Money focus: Where do I start?

Each week we ask a question to help you focus on an area of your finances that might need a closer look. This week: Where should I start building wealth?

You know you want to make changes to improve your financial health, but you have no idea where to start. That’s completely understandable because personal finance can seem very complicated. There are hundreds of options to save more, make more and invest more. So, where exactly do you start building wealth?

I’m going to let you in on a secret that financial advisers know: money is actually not that difficult.

The basis for any wealth accumulation is as straight-forward as “spend less than you earn”. You can add a couple of extras to that: “save first, spend second” and “invest your savings”.

Spend less than you earn
Save first, spend second
Invest your savings

Let’s break those three points down to give you a proper jumping-off platform to dive into your new wealthy life.

1. Spend less than you earn

This is the fundamental truth of any budget and the foundation you need to start building wealth. You don’t want to spend every penny you make, and you certainly don’t want to spend more than you make. Each month, you want to have money leftover so you can start to put it towards wealth creation.

Easier said than done, right?

Well, there are two ways you can approach this – and preferably you’ll attack it from both ends.

Earn more money

The first is earning more money in the first place. Don’t let anyone ever tell you that it’s not hard to save money when you don’t earn a lot. It’s really, really hard. No matter how careful you are with your spending (see below), living a reasonable life costs a certain amount of money.

If your job isn’t paying you as much as you need, there are a number of things you can do to earn more. You can:

Ask for a pay rise
Change jobs to get a pay increase
Retrain or upskill to earn more
Take on a second job outside your regular working hours
Start a side-hustle to bring in some extra money
Work your passive income streams

Spend less money

The second way to start building wealth, is to spend less of the money your earn. All the usual suspects come into play to make that happen: set a budget, don’t impulse buy, take care of the pennies and carefully watch big ticket spending like your rent or mortgage, your insurances, your utilities and your holidays.

Here are several resources to help you spend less:

2. Save first, spend second

If you spend less than you earn, you’re well on the road to a better financial future. But if you want to add a jetpack to your journey, you need to get into the habit of saving first, spending second.

What does that look like?

Well, it’s the old ‘pay yourself first’ mantra. When you get paid each month (or week, or fortnight, etc), you automatically pull some money out of your everyday account, into your savings account. You essentially save it before you even see it.

The amount you decide to save first is completely up to you and may depend on any debts you are carrying.

If you’ve got debt, read this first: How can I get out of debt?

Once you’ve paid off your debts, you can put your allocated amount towards building your savings. You can work it out how much you put aside for this based on a percentage of your salary, or commit to setting aside a fixed value instead.

However you work out the value, automate it and make it come out as soon after your pay hits your account as possible. That way, you won’t be tempted to spend it.

Get to know your future self

It might help to think of your savings as belonging to ‘Future You‘, not ‘Present You’. Financial adviser Dave Rae advises getting to know your future self as much as you can.

“Imagine if you could see what your life in later years might look like? What if you could feel it? Even experience it?” Rae says .”What sort of lifestyle you might be able to lead based on how much you’ve saved? What about holidays, cars, wine? How could you help your family? Do you think getting to know Future You would help you to save more?”

3. Invest your savings

These days, automating your money from one account to another isn’t enough to start building wealth. That’s because savings rates with the banks are diabolical.

To get ahead, you need to invest your money elsewhere and there are plenty of options offering great returns (yes, even in today’s volatile market).

Talk to a financial adviser

Deciding where to put your money can be tricky, so talk to a financial adviser to tailor a strategy to your needs. You can elect to have a ‘one off’ chat with an adviser, or enter into an ongoing relationship where they continue to guide your financial decisions.

These articles can help you understand what you’re looking for:

An adviser will help you find your risk tolerance and outline the best way to invest your money. There are many options available, but property, shares or super are the main three for the average investor. Here’s an outline of some of the options available: