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News Bulletin : ADA News Bulletin July 2011
36 July 2011 business perspectives they get paralysed picking the best choice. Smart people think they are smart enough to figure it all out for themselves and don’t let others help. Typically, the consequence of all these factors is inaction. THE GOLdILOCKS APPROACH Maybe we all need to reread the story of Goldilocks and the Three Bears. We don’t need to invest like a bull in a china shop and we don’t want to sit at home twiddling our thumbs doing nothing. Surely a balanced approach makes sense? Moderation is the key – enjoy a bit of greed tempered with a healthy dose of fear. This means you invest in a timely fashion but ensure you do your homework first to mitigate any risks....a little bit like Goldilocks’ porridge. Not too hot and not too cold. Just right! So what is the right amount of preparation? Let’s return to our friend Keith (who invested $670k without doing any homework). What do I think Keith should have done? • Keith should have prepared a cash flow budget. Okay. I know your eyes are glazing over at the thought of preparing a budget. “It’s the typical ranting I expect from a nerd accountant like you, Stuart” I hear you think. Firstly, I’m not a nerd! Secondly, the goal of preparing a budget is to know where your money is going. That’s it. The goal of a budget isn’t necessarily to cut spending and stop going out and having fun. You need to prepare a budget* to ensure that you can afford to make an investment. • Keith should have organised his finance and ensured the acquisition was doable including arranging access to a deposit. • The ownership structure of the property is the next thing to sort out. Will it be owned tenants-in-common, in a trust, SMSF...there are many options. • The type and location of the property is the final consideration. For example, Keith already owned a single-fronted, two-bedroom house so a wise second acquisition would have been a one or two bedroom apartment. • Once Keith identified a suitable property, he needed to complete some due-diligence. This is the most prudent approach and will ensure you avoid many mistakes. It’s fine if you can complete all these steps in a few weeks. However, don’t skip these steps just so you can invest sooner because it’s not worth the risk. As I have said previously, the best time to invest is when it’s right for you. Therefore, go through the five steps above and complete them with a sense of urgency. Taking a considered and regular approach to investing will win, hands down, in 99% of cases. In fact, it is the guaranteed road to wealth. MEET YOU In THE CEnTRE Are you a robot? If not, then the number one thing that will stop you from achieving financial freedom is you...and your pesky human emotions. Acknowledging this, the only way you’ll be able to successfully build wealth is if you set measurable goals in writing (a financial plan) and have someone to hold you accountable, on a regular basis, to achieving that plan. Academic studies have shown that people that have their goals in writing and regularly meet with someone that holds them accountable have a 77.5% greater chance of achieving their goals. It’s a pretty simple thing to do: write down your goals and meet with someone. The advantage of having a written plan is you are more likely to stick to it. You won’t waste time and hopefully you won’t make any of those emotional and schizophrenic investment decisions mentioned above. If you are a robot (?), then put this article down...robots don’t need to invest! Stuart Wemyss is a qualified chartered accountant, financial planner and mortgage broker. Stuart founded financial advisory firm ProSolution Private Clients which helps dentists maximise their net worth by providing financial and mortgage advice. Contact: firstname.lastname@example.org Use the power of the internet to attract new patients and increase bookings www.dentalbookings.com.au DB0001ADA Register now for free For more information please email email@example.com *To access a useful budgeting tool go to: www.moneysmart.gov.au and follow the links. “The advantage of having a written plan is you are more likely to stick to it.”
ADA News Bulletin June 2011
ADA News Bulletin August 2011