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June 02 newsletter
Having the correct level of insurance is a
vital component of your Money Shape. Trauma insurance is a relatively
new form of insurance which can provide financial assistance in
the event that you survive a major health crisis, such as a heart
This month, we also continue our series of articles on the secrets of wealth.
The programme has already covered three of the secrets of wealth: planning, tuning the internal thinking machine and, most recently, budgeting.
The fourth secret to wealth is the "tempest".
Before we find out about the "tempest", we'll just have a quick look at the Zola's budget. The Zolas are an "average" household and we'll be using their information as an example. Over the past month, the Zolas spent some time preparing the first cut of their budget. This what they achieved:
After tax weekly income $750
As discussed last month, a regular budget is vital to achieving your financial goals. Apart from the obvious control it gives, a budget will help you make the most of the remaining secrets to wealth.
The "tempest" is another simple, but very powerful concept. Essentially, it means the reduction of all expenses by 10%. Obviously, this is much simpler in concept than in execution. In the Zola's budget, for instance, the biggest expense is $180 in weekly rent, but we all know that it's just not possible to ring up the landlord and ask for a 10% reduction in the weekly rent bill.
But don't despair: there are still ways of making the "tempest" work in practice. The first problem the Zolas need to grapple with is that, while their budget is a good effort, it's not good enough to make the "tempest" work.
Before sending the Zolas back to their budget, we should explain why it's worth the effort.
The Zola's one and only financial goal is to own their own home. They want a home for security reasons, so they "can't be kicked out by the landlord". In the longer term, they see owning their own house as "a good investment" - paying off the mortgage instead of just paying rent.
They have talked to their bank and know that, realistically, they need a $20,000 deposit. It seems to them that house prices are always going up, so they want to get into their own home as soon as possible. They believe that somehow they can save $100 a week and have their deposit in four years. They do want the new home sooner, but feel that a four-year timeframe is realistic.
However, at the moment they seem only able to save $20 a week. At that rate, it'll take 20 years to save their deposit, so - yes! - they are committed to their goal and are willing to do whatever is required to make it happen.
Note, that if the Zolas can make the "tempest" work for them, they'll reduce their expenses by 10%, or $75 per week. That'll give them $95 each week towards their savings plan. Why not come back in August (see below) to see how they got on?
Tune your internal thinking machine with
tip number 3: Only go for your financial goals if you really
want to achieve them. Achieving them won't be easy. You may already
be sacrificing your spare time to a budget, an activity which
may not be something you really want to do.
To help guide you in the upcoming election, next month's newsletter will be an election special. We'll offer some information on the superannuation policies of the major parties - cutting through the political spiel, to detail what the policies really mean. In addition, the Shape of Money will be putting their own spin on the superannuation topic.