Savings to Investment: Maximise your Financial Launchpad

Moving from savings to investing is a huge leap and one that needs to be well guided. Check out these strategies to maximise your opportunities and launch your financial future.

Launchpad 2

Of the 40+ blogs we published last year, Four Easy Savings Tips to Create Your Financial Launchpad (Launchpad part 1) was our one of our readers favorites! Since that post we’ve had a heap of requests for more actionable tips like that one on both saving and investing. You asked, now you’re getting!

If you are already following the four steps, congratulations! You now have a successful savings habit!! It’s so simple but very few people manage to make it work for them (we all know SF readers are from the top of the gene pool). You also join the many who’ve already given me feedback via email or comments on our Facebook page. Hit me up in the comments, let me know how it’s going and if there’s anything you’re stuck on.  

This follow up edition is about how to take the next step. If you’re consistently putting money away and it’s sitting in cash, it might be time to consider some longer term strategies. This all depends on what the cash is earmarked for so don’t just jump in. Make sure you always tie any financial strategies to adventures or targets that really matter to you!

Before you take this step make sure you understand that this is not personal advice, it is general. What works for you might be very different to the next person for a bunch of reasons. Send us an email if you want to discuss this in more detail but please don’t act without seeking professional advice.

Here are the basics on a few strategies that we would consider with our clients:

Contribute to your retirement savings

Whether it’s superannuation in Australia, or your IRA or 401(K) in the US, these bad boys are a phenomenal place to start your longer term savings plans. For most of our readers, this seems like the extreme long term. This is a good thing.

One major benefit with contributing to these funds is that of “forced savings”. Your retirement savings are for retirement and can’t legally be spent elsewhere. You can’t access these funds until you reach the right age and/or have retired from the workforce.

The great thing is you get to grow your money in a tax effective environment. i.e. you pay less tax on the earnings in these accounts than you likely would with savings and investments in your own name. This way when you cash in, as long as the investments performed similarly, you will have more.

The idea of forced savings is that the money is allocated to a more profitable place before you can spend it. This is linked to the positive behaviour you will have developed from Launchpad part 1.

If you’re someone who struggles to maintain control of your general spending, finding methods of forced savings can be a game-changer.

Shares

Otherwise known as equities or stocks, purchasing shares makes you a part owner of a business. They can be a very good long term investment. They can also be traded short-term for a quick buck but avoid this at all costs if you don’t have experience.

You can purchase shares directly via an online broker (e.g. Commsec) for a relatively low cost (<$30 per trade) and you will benefit from future increases (and suffer the decreases of course) in share price as well as possible income in the form of dividends when the company distributes any profits.

You can also invest in share markets by using a range of different structures that you may have heard of, such as managed funds/mutual funds, Exchange traded funds (ETF’s), Listed Investment Companies (LIC’s), Separately Managed accounts (SMA’s) and many more!

You can see the financial world is just like any other industry, unwittingly confusing everyone with the massive over-use of 3-letter abbreviations and other jargon. One thing we avoid at all costs at YOLO is using these bewildering terms with our clients. We get it, it’s hard enough to get the courage to see a financial planner and open up to the opportunity ahead of you without the fear of being talked down to of left more confused than when you started.

Investment Property

Everyone’s favourite asset class! Right?

Well, it’s a tough call these days. There are so many good ways to build wealth that don’t take such a huge initial outlay. Millennials especially are swaying away from property in Australia, and it’s not just the affordability issue. Property is a lumpy asset and comes with responsibility which can be a hassle.

However, we wouldn’t be where we are without some very fortunate growth in property values since we purchased our first home in 2009. It’s a very valid option for anyone looking to growth long term wealth.

Firstly, unless you’re buying in Woop Woop, or have just made it big with Bitcoin, you need to borrow money to invest in property. So just making the purchase is the first hurdle you need to overcome.

In its simplest form the lender (think bank, credit union, building society) will look at two different numbers to work out whether they’re happy to lend you the money:

  1. Your affordability – they consider your income and expenses to see if you will be able to make the loan repayments each month
  2. The equity (basically, the size of your deposit) – at the moment in Australia you need at least a 5% deposit but it’s generally recommended that you have more. You also need to cover stamp duty and your own legal fees to have a solicitor review the contract.

If you already own your own home you may be able to use the equity in it to draw a larger deposit. You can also potentially use a family member to “guarantee” some of your property if you don’t have the minimum deposit and they put their home up to help you out. Don’t do this without getting legal and financial advice first.

Property investing also attracts some great tax benefits that can make it more affordable to hold for the long term. However…

never invest, or make any other financial decision for the tax benefits alone. If it’s not growing, providing income,or both, it’s not working!

Hit us up at YOLO Home Loans for help finding the right loan and some guidance on whether you have the right amount of money to make this work.

Crypto craziness

We’ve all seen the hype around Bitcoin during the recent emergence of this alternative type of money, cryptocurrency.

It’s a virtual or digital currency, which is not considered legal tender; however, it can be used as a medium of exchange if a vendor chooses to accept it as payment for their goods or services.

Crypto’s do not require government issuing or control, nor assistance from financial institutions to process payments. Instead, they use special encryption techniques (e.g. cryptography) to keep data secure, store and create ‘monetary units’ as well as verify transactions within a decentralised (e.g. peer-to-peer network), digital public ledger (e.g. a blockchain).

As it stands, there are over 2,000 different types of cryptocurrencies, and most of them are likely to fail as an investment. This is a highly speculative area and there is a risk that government regulation will play a huge part in its future success/failure.

Nevertheless, Bitcoin has created multi-millionaires almost overnight. My belief is that crypto will continue to grow as a major player in the money world but your chance of picking the right one as an investment makes it pretty tough to justify getting into.

True story – I watched this (see 36m20s to about 42m) in 2013 and obviously should have grabbed a few coins but didn’t. $100 then is today worth $13,500. But who’s counting?!

*The above re cryptocurrency was adapted from an article in our YOLO FS – Knowledge Centre

Get started

This is a basic look and by no means covers all the investment options. There are hundreds of other types of investment, often a derivative of the broad topics we’ve covered here.

We talk a lot at SF about momentum. The physical action of just starting has been the key ingredient in so many of our own successes. Please go back to Part 1 if you haven’t created your own financial launchpad as yet. Once you’ve done this it might be time to start your own investment plan.

There’s a fair chance some of the above may overwhelm you and if this is the case please let me know. I could go way deeper if the peeps are hungry for it. Let me know in the comments if there are any specifics that you’d like to know more about. Or if you want to see how to fit this into your situation and make it work for you, email me, or book a 15 min Zoom call and we’ll see where we can help.

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