the costs associated with a pet — food, kennelling when you go away, trips to the vet, tablets, treatments and so on.

You may eat out (and drink) more than you know you should — both with work and with the family — and your weight has been creeping up over the past few years. All this extra food and drink costs money, and you pay expensive gym fees or a personal trainer to help you take off the weight you have put on.

You have a wallet full of credit cards that you don’t completely pay off each month; they seem to end up carrying a ‘core’ debt on an ongoing basis. But it must be okay, because you keep getting offers in the mail for limit increases and extra cards.

The mortgage is growing instead of reducing, but the bank keeps telling you that you can afford more debt on your income. So you increase the mortgage to pay for the renovations, holidays and so on, and put the other things like electronics and furniture on credit. You may have one of these great home loans with a ‘redraw’ facility or a ‘line of credit’, which means that you can redraw the mortgage back to your limit whenever you need more cash. Too easy!

Your investments outside superannuation are limited. You have a few thousand dollars in spare cash, but you need that money to pay for the next instalment of school fees, or that new hot-water heater, or new TV. You have shares in a couple of companies that a friend of a friend put you onto. Some have done well, but you don’t have the time to look into what to do with them. You may also have some money in managed funds. You look at the statements every year and the fees and commissions seem to eat away any gains in value. But it’s okay because managed funds are supposed to be good, aren’t they? That’s what the managed fund salesperson said.

Perhaps you have an investment property or two. They are ‘negatively geared’ at the moment, so they chew up any spare cash, but you have been assured that rents will eventually rise enough to cover interest and outgoings. Nobody told you that you would lose up to 30 per cent of rent in running expenses like management fees, rates, water bills, repairs and maintenance. But negatively-geared property is supposed to be good, isn’t it? That’s what the salesperson said when you bought it.

All in all, money comes in each month but it seems to go out again just as quickly with the ongoing expenses of everyday life. But you are both making good incomes, so you can afford it. All your debts, including mortgages, credit cards, personal loans, car loans and so on, total between $300 000 and $400 000. But it’s okay because the house is worth double that or more, so your net worth is still healthy, isn’t it?

You probably don’t enjoy your job as much as you once did. You probably don’t jump out of bed every morning, punch the air and shout, ‘Can’t wait to get to work today!’ Too much paperwork, too many meetings, too much fighting the bureaucracy, too much travelling, too much rushing around. Not enough thinking time, or time to actually get things done. But the money’s good and the lifestyle’s good, and you’ve got lots of ‘stuff’, so it’s worth it, isn’t it? But you prepare to battle on until you’re around 50 or 55, then retire and live the same type of lifestyle you enjoy now, maybe up the coast on the beach or on a hobby farm just outside the city. Your superannuation fund will pay for all that, wont’ it?

So, sit back and relax. Life’s great — you’re living the Australian dream!

1.2 So what’s the problem?

There is a problem with this picture, though. If you’re in your 40s now, then you probably only have around 10 years of peak earning capacity left in your current job or profession before you reach some arbitrary ‘use-by date’. However, you will probably live for another 30 or 40 years after you retire or are retrenched at around 55 or even 60 years of age. The challenge is to generate sufficient investment assets to finance up to 30 or 40 years of retirement and medical expenses, plus:

• pay off the mortgage
• pay off all other debts
• pay the kids’ uni fees and maybe buy them a car
• help the kids get into the housing market
• buy that new boat you’ve promised yourself
• go on that trip around Australia or around the world
• leave a legacy behind.

Add up all of your investments in the following table, but don’t include the following items because they are not investments:

• your house — it’s not an investment unless you rent it out to others
• money you are saving to pay upcoming bills or expenses, or to pay for that holiday or new TV
• your business, if you own one, is not really an asset if you actually work in it day to day as the main employee
• cars, boats or household items — they depreciate (fall in value) and don’t generate income.

Investments
Superannuation balance	$
Shares	$
Managed funds	$
Investment properties (be careful estimating values — if you bought flats off the plan in the last couple of years they may be worth a lot less than you paid for them)	$
Savings or education bonds	$
Shares or options in your employer company (only include vested shares or options that you can actually exercise now, and don’t forget to deduct tax payable)	$
Other investments	$
Total investment assets	$

Now, subtract all your debts:

Debts
Mortgages	$
Investment property loans	$
Lines of credit	$
Overdrafts	$
Margin loans	$
Credit cards	$
Car loans	$
Boat loans	$
Personal loans	$
Store cards	$
Money owed to friends and family	$
Tax liabilities	$
Other	$
Total debts	$
Net investment assets	$

If the total of your investment assets exceeds your debts, then you have positive net investment assets. If the total of your investment assets exceeds your debts by over $1 million, then you have positive net investment assets of over $1 million. Congratulations, you are in a tiny minority — about one-third of 1 per cent of Australians.

If your investment assets barely cover all of your debts, then you have a lot of work to do. On the other hand, if you are like the vast majority of adults in Australia, then your total debts exceed your investment assets (even including super) by a big margin. If this is the case, you are not even starting from scratch — you are starting from behind the eight-ball. You have a huge task ahead of you if you plan to generate over $1 million in net assets after paying off all your debts. And you may only have a short time to do it. You are now in your peak income-earning years and they may not last as long has you may hope or need.

How much will you need?

Over the...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Acknowledgements
• Preface
• Chapter 1: The Problem
• Chapter 2: Step 1 — Money Sense
• Chapter 3: Step 2 — Own Your House Outright
• Chapter 4: Step 3 — Superannuation (part I): How to Use Super
• Chapter 5: Superannuation (part II): Maximising Super Performance
• Chapter 6: Step 4 — Invest Outside super (part I): Shares
• Chapter 7: Invest Outside Super (part II): Property
• Chapter 8: Invest Outside Super (part III): Other Asset Classes
• Chapter 9: Step 5 — Protection in Case Things go Wrong
• Chapter 10: Step 6 — Do what you Love Doing
• Chapter 11: Putting it All Together
• References
• Index