A Man Is Not a Financial Plan: Investing for wealth and independence

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However, it is neither sensible nor desirable for a woman to count on a man to provide financial freedom. All kinds of things can derail such a plan, and what then will become of your dreams? Many of you will earn more than the men in your life. Many men will also prove irresponsible with money in a variety of ways—indulgent spending, lots of toys, gambling, reckless investments or business decisions.

Money can go with a man too! With or without a man in your life you need a plan for independence, security and financial freedom. Too many women still rely on men for income. Many do not earn any income at all, or only a small amount. These women rely on a man to provide both now and for the future. Others are in dual career families and may earn a good income today but are without a plan for the future. What will happen when the income stops?

Even if you are partnered you cannot rely on a man to plan for your financial freedom. In my WealthCoaching work I have met several couples where little or no financial planning has been done throughout the relationship. And for varying reasons he may have taken no action. Often women initiate the process because they are more realistic about what can go wrong in their lives.

Death, disease, divorce or redundancy can have devastating effects on your finances, especially if you are not well prepared. Your financial freedom is far too important to leave to chance. You need a plan of your own! This is an area where you may have to take the lead.

Some men will be delighted that you have initiated this, while others will need to be convinced it was their own idea. Many single women earn well and can provide a good lifestyle. I meet many who are high achievers with a healthy income. Their consumption levels, however, are usually very high and often they have no wealth reserves. They are not thinking ahead and simply concentrate on their job and having a great social life. But sooner or later the income will stop.

What then? Unless you plan well for later life your choices will be very limited. Life will be very restricted if you depend on the state for support and income during retirement. Some singles are still hoping to meet the man of their dreams and perhaps expecting that he will provide for the future. This is not a good strategy: your prince may never come.

And even if he does, he may not have accumulated wealth and may have no plan for financial freedom. Relationships can also be very complicated. Many women who are partnered find themselves in blended families. These can be challenging to sort out from a financial point of view, particularly if you too have children from a former relationship.

You risk being in financial conflict with stepchildren in the future—not a nice prospect for any woman who finds herself alone. Separation from a partner can really affect your finances. Partners and husbands may leave but you need to make sure that they do not leave you without the means to take care of yourself. Older women are especially vulnerable. Most women over sixty-five live on their own. And women alone are likely to be poor. It is very difficult to earn income or create wealth if you leave it too late.

Your money, security, independence and future choices are too important to neglect. Over the last decades many of the barriers women faced in getting an education or entering the work force have been removed. Girls do better at school at almost every level, more young women than men enter university, and women are outperforming males on many criteria. Women still struggle to earn as much as men but we have equal pay legislation and the right to equal treatment under the law, if not always in practice. Many women have achieved very high levels of success in business, in the public sector and in many other areas of life.

If there was ever a time in history to be born female in this part of the world it is now. More women than ever are entering the work force. Collectively we earn a huge amount of money. We take for granted many of the rights and freedoms that recent generations of women have acquired and fail to recognise how many of these rights are maintained and secured by the ability to earn and keep money.

So what are we doing with all of this opportunity and education and money? Well, women are generally very good at managing day-to-day finances and in many families they take the lead in managing the family accounts; however, despite the advances and achievements, many women end up poor in their middle years or later life, even though they have worked hard and behaved responsibly.

One of the reasons for this is that women are still inclined to rely on a man rather than on themselves for long-term financial security. In many households women take care of all of the dayto-day money and their partners look after the rest, like investments, superannuation and tax. All of these are very important, of course, and have a great impact on how we live.

But the focus of these concerns is immediate and short term—getting through this day, this week, this month. Women usually work hard to meet the needs and wants of everyone in the family with only the occasional treat for themselves. Even single women may focus only on how they live in the shorter term, managing living expenses and perhaps planning for holidays and lifestyle purchases.

Whether or not you have a man in your life, you need a plan for financial freedom. A financial plan sets a strategy to make you financially free. The plan needs to take account of what you want in your life and to arrange your finances so that you get to live that life. A good financial plan will take account of where you are financially and what you need to do to achieve the lifestyle you want in the future.

It will almost always mean that you have to make some changes about what you do with money. For instance, you may need to earn more income or spend less; you may need to learn to invest or you may need to exit some poor investments already made. How well will we be able to live in the future? Will we ever be able to stop working? What choices will we have in the future? Will we be able to take care of our future needs?

