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August 02 newsletter

Should you invest overseas? We have updated the information on Portfolio Investing to help you answer that question.

Welcome to the Shape of Money's step-by-step programme on the secrets of wealth.

The programme has previously covered three secrets to wealth: planning, tuning the thinking engine and, most recently, budgeting.

The fourth secret to wealth is the "tempest".

Before the election, we began to look at the "tempest" and how the Zolas might apply it. To help the "tempest" work effectively, they needed to do some work on "successful budgeting".

Now that they have been using a budget regularly for several months, they're gaining an accurate picture of where their money goes.

Rent $180
Food $125
Car $65
Kid's stuff $55
Hire purchase $48
Clothes $35
Power $30
Takeaways $25
Family outings $25
Contents and Life Insurance $25
Phone $20
Personal $20
Bus $20
Medical $17
Credit card $15
Family presents etc $15
Sport $15
Sky $15
Total Expenses $750

Last month, the Zolas discovered that they're expecting a second child (a younger brother or sister for Samantha). While they'll be entitled to some Government assistance, it has made the need for their new home more urgent.

After doing more work, they're confident that they have a realistic budget. The work on their budget also uncovered a few nuggets of information.

• While they were saving $20 a week, they were also calling on that money regularly, such that it never exceeded $50 in total.
• They have decided that, with the second child on the way, they need a bigger car - the current one is costing them a small fortune in regular repairs, anyway.
• They will need to increase their life insurance.
• They still need to pay off their $800 credit card debt (post honeymoon hangover).
• They didn't realise there was still $1,800 to pay on the HP for the new bedroom suite.

The Zolas now have four financial goals:

• A house deposit of $20,000 in four years,
• To pay off their credit card debt of $800 over the next 12 months,
• To pay off their hire purchase of $1,800 over the next 12 months, and
• To save $7,500 for a new second-hand car over the next two years.

Now that their budget is ready and they've refined their goals, they're in a position to start looking at where they can save money. The "tempest" works quite simply: try and save 10% on each of your expenses. Some you won't be able to change in the short term, such as rent, but on others you may be able to save more than 10%. The Zolas were surprised, for example, to work out that giving up takeaways will save them over $5,000 over the next four years. With other costs, you may be able to save 10% by careful planning and focus.

Next month, we'll see what changes the Zolas have made in order to save $22,500 of their required $30,000 over the next four years.

Tune your internal thinking machine with tip number 4: Be completely and utterly focused on your goals.