One of the most interesting aspects of wealth creation is that it is virtually impossible to do on your own. Put a person on a desert island and he or she will not create any additional wealth than is already present on the island. Give that person the best technology available to communicate with others and suddenly there is an almost unlimited ability to create wealth.  There is a direct correlation between your wealth and the nature and extent of your relationships with others. Think of any super wealthy person – Bill Gates, Mark Zuckerberg for example – and think about how many people in the world they interact with either directly or indirectly. It is through these connections that their wealth has been created. There are, of course, many different types of relationships that we all have which contribute in different ways to our financial wellbeing. The better your relationship with your partner and immediate family members, the happier you will be and the more likely you will be to succeed financially. Separation, divorce and arguments about money on the other hand, lead to financial loss. Good relationships in the workplace lead to increased opportunities for career development and pay rises. Developing networks with people in the wider community can lead to both career and business opportunities. Professional relationships with experts such as accountants, lawyers and financial advisers will help you make the right financial decisions in life.

So many people live their lives with a narrow circle of friends, barely interacting with the rest of the world, and wonder why there is little change in their financial position. These days, with the advent of social media networks there is little excuse not to be well connected. You can achieve financial success by investing time and effort in developing your relationships.

The way you think about money can have a huge influence on your ability to create wealth. Poverty mentality is a mindset that people develop over time based on a strong belief that they will never have enough money. This mindset is driven by fear and can cause poor financial decision-making.

Here are some common characteristics of poverty mentality:

• Being constantly worried about money or thinking about it often. People with a poverty mentality spend a lot of time thinking about their lack of money, wishing they had more, and being envious of people who have more money than them.
• Having a strong dislike of ‘rich’ people, yet wanting to have what they have. This can lead to reckless acts where, as soon as money is acquired, it is spent on luxuries. This is self-sabotaging behaviour which makes it difficult for someone with a poverty mentality to accumulate money.
• Making decisions based on fear. This can often lead to financial loss. For example, fearful people can be afraid to set up direct debits for bills in case they don’t have enough money in their account when the bills are due. This in turn means they can be late in paying their bills and incur penalties or miss out on discounts.
• Thinking small rather than thinking big. Small goals lead to small outcomes. Big goals require an optimistic attitude and willingness to take risk whereas small goals arise from pessimism and fear.

Poverty mentality is commonly found in people who have experienced poverty in childhood. It is a barrier to enjoying happiness and financial security. The remedy is to find ways of changing beliefs about money and focusing on what you have rather than what you don’t have; a process which sometimes requires assistance from a counsellor.

One of the best ways to get ahead financially is to pay off your mortgage as soon as possible. The first step towards doing this is to create more surplus income; that is, the difference between what you spend and what you earn. This means either cutting back on your expenses or finding ways to increase your income.

Next, look at how your mortgage is structured. There are a number of factors to consider, including the term of the mortgage, the frequency of repayments, whether the interest rate is fixed or floating, and the type of mortgage you have. The most common types of mortgage are table mortgages where you pay back both principal and interest, lines of credit (or revolving credit) and interest-only mortgages.

There are two ways to use your surplus income to pay off your mortgage quicker. The first, and easiest way, is to increase both the frequency and the amount of your repayments. If your interest rate is fixed, check with your bank as to how to avoid paying penalties for earlier repayment. The second way is to use a combination of a small line of credit and table mortgages which have either a fixed or floating rate. Save as much as you can into your line of credit in the knowledge you can draw down the funds again if necessary. Once the balance in your line of credit is zero, draw all or most of the funds down and pay off a chunk of your table mortgage. If your table mortgage has a fixed interest rate, the repayment should be done when the fixed rate period ends. This process can be repeated until your mortgage is gone.

The keys to success are good saving, structuring your mortgages correctly and staying focused on achieving your goal.

In the harsh world of economics, the value of a person is not difficult to quantify. In simple terms, the value of a person at a given point in time is based future earnings, which is the number of hours the person is able to work for the remainder of their life, multiplied by the hourly rate the person is capable of earning. There is a common saying; ‘time is money’ and there is no doubt the two are inextricably linked. The corollary is that the income you earn from personal effort is determined by how you manage your time as well as by how you manage the hourly rate you earn.

