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12 actions to build wealth in 2013 – Part 2

February 20, 2013

This week we continue with part 2 of our series about wealth building (here is a link to part 1 if you missed it) . I will be posting one per month so that it gives you time to build on each part as there will be some action tips each month.

In part 1 we discussed the importance of knowing your why or your purpose in building wealth. Despite being a nation with significant relative earning potential per capita, as Australians we continue to perform poorly in our financial literacy, cash management and attitude toward savings and provision for later in life. Many of us treat our finances like a poorly played game of monopoly spending everything we earn and hanging out to pass go each week.

monop

Today we look at the changes we wish to make and describe in detail what point b is to look like from our current position at point a.  To begin with you need to know where you are (point a) so the first step is to document your current financial position (or net equity position). This is accomplished by a simple assets and liability balance sheet for example:

Assets                                           Liabilities

Home                 $                        Mortgage       $

Vehicles            $                        HECS/HELP  $

Cash @ Bank    $                        Credit Card   $

Shares                $                        Other loans   $

Property           $

Cash Reserves $

scales

Balance    (Assets minus Liabilities) =         ???? (hopefully the assets outweigh the liabilities!)

Then it’s time to describe point b which could include things like: own my home debt free, six months salary in cash reserves, save 10% of my annual income to put into income generating assets, build my net equity position to x, develop an investment portfolio returning an annual income of y, build a business, upskill to increase my annual income, undertake further education in financial literacy and the list could go on.

Next month we will discuss  the ‘magic ratio’ – the timeless formula for financial success that has been used for centuries!

formula

From → Wealth

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