This is what a financial plan is about. This seems easy to say but it is in fact a major decision. Many other things may have to change to make this happen so you need to be certain that you want wealth and financial freedom—and you need to be sure that you are willing to do what it takes to make that happen. I hope I have convinced you that this is a commitment that you should make—if so, you have already achieved the first and most vital step.

Written commitments are best: I recommend that you write down a promise to yourself that you will create the wealth you want. You can take this step right now. The second part of your plan is to learn, so the rest of this book is devoted to helping you understand how wealth is created. You have to invest in order to create enough wealth for financial independence and freedom from the need to work.

Learning to invest is not nearly as difficult as many women believe. I have kept the jargon to a minimum and focussed on giving you all the understanding you need to become a successful investor. For example, it is easy to learn how to create a surplus so that you have money to invest. However it can take a lot of determination to change some of your habits so that this money ends up invested rather than spent!

Consuming every dollar of income is much easier than finding the motivation to put it aside for investment. Many women think that finance and investment are all about difficult technical terms and advanced mathematics. Not so—you learned all of the maths you will need at primary school. The really hard part of becoming a successful investor and creating wealth is changing your attitude to how you deal with money and developing new habits that will make you richer rather than poorer. I can only encourage you to move into action: you will have to act. Many women approach wealth as if it is a matter of luck.

Others think that you have to have a lot of money to make money. Neither is true: wealth is created following some basic rules that you need to understand so that you can make use of them, and have some fun doing it! Being wealthy is not about having a lot of income. Instead it is about having a lot of capital. The ultimate aim is to have lots of income, but this has to be passive income, i. Passive income can only come from capital, and so you have to grow your capital your wealth so that you can get plenty of passive income. Capitalism is the name of the game. This sounds simple enough; however, women confuse having high income with being rich.

Women who have high income, especially when it is from a job, give every appearance of being rich, but they may have no wealth. I have encountered many women, both single and partnered, who had very high incomes but who owned almost nothing. In other words, they took their high salaries and consumed them rather than using them to acquire assets that would give them further income and make them wealthier. It is passive income that you do not have to work for that allows you to live the life of your dreams. Then you are free to spend your time on what is important to you, and you have enough income to do so.

Your time is your own and you have the income you need. Having lots of capital is the final objective. Remember, capitalism is the name of the game. You have to be an owner: an owner of the right things; however, it is what you do with your income during the time that you are trying to become financially free that is important. A lot of women manage to get high incomes from their businesses or investment activities; nevertheless, because of how they use this income, some do not become wealthy.

You have to live. A proportion of your income will have to be spent on groceries, transport, utilities, etc. If you retain income i. When income is invested in good assets it will compound at a good rate and create even more wealth. Nearly everyone who becomes financially free gears up the capital that they have by borrowing. Borrowing reduces the amount of disposable income that you have because you have to pay interest , but increases the amount of your capital because by borrowing you can invest in more assets.

The income that you get from your assets values those assets. Regardless of whether it is a business, shares or property, the value is set by the amount of income that comes off them; therefore, increase the amount of income from your investment assets shares, property investments, etc. For example, if you can increase the rent that you get from a property that you own, the increase not only raises your income but also makes the property more valuable. Have you been confusing the two? To become wealthy you must generate as much income as you can from work or from investments you have, and then use this income wisely and well.

When financially astute women have a good year with their business and the annual profit increases; when they manage to increase the rents on their properties; when the companies that they are invested in increase their earnings and dividends, they are delighted and happy, and they celebrate. In all of these things, their income has increased and that is very good news.


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However, the increased income is not good news by itself. Sure, the extra income is useful—it could be taken out and spent. But few women who are serious about becoming financially free would care for that. The increased income is not terribly important in itself. Rather it is what the extra income can do for you that is important. In fact, it is the attitude towards increased income that distinguishes the successful from the unsuccessful. The unsuccessful are likely to look at the extra income and start to think what they can do with it: another overseas holiday, a shopping expedition, increase the mortgage on the house to build a swimming pool.

Instead of thinking about what they can do with this extra income, they think about what the extra income can do for them. This difference in attitude towards income is the divide between those who will become wealthy and free, and those who will not. Those who will not achieve financial freedom think only of consumption.

All investment assets are valued by their income, for example the family business is valued by the profits it makes; property investments by the rent, and shares by their earnings in much the same way as the family business. The extra rent or business profits increases the value of the asset because someone would agree to pay more for them to get the higher income. This additional capital growth is often worth several times the additional income that was generated.