Without getting too complicated, let’s look at this in a bit more detail. One of the first things to be aware of is that people are more likely to waste time than money. The irony is, because time is money, wasting time is equivalent to wasting money. Unfortunately, time is limited. If your income comes only from personal effort, there is an absolute limit to what you can earn in your lifetime. Super wealthy people are those who find ways to make money without being dependent on personal effort, for example by setting up a business which makes money out of other people’s effort, borrowing to invest, or selling intellectual property.  If you earn a high hourly rate, spending your time doing things that someone else can do at a lower hourly rate is not effective use of your time and lowers your potential income. If you earn a low hourly rate, it is worth spending time to look at ways of increasing your hourly rate through study, training or finding alternative work. The ultimate winning strategy is to find ways of making income without using personal effort.

Setting your financial goals is not a simply a process of deciding how much money you need. Examples of common financial goals are:

• To save $5,000 over the next year
• To save $500,000 for retirement
• To have a passive income of $50,000 a year

Goals such as these are unlikely to be achieved. That’s because money has no intrinsic value; its value comes from what it is used for. Unless you are clear about what purpose money serves in your life, you will never be motivated to accumulate it. Finding your purpose is simply a matter of asking yourself ‘why’. For example, the reason why you have a goal of $50,000 passive income a year might be ‘to achieve financial independence’ . Now ask yourself why financial independence is important. The answer might be ‘to have financial security’. In turn, the reason why financial security is important may be ‘to provide for my family’. The trick is, to keep asking yourself ‘why’, until such time as your discover what is fundamentally important to you. Ultimately, you may uncover higher level objectives such as pride, satisfaction and personal fulfillment. These are the things that will motivate you to achieve your financial goals.

For most people, lasting satisfaction and fulfillment come not from possessions but from intangibles such as relationships with family and friends, good health, or broadening your life experience through education and travel. When you truly understand what motivates you and what you want to achieve in life, rewrite your financial goals to include how much money you need and why, for example, ‘to achieve financial security and independence through having a passive income of $50,000 a year’. Writing your goals in this way makes them much more meaningful and powerful and more likely to be achieved.

It is not uncommon for investors, particularly those in superannuation or retirement savings schemes, to be unfamiliar with how their money is being invested. All too often, there is disillusionment when the investment does not perform in line with the investor’s expectations. In most cases, this is not because the investment has been a poor performer, but because the investor either had unrealistic expectations of the investment or did not understand the nature of it. An investment portfolio or retirement savings scheme needs to be treated like a member of the family. It needs to be understood, nurtured and brought back to health when it isn’t doing very well. Having a stranger in your house brings about a degree of tension and discomfort, whereas with someone you know well, you know what to expect and what actions to take. Get to know your investments so you feel comfortable with them. This means giving them attention rather than putting them into the bottom drawer. Read the investment statement and the performance reports you receive. If you don’t understand them, ask questions and spend time on them so you do. If you are invested in managed funds, make sure you understand what kind of assets the funds invest in. Stay in tune with what is happening in each of the main investment sectors (fixed interest, property and shares) and the global economy. This doesn’t mean you need a degree in financial analysis or economics; it just means you need to take an interest in financial matters in the news and to have discussions with other people who are experts, such as your financial adviser, or friends with particular expertise. Each week, take time to learn something new about investing, perhaps by reading a book or going to an investing website or blog.

There are times as a parent when you look forward to the day your children head off into the world to make their own way. When that day comes, it often comes with worries about how your children will cope with life as adults, and in particular whether they will succeed financially. Here are three basic principles to teach your children before they leave home.

1. Set a limit for spending on non-essentials. Money that we spend falls into two basic categories: what we spend on essentials (things we need, like housing and food) and what we spend on non-essentials (things we want but don’t really need, such as dining out or movies). The best way to keep a limit on spending on non-essentials is to have a separate bank account for it. Each week transfer a set amount into that account and keep your spending within that limit
2. Put aside money for unexpected expenses. There are some essential expenses that occur infrequently, perhaps only a few times a year. Often these expenses are unexpected, such as medical or dental costs, or car repairs. Spending all your income every week means you won’t have money on hand to cover these costs. Transfer money each pay day into a savings account to cover unexpected expenses.
3. Stay out of debt.  By following the two principles above, you should avoid being forced into debt to cover essential spending. The worst kind of debt is money borrowed to buy non-essentials such as new furniture, televisions and computers. This kind of debt is usually short term with high interest rates and the high repayments can prevent you from being able to set aside money for unexpected expenses.

