Originally written as a set of wealth creation principles in parable form for bank and insurance company pamphlets, one of the most popular wealth creation books of the twentieth century is George S. Clasons: The Richest Man in Babylon.
The greatest strength of Clasons book is it’s simplicity. Save for the future, limit your borrowing and protect your family. It is this simplicity that makes it easy for anyone to follow and therefore gives it a level of practical application that is unheard of in other noteworthy texts.
In my 14 years as a Financial Adviser, it is the book I most commonly give to clients and their children. And with good reason, for the most part it is a set and forget programme that suits most people
George S. Claysons Plan
10% Savings – one tenth of all income to be allocated to long term wealth creation; For self employed people, this may be as simple as investing in opportunities to grow your business. Marketing Initiatives etc. That is, if you’re relying on the future sale of your business to fund your retirement.
For employees, I generally recommend making additional contributions to a retirement plan such as Superannuation. This is an additional contribution to what your employer is already putting away for you via your 9% SG.
If you’re unsure how your Super should be invested, take the time to sit with a Financial planner to help you develop a suitable strategy.
This will be different for everybody. When you’re young with a low balance, a focus on shares in a retail fund might be appropriate with a move to a self managed super fund once your balance increases over time. You might even use your Super to buy property.
20% Debt Payments – maximum amount of cashflow permitted for loan servicing. In other words, don’t live beyond your means. Don’t buy stuff you can’t afford.
If you’re just starting out or starting again, the 20% can be put aside for future property investment. Because of the tax system in Australia, an investment property is cheaper to cashflow than an owner occupied home so you would be better off buying investments rather than your own home. This is the complete opposite to our commonly held belief that ‘Rent Money is Dead Money’.
I usually recommend that clients buy at least three investment properties before making such a large purchase as a home for themselves. The fact that the mortgage is non-deductible and is therefore paid from after tax income is just one of the reasons.
In fact, if you’re one of the many Australians who is feeling weighed down by mortgage stress, then moving into a rented property and renting out your family home will ease more pressure than you can imagine.
Some of my clients have swapped homes with friends and family members. The difference is amazing. Even if they charge each other the same amount of rent.
70% Lifestyle – The rest of your life should never exceed this figure. Once you’ve put a roof over your head (rent) and food on your families table, you should be protecting your family and it’s assets with insurance and providing opportunities for personal education and spiritual growth.
Everything else is a negotiable luxury. Everything.
Set this plan in place. Live well, provide for and protect your family, retire comfortably. What more do you really need.
Got Questions? Feel free to ask them in the comments section.