Building Wealth Beyond This Christmas according to Peter Switzer

Christmas is a time for giving so it's time for yours truly to give away the secrets for building wealth. In reality these gems that help you get richer are not actually secrets - no one has kept them from the population at large. Reality is that most people don't go looking for them.

Step 1

The first step is to look at what's holding you back from seeing your money grow. The answer to this perplexing question is quite simple - it's you! So, the starting point is that you have to start leading yourself to make changes. Without changing yourself, nothing significant happens.

After being honest with themselves and accepting that new attitudes as well as processes have to happen, some people make the decision to find a trustworthy financial adviser.

Yeah, I know some might be saying - that's easier said than done - but I think that is a cop out. There are good doctors and bad doctors and the same goes for accountants, lawyers, plumbers and builders. By the way, many of these people charge more than financial advisers.

But I you want to make your own changes and embrace the processes of change to build wealth, so the following steps will really help.

Step 2

The first thing an adviser does is to ask the client what their goals are. So write your goals down using a timeline to retirement and then come up with an amount you'd like to have when you toss work in. So, if you wrote down a million dollars and you take 5% of that, it means you could have $50,000 a year to live on. This is a base amount and a conservative investment return but it gives you an idea of what you're shooting for.

If you're in your late 40s, then a million or so could be a decent target but I'd be shooting for at least $1.5 million. If you're in your 30s, then take it up to $2 million because inflation undermines the purchasing power of savings.

Your goals should include your desire to own a house and/or investment property and the need to pay school fees and major holidays that could be ahead. Others goals include plans for weddings and higher education for children.

Once you work out your future, then ask the question - am I on track to make it happen?

 The answer is usually no.

One thing an adviser can do is put some figures down - that's what they're trained to do - to show you where you're heading and what you have to do to make it happen. However, if you want to do it yourself and you don't think you can make those calculations, then simply follow these recommendations.

Step 3

You have to do a budget to see where you're spending your money. Then work out how you can cut back on your spending to increase your weekly savings. You have come up with a savings amount, such as $100 a week, which will give you $5,200 a year. This in turn will be invested in shares, an investment property or in paying off your home loan really quickly. This latter strategy is tax effective, as you don't pay capital gains tax on your home.

By the way, there are many ways to increase your savings and they include looking after your stuff so you don't have to buy new replacement things all the time. Buy second hand and buy items such as leather shoes that can be resoled. Also, don't rule out a second job on the weekend or a part-time business.

Remember the people who build wealth better than the average Aussie are exceptional or different people and so they do live a more unusual life.

Don't be afraid to borrow an affordable amount to buy shares or an investment property, as the interest on the loan is tax deductible. Don't get greedy and borrow too much. And work out what you'd do if you lost your job or the stock market fell by 40%.

Step 4

If you want a simple way to build up your wealth then buy a home you want to live in and then use salary sacrifice to build up your super. The experts say to retire on 66% of your final wage before you end work, you need to save 15% of your income in superannuation for 40 years! Most of us have not done this and so salary sacrifice helps us play catch up.

Getting richer is a time and regular process game. I often tell people that if someone saved $2000 a year between the ages of 21 and 30 and made a return of 9% on average, this would turn into over $500,000, even if they stopped at age 30. The snowball effect of compound interest makes this happen. On the other hand, if they stuck to their $2000 saving strategy, the end-amount goes over one million dollars!

Imagine if they actually saved $3,000 - that's $60 a week - and they bumped it up as their wages grew with seniority and promotion.

Of course, there are many ways to build wealth but finding the savings is the smart step. Then you use tried and tested methods, such as buying good quality real estate or great quality stocks that pay handsome dividends.

The main step

Don't get greedy. Don't try to get rich overnight and don't ever forget that the bigger the return offered with investments, the bigger the risk.

The great secrets to getting rich are to get started as soon as possible, create a plan, build up your savings amount, invest in proven assets and stick to the process.

Remember, be different - either pay for great insights and advice or else teach yourself everything you can to build wealth.

As the old saying goes: "seek and you will find".

All the best, to everyone, over Christmas.

Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds. www.switzersuperreport.com.au