Encouraging your children to use these principles should set them on the path to financial success.

A New Year, a new start and resolutions to get fit, lose weight and spend less. Every year it is the same story. The trouble is, most people fail to understand how to turn resolutions into reality, so nothing changes. There are some very simple ways of making sure you achieve your goals.

Avoid making high level, non-specific goals. If you want to save money, think about how much you want to save and by when. Being specific helps to focus your efforts and gives you something to measure yourself against. Think about the alternative options or strategies you have to achieve your aims. Are you going to save money by spending less or by increasing your income? Perhaps you have an idea for a business opportunity that could bring additional income.

Once you have your strategy, break it down into specific details. If you want to spend less, where exactly will you cut back? Analysing what your money is spent on now is a good place to start. Break down your long term goal into shorter term intermediate goals that are more easily achievable. For example, set goals for how much you can save in the next week, the next month, the next three months and so on. Put any other detailed actions into a time line so you can measure your progress. Once you have a plan, share it with your friends and family. They can help check on your progress and encourage you to stick to your plan.

Finally, the most important step is to take action within the next 24 hours. Think of something you can do, even if it is as simple as making a phonecall or checking your account balances online. This will be your first step towards turning your resolutions into reality.

Holiday time is a great time to declutter. As well as cleaning out your cupboards and wardrobe, it’s a good idea to do some housekeeping on your financial affairs. Start with your bank accounts. Do you have accounts you seldom use? It is best to have all your accounts at one or two banks rather than three or four, especially if you use internet banking to track your spending. Having too many accounts means you may be paying unnecessary fees and also makes managing your money more difficult. Arrange to do regular saving by automatic transfer into a high interest account and to pay your bills by automatic payment or direct debit. Set up your online banking so you can easily see the balances of all your accounts and arrange to have your bank statements sent to you electronically.

Next, take a look at all your credit cards and store cards. With multiple cards, your total debt can easily get out of hand. Aim to have no more than two cards on which you owe money.

Investments should also be reviewed. If you have small holdings of shares that you own purely for historical reasons (for example if they were gifted to you or you inherited them) consider whether you should continue to own them. A good test of whether to sell them is to ask yourself whether you would buy them now if instead you had their equivalent value in cash.

Finally, sort out your paperwork. Put all your important documents together in a safe place. Record important details such as policy numbers or account numbers in a separate place (computer or notebook) in case they get lost. There is a great little tool called myINFOSAFE which helps you organize and protect your personal information. Happy holiday!

One of the most important lessons learned by our forebears in the Great Depression was to be grateful for whatever you have. There is nothing like experiencing disastrous financial times to make us painfully aware of the potential for future hardships. Focussing on what you have rather than what you don’t have increases feelings of happiness and contentment and reduces the urge to spend. Our forebears combined their grateful attitude with a strong work ethic and avoidance of debt. Despite the difficult times they were able to use these values to gain financial security and independence.

Today’s beliefs and values are very different. Top of the list is an attitude of self-entitlement; that we deserve a certain standard of living regardless of how hard we work or how much we earn. This attitude is responsible for people spending more than they earn or, even worse, committing theft or fraud to obtain the standard of living they feel they deserve. Next on the list is a belief that what we want is what we need, or failure to clearly distinguish between wants and needs. What were once considered luxuries (for example televisions and mobile phones) are now considered to be necessities. In today’s society, spending has become an antidote for unhappiness or dissatisfaction with life. Unfortunately, it has only a temporary effect. The joy of a new purchase turns to remorse when it’s time to pay the bills.

Your ability to create wealth is directly linked to your beliefs and values. The best way to get rich is to:

• Be thankful for what you already have.
• Be clear on the difference between wants and needs.
• Be prepared to work hard.
• Find happiness in friends and family rather than shopping malls.

Follow these principles and grow rich gratefully!