Not only will you have higher capital values to use as security but you will also have more income to fund borrowings. The ability to borrow more means that you can dramatically increase the total amount that you have invested. This in turn will generate even more income for you, spinning a virtuous circle of wealth even faster. More on borrowing later. Lenders will look at the greater value of your existing assets and see them as enough security for further loans. Income itself is important in driving up the value of your investments.

It is also important because it allows you to gear your investments further, thus accelerating your creation of wealth. Is there any surplus or are you consuming it all? No matter how much or little income you have you will need to avoid consuming all of it. The amount left, your surplus, needs to be put to work to create more wealth.

This will be especially true for individuals who have high income and little time. And other people around you—friends and family—may object to these changes. Like all simple equations you can play with different variables. If you want more surplus you can either: 1 lower your consumption, or 2 increase your income, or 3 both! This is where you will find it very useful to start to work to a money plan, a budget. It has connotations of meanness and misery. In my experience, it is helpful to think of it like a business proposal: not as a way to scrimp and scrape, but rather as a way to plan income and expenditure for a period of time.

But unless you create a reasonably sized surplus you will have a very slow path to wealth. You will need a stake to begin your investment. Unless you are releasing capital from your home that start-up money will have to come from income. All this means that you will need to manage income and consumption very closely. You really need a budget. This should be based on whatever time period is most convenient for you in terms of income weekly, fortnightly, monthly. It should show your expected income for each period and your planned consumption. If you do, you are unlikely to keep to it.

See it like dieting. If you starve yourself, sooner or later you will attack the chocolate biscuits and eat the whole packet. You want a reasonable budget that you can live with and which will avoid big blow-outs. Rather you should establish a figure for consumption you can happily live with so that you can take every remaining dollar away for investment.

How do you do this? The first part of any budget is to look at what income you have coming in. Add up all of the income that you are receiving. You will need to talk about all of the categories—the fixed expenses such as housing, transport and groceries, and the discretionary ones such as entertainment, holidays and hobbies.

You may need to monitor your spending for a while to see exactly what gets spent now. It can be much harder in the areas where you usually pay with cash, or with smaller items that you are inclined to ignore—takeaways, drinks after work, additional spending at the garage when you fill up. Many of the women I have worked with say it took them weeks to get a handle on what they spent in each area. Mostly they report being shocked at the amounts that are slipping through unnoticed! Stay motivated and focussed. I have no interest in admonishing you to turn down the thermostat, to limit shower times, or to encourage you to avoid takeaways, to walk to work, to grow your own vegetables or offering any other money-saving strategies.

This is a negative sounding word with connotations of scrimping and saving, and living a frugal life. Well, it does not have to be that bad, but there is a price to be paid for financial freedom, and a reduction of consumption is often a part of that price. But all that a budget does is help you spend in line with your values, spending on what matters to you and not spending on things that are of low value to you.

This allows you to make your spending much more value-able. There are several websites that provide useful categories to budget under. The main value of this is that you will not leave out items that occur infrequently, e. The best site I have seen is www. Almost all major banks provide some kind of budgeting tool online. What you spend this money on is irrelevant to your wealth creation. All that really matters is that there is a surplus that can be used to grow your wealth.

So you will need to choose a consumption amount that allows enough surplus for investment so that you can create enough wealth in the time frame you have chosen. It all depends on your circumstances. The budgeting process and then living to that budget is an important part of your plan for financial freedom.

This is especially true for those starting off. Making those first few steps, developing a little bit of wealth to get things going, is the greatest hurdle. If you are starting with a little but not very much, reduced consumption will accelerate the process. Time is your biggest ally. This is where the going gets tough. Unless you have a very high income you have to cut your consumption to create a surplus for investment. There are great and powerful marketing forces telling us to consume more and more. We have become used to living up to, and even living beyond, our means.

We consume more of everything than we need, or even really want, in some cases. Most of us are overspending—on food, clothes, holidays and so on. Every business in the land is telling us to spend, spend, spend—and they are backed by huge marketing budgets. How silly is that? And keep reminding yourself—you could invest this money to create wealth and make yourself financially free! You have to resist a lot of this. Largely this spending is about buying things that make you look good in the eyes of others.

It is ego-spending, buying things for emotional reasons rather than considering your purchases rationally. To get to financial freedom you have to stop this and be your own person with your own aims. Every dollar that you spend is a dollar further away from the life you want. This is the money that will make you wealthy and buy you the life of your dreams. I tell my clients two things: 1 Before you spend money on something, imagine that you are not spending dollars but GPG shares.

GPG is a pet company that has performed extremely well for its shareholders for a decade. At the time of writing the shares are trading at around cents and they look like they still have a future. That means that if you forgo that one-thousand dollar suit you are gaining about GPG shares. Owning the GPG shares now may be better than owning the suit.

You should be able to buy a few suits with that! I am not saying do not buy the suit or anything else for that matter. What I am saying is think about the cost not just in dollars today, but dollars in the future. There is a very real benefit in doing without something today for a better tomorrow. The success in this instance is achieving your dream of financial freedom.

Changing your currency to GPG shares or some other proxy that is meaningful to you is a good way of recognising the real cost of unnecessary expenditure. That cost is primarily what you can have instead in the future. The only thing that you need to be careful of is that you do not take it too far, and end up mean and miserable and no fun to be around.

Which leads us to the second thing. The latest pitch from your favourite department store should not dictate your expenditure. These are companies that you can own through the sharemarket, rather than have them own your credit card! Buy quality things that will give you great pleasure. Buy things that you really want and need. Think about your purchases beforehand, rather than buying on impulse because some slick marketing has pushed a product at you.

If you get a lot of pleasure from owning a nice car, you might have one. However, do not own a nice car because that is what others expect. Indulge yourself with things that make you happy, not which are designed to make you look good. This is a great time to revisit your dream and vision for the future.

Many of the things we spend money on do not take us in the direction of our dreams; in fact they take us away. Many women could become financially free just by spending less and investing the remaining money well. Living below your means becomes a new habit quickly—and a very rewarding one when you see the resulting assets accumulate. The wealthy women I coach are not mean. They are, in fact, nearly always generous.

They know what they want and they have what they want. But they do not have what they do not want. They are happy to go without if they are not getting the full measure of enjoyment for each dollar spent. The key bit of knowledge you need here is to understand how a smart budget underpins all of your efforts towards financial freedom. As you play with various options you will develop the skill of allocating income towards the consumption essentials like power and food and some valued discretionary items e. You will find that your attitude to spending will change. You will start to ask whether you want this or that item more than your dream.

Over time, you will develop the habits of the wealthy—managing consumption well, ensuring that there is a surplus, and using that surplus to create wealth. Switch from mindless spending to mindful spending so that you get what you want. Try to catch all of it. While it can be tedious work it usually uncovers a lot of consumption that you are unaware of. These are your choices. Find something you would prefer to have a share of than whatever it is that you are inclined to buy. Women have two ways of saving: some put aside any money that is left the surplus when they have bought what they need or want, while others save a set amount each pay period.

The second strategy is often a much better approach simply because there is hardly anything ever left over when you do your budget. Most women find it is easier to do it when they get paid, but not everybody gets her income as a wage or salary. The simplest thing to do is to set up an automatic payment to another account and have the bank make the transfer every week, month, quarter or whatever suits you. You can then use these sums for investment.

Where will this money come from? Out of your former spending, of course. You can work out the amount you can afford by nominating a sum e. If your income is already stretched to meet your needs you should still do a very careful budget, looking to save a dollar here and a dollar there and perhaps eliminating some categories altogether. This will certainly suit women who spend until there is no more. The details of your spending budget are of no interest to anyone but you. Paying yourself first is simple. Paying yourself first is a killer strategy.

If you are young enough, this strategy alone is probably sufficient to make you financially free over your working life because of the power of compounding and the fact that you have enough time for it to work. I find that people can easily understand the basic arithmetic but somehow overlook the power that compounding has on money—that if you leave your money in an investment and allow the interest that is earned to be reinvested your money will grow hugely over longer periods of time.

Time is the best friend of the investor. But if you are a young woman reading this you have just found the closest thing I know to a legal silver bullet for creating wealth. Some of you who are professionals or business owners will have enough income profits to set aside very significant amounts of money on a regular basis. No matter what you have done so far you have the means, because of your high incomes, to catch up in the wealth-creation race.

The important thing is to try to commit to some amount. This money will be your investment money. Keep accumulating it until you choose an investment that suits or have enough to make a purchase. It is astonishing how reticent many highly skilled women are in asking for a salary increase, investigating other employment at more lucrative rates, or up-skilling themselves at their own expense in order to be more valuable in the marketplace. Even a relatively small increase in salary diverted into investments can make a great difference over a ten-year period.

Many women feel that there is little that they can do to improve their circumstances as all of their time and effort is consumed by a job or career. They look at the difficulties of becoming an investor and feel that this is way beyond their reach. Most women who have a job will need to continue to provide income from that job. The key for earning women is to create a surplus of income either by earning more or spending less—or both!

The 4% Rule for Retirement (FIRE)

So put some thought into increasing your income from whatever sources are available. My experience as a manager is that very few women ever do. Try it—it almost always works! Inflation alone means you are going backwards in real terms unless you get regular salary increases. Make yourself more valuable. Think about what you can do to make sure your employer continues to be willing to give you increases in pay. Make yourself as useful as possible.

Managers are acutely aware of how difficult it is to replace good people. Market what you do. I have observed so often that it is only when people leave that managers become aware of what they actually did. This is particularly true in the case of women who tend to do much that is behind the scenes, or for which they ask no acknowledgement.

Often, when a wonderful woman leaves, insult is added to injury when she is replaced by two people! If your boss is to value you she needs to know what you actually do. So give the boss frequent updates or brief reports so that she is in no doubt about the value of your work. Grow your skills. Every business is different but you need to figure out what you need to become better at or where you could excel.

Whatever you choose, do your best to be the best at something. This is a lifelong quest and you should never stop. Yes, your workplace should be providing training and development but you own the ultimate responsibility for creating your own worth in the marketplace. Look around. Many employees never check the market. Perhaps you have been underpaid for years and could make a great leap in salary.

This can be particulary true if you are working in a small business where no one is keeping much of an eye on the labour market. After all, you may be very happy where you are! If you are not in paid employment you may need to become quite inventive about getting more income. You may not need to work. You may not even particularly want a paid job for its own sake. But a job may provide you quite quickly with a significant amount of money to invest. Nowadays much can be done from home. Perhaps you have word processing skills. You may have the writing skills to edit the reports that many professionals write—many are excellent technically but need a lot of help to polish their work.

There is a growing demand for child care, especially after school and during holidays. If you need to be home-based you can still earn significant additional income. Many of you may have plenty of room to have someone to stay. Students are a good source of income and rarely infringe much on family life. Very few of them seem to contribute much other than the odd household task.

This is your choice, of course, but it represents a huge subsidy from your income to theirs. If you are not already wealthy and are struggling to release some sums for investment you should consider changing these arrangements—unless these grown-up children are committed to providing you with income in later life! Over the years we all accumulate masses of things that we no longer use or love. You might put together a tidy sum for investment by gathering all of the sports equipment, toys, books and so on that your family no longer uses and selling it on eBay or TradeMe.

One of my clients has a very tidy house in spite of her three teenagers. Her rule is that anything left lying around is sold! Her teens learnt the hard way very quickly—brilliant! Maximising your income is all about creating a surplus, no matter how large or small your income.

If you are committed to creating wealth through investment then you will look hard at the income side as well as the expenditure side. For many, it is easier to find an extra dollar of income than to find an extra dollar to save. Some investors do well and others do not but that is not a matter of luck. The ones who succeed do so because they follow the underlying principles of investment.

Baseline Financial Independence

The following chapters outline these principles of investment. I could have called them rules or keys for investment because that is what they are. I deliberately avoided naming them tips or secrets because my experience is that too many women already think that investment is more like gambling or going to the races—someplace where you try your luck or speculate on a big win—than a principle-based activity that makes sense and works well, if you play by the rules.

Investing is all about putting your money into things that have a high chance of doing well for you in the short to medium term and an even better chance of giving you good returns in the long term. There are many things that will do that: shares, property, fixed interest and cash deposits. You do not need to become an expert in order to be a successful investor.

You do not need an advanced degree in jargon and gobbledegook in order to make sound investments. But you do need to understand and follow the basic principles. Beware of anyone who promises you instant and effortless riches from your investments. Successful investment takes time and care, just like everything else worthwhile: health, relationships, children, and achievement in any field.

There is some risk involved. To invest you are going to have to give your money to someone else, even if only the bank. The alternative is to keep it under the mattress, which has its own risks. There is always a risk that you do not get your money back, but that risk is small and manageable if you stick to the rules.

Many of you will be very nervous about deciding whom to trust, and rightly so. Anywhere there is money there are unscrupulous people looking to take it. However, if you stick to the principles and stay informed your risks are very low. Risk is something to be managed rather than avoided altogether, an impossible position in any area of life. You make the decisions and keep control.

You can use other people to do much of the work for you but you do need to understand what is going on and you should never give up control. There is a very big difference between delegating work and management tasks, and abdicating involvement and responsibility. You should no more give away ultimate responsibility for your investments than you would for your children.

Investment is fun. The more you understand the principles the more enjoyable it is. And it is not difficult. Women make great investors.


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One of the things that seems most confusing for a beginner is that everywhere you look there seems to be a bewildering array of so-called investments, from art and angora goats to zinc; and someone is urging you to put your money there. However, the definition of an investment is that it must give you a return.

This return must be in the form of income. That is, the asset must produce some return for you, like interest, rental income, or dividends. That rules out almost all of the things that are touted as investments such as art, cars, jewellery and so on. This is not an investment because there is no income. Investments are also valued by their income. You have to pay more for investments that are likely to give good and growing income and that are likely to continue to do so.

In this light, a commercial property in a good location with good tenants that is quality built is worth more than one that is less well built or in a poorer location or without long-term lessees, because in the first instance the rental incomes are higher and likely to continue for a long time. When you invest, you are buying streams of income.

A Man Is Not A Financial Plan: Investing For Wealth And Independence by Joan Baker

If the income streams look like they are getting better or more sustainable then the value of the investment will also rise, so the property or shares go up in price too, and you get capital gain as well as higher income. You can buy all or part shares of a business. Your income will be in the form of profits or dividends. You can buy all or part of rental property. Your income will be in the form of rents. You lend your money to a bank or business bonds or other entity government bonds, securities and they pay you for using your money.

Your income is in the form of interest. All true investments are either one of these or a means of investing in one of these. These are ways of investing in business, property or deposits. The focus of investment is to get a return from the assets you buy. Calculating your return is simple arithmetic see below. Get comfortable with working out what the underlying investment is— business, property or deposits. Equity and debt Some investments buy you a piece of the company whereas others get you a promise of repayment.

If you buy some investments you get equity, or ownership, of some or all of the investment. This is what happens when you buy shares. What you get back depends on how well the company does and how many shares you own. If you lend money, as you do when you buy a bond, you have made an investment in debt. You have lent your money in return for the payment of interest to you and the promise that you will get your money back.

If you buy funds or, more accurately, shares in a fund , you may be buying equity or debt investments, or a combination of both. If the fund earns interest or dividends on these investments, it will pay your share as a distribution. Rate of return ROR Returns—what you get out of your investment—matter. The real rate of return is what you get after tax and inflation. Many people in the s were losing money on their investments: I know lots of older people who had most of their money in the bank.

Calculating the real rate of return is simple arithmetic. You subtract the rate of tax and the rate of inflation from your return. You need to use percentages for all the numbers. If you buy just because you think that the asset will be worth more in the future then you are speculating rather than investing. It is the ability to generate income that distinguishes investments from speculation or gambling.

Income matters for several reasons. First of all it gives you a return on your investment. The jargon used changes from type to type—profits and dividends from shares, interest from deposits and rentals from property. As the yield goes up the value of the asset usually rises and conversely, the value falls if the income falls. This is where you get your capital gain. So if you buy an investment that gives good yield you will usually get capital growth as well.

Investments are valued for their yield and you should watch it carefully and value it, too. So when you are considering investments you need to know what income they have, and you need to know what kind of yield you should expect from that particular type of asset. This is much easier to do with some investments than others. It can be harder with shares.

And the rent from the property could be misleading. Maybe they are paying above the market and a rent review is due, at which time the rental will drop. The past is also a poor guide to the future. We all have brilliant investment strategies in hindsight but the only income that matters is the income that is still to come.

You will need to read the business pages and perhaps some material from your broker or professionals or from investment associations that you join. Figuring out what yield you should get is another matter. The market decides what is a fair value for each investment.

Have you ever wondered why finance companies pay much higher rates of interest on deposits than a bank? The principle is the same with property. Investors will accept a lower yield from an investment that they think is likely to grow or looks more sustainable or secure over time. I took a distressing phone call from an older woman when the first of the finance company collapses finally made the news.

She was distraught, and she had good reason to be. She was living on a small superannuation income and was making ends meet by being very frugal, as many older women have to. The difference in income was significant for her. However, knowing almost nothing about investment, she did not understand the much greater risk she was taking with her money.

At the time of writing I cannot be sure what, if anything, she will get back of her savings but she will certainly lose a substantial amount. This is a huge blow. Needless to say, she has no means of replacing this capital and her future income will be even smaller than it was before. For your investments to rise in value you need to find ones that will grow their income, or ones that look so good to other investors that they will be happy to accept a lower yield in the future.

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During the property boom that has been going on worldwide for the last few years, the value of properties has soared. Interestingly, rentals have risen very little. Time will tell whether the investors are right. Calculating yield Yield compares the earnings income, rent to the purchase price of the investment. Investors will want a higher yield from a poorer quality investment because the expectations of future capital gain or future profits are lower. You can only get a higher yield by: a getting a higher income more interest, higher rental, bigger dividend ; or b the price of the investment falling.

So for the value to rise, either: a the income must rise; or b the market must accept a lower yield. For the property to increase in value either the rents income have to rise or the buyers have to be happy to pay more for the same stream of rentals, i. The arithmetic is simple but the ideas may be new to you. It just means that there are lots of players and someone is always ready to buy and someone is always ready to sell. The numbers on either side of the table change by the minute as individual investors change their views on a particular investment and the prices go up and down, sometimes by the minute.

You can watch this happening over the Internet. Property is doing the same, of course. Markets seem emotional because the individual players are: sometimes the markets are very high and we have a boom because there is a feeling of optimism or even hype around and it infects most of the players. If the opposite happens we have gloom and possibly recession. The market moves freely and quickly. It is all this uncertainty that makes it both nerve-racking and exciting. You are free to buy or sell, but there is always someone who thinks the opposite.

Otherwise there would be no seller or buyer to work with to create a market. Emotion is infectious and, just like individuals, the market overreacts both up and down. You need to know this so you can keep your head. As you will know with other areas of life, it is difficult to maintain a course when public opinion is against you. These overreactions lead to both bull driving upwards and bear clawing downwards cycles.

The market moves up and down frequently, even daily. The important thing to remember is that you should take a longer-term view, and markets grow over time. However, in many ways this uncertainty is great: if you can keep your head and think through your principles of investment, then there is great money to be made in both bull and bear cycles.

There is an old Wall Street adage that bulls make money, bears make money, but pigs never do. Markets operate on information. As soon as anything is known or expected, the prices move accordingly—the information is factored in almost instantly. The sharemarket is usually ahead of events because investors are already pricing in their expectations and anticipations.

But the markets often overreact and the expectations are sometimes wrong. In theory, markets are efficient. You have to keep sniffing the air and gauging the mood as this will affect your investments, but you must avoid getting infected with whatever fever is doing the rounds. Intelligent investment is about using your head rather than being swayed by your heart. You may become despondent or panicked. One thing is sure, if you exit now you are sure of a loss. You are, after all, trying to buy at a low price and sell at a high one—not the other way around.

Or you may simply need to rebalance your portfolio—your asset allocation may no longer be right. Generally, you should not be buying and selling frequently unless you are choosing to be a trader rather than an investor. You need a great deal more skill for this and need to devote yourself to the job. Buying and selling frequently is also expensive. You will have to pay fees each time. This mounts up and will affect your returns. It is very expensive to buy and sell property, and so you need to be sure about your investments. The market and the economy tends to work in big cycles—money gets tighter, interest rates rise, share prices fall, property values fall, money gets easier.

It never works exactly like that and it can be very difficult to anticipate the timing of the shifts; however, in general terms, it does happen like this and the cycles repeat over and over. Boom and gloom follow each other over and over. Market cycle Money is easier. Prices are higher for most investments. Recovery begins. Price of shares rises. Interest rates rise. Price of shares falls.

Businesses and other investors squeezed. Less investment. Some investments fail. Property values low. Investors bail out! TIME Hold on to the bigger picture. It will keep your feet on the ground. Start to see these cycles—changing times—for what they are. This is where it really helps to have a plan so that you can behave in an objective way and help yourself to avoid following the herd much more about how to plan your investments later. Buy low and sell high Smart investors try to behave differently than most others in the market.

They discipline themselves to do the exact opposite of the typical investor cycle. When the markets are booming, and everyone else is climbing on board in case they miss out, smart investors take their profits and sell. Yes, the market may not have peaked but they operate on the principle that they have made good returns and they try to avoid being greedy.

When markets are depressed and most other investors are bailing out is a very good time to buy investments. It often takes courage to spend when all are in gloom and predicting even darker days. However, this is when you can buy great assets at sale prices. It really pays to keep some money for opportunities like this. Again, lots of planning and forethought really helps you behave smartly. In practice this will mean that you are not trying to buy at the very bottom or sell at the very top as there is no way of determining those moments except in hindsight.

Instead, what it means is that you will buy when you see prices moving up after they appear to have hit the bottom and you will sell when prices are still rising but probably have not peaked. Trying to do that usually involves too much risk. That can be a very expensive strategy. Remember that both bulls and bears make money but pigs get slaughtered! This is partly because we use the word every day in a very loose way. Risk is not a single thing when you are speaking about investment; rather, risk means several specific, and differing, things in investment.

Some of the risks that you need to consider are described below. Def a u l t r i s k The first return you should care about is the return of your money. Default risk is the risk that you might not get your capital back, never mind any income. As I write, several finance companies have collapsed; many investors will not get their money back and for some of them this will be devastating.

This example underlines the rule that higher returns are accompanied by higher risk. However, it is clearly a mistake to take little or no risk. When choosing investments you need to do your homework. You would also check its cash flow, i. You will need to take particular care, however, when buying shares in a smaller business or one that is not traded a lot to make sure that your money is not at risk. I was out walking with a group the other day. When Linda, a woman I had never met before, heard what I do professionally she asked my opinion on some property she was hoping to sell.

Do not overdo assets like real estate, gold, silver and such stuff. Many of these end up being hoards of wealth that are kept locked or used in a limited manner. Not beyond its ornamental value. Third, do not obsess about passing wealth over to your children. We live in times of obsessive parenting. Sometimes, our guilt about being working mothers leads to needless generosity with kids using the money we earned.

By all means support your children and enable their growth if you so wish, even after you have provided for their well-being and education. But draw the line at some point, when your kids have begun to earn money. They will do much better when they have to fend for themselves. Fourth, there is nothing complex about investing and finance. Money left idle loses value, while money deployed to work earns an income or grows in value, or both. Every investment option can be understood in terms of where the money is deployed, and what happens to it.

Return is what you get by allowing others to use your money; risk is the quality of that promise to give you something for using your money. Ensure that your money is put to use by scrupulous institutions whose promises are valuable. Fifth, do not part with your wealth too easily and too early. One of the women told us the story of how her PF proceeds were used by her brothers to set up businesses that failed. She was lucky enough to inherit the wealth her husband left behind.

But her warning that money in the hands of an elder attracts many in the near and extended family evoked resonance. Whatever is yours should be in your control , so you can decide how to spend, save, and give it away at a time that you deem appropriate. Sixth, do not assume that all the wealth you have should be hoarded and kept in a place you deem safe, until you are alive. Money as we just learnt, has many uses and there are many institutions who will use your money for their business and pay you for doing so.

Only a portion of your wealth might be needed for your routine everyday activity and annual spending. The rest must be invested efficiently to earn an income or grow in value. What you do not need immediately should be allowed to appreciate. Allocate your wealth between growth and income, based on what you have and what you need. Do not allow fear and misinformation to guide your investment decisions. Seventh, do not provide information about and access to your money to others, however close you deem them to be.

As long as they got money when they needed it, they did not care much about what was there and how it was being held. This is a lazy, indiscreet and callous attitude towards money. Learn to manage your money and take charge. Secure your bank account, learn Net banking, make those trips to the ATM yourself, and check your accounts from time to time. It takes a few minutes, but places you in complete control. Eighth, keep the paperwork in order. Pay your taxes and file your returns. Ensure that nominations are completed and in order for all your wealth and investments.

Consolidate and hold fewer investments so that acting on them is easier. Close accounts that are not in use or have matured. We did a quick round of polling that evening, converting these eight pointers into questions, and seeking yes or no as answers from the group.

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Sadly, our fun loving women scored too low, the average score for yes being three out of eight. It is wonderful to enjoy the powers of money as a currency for fun; it is equally important to acquire a strategic orientation to personal finance. Disclaimer: The opinions expressed in this column are that of the writer.

The facts and opinions expressed here do not reflect the views of www. Not making enough money in stocks? Click here for real-life stories of successful investors. Read more on wealth. Click Here. Follow us on.