Start forming wealthy habits early and you will reap rewards

‘MY grandmother loves you”, said a young woman I met recently. She explained that her Nana was forever clipping out my newspaper columns and sending them to her in the mail

Start forming wealthy habits early on

‘My grandmother loves you”, said a young woman I met recently. She explained that her Nana was forever clipping out my newspaper columns and sending them to her in the mail

‘MY GRANDMOTHER loves you”, said a young woman I met recently.

She explained that her Nana was forever clipping out my newspaper columns and sending them to her in the mail.

I imagine that would be quite a let down. After all, aren’t grandparents supposed to send handwritten cards with $20 notes stuffed inside them?

Still, it wasn’t the first time I’d heard about my octogenarian groupies. In certain quarters, I’m told, I’m more popular than Ray Martin at a retirement home.

Each week people send me hundreds of questions, and every now and again one of them really stands out as scissor worthy. So with that in mind, here’s one for all the grandparents...and their grandkids.

Hi Scott,

I first heard about Barefoot Investor last year. Since then, I’ve paid off my $1500 credit card, and then sold my car, which I had a $35,000 loan on.

I struggled, but then managed to save $5000, which I currently have in my UBank account. I even bought my first stocks last week!

Now I’m hungry for more. Should I be investing in property, pumping more money into shares, or looking to start my own business next year when I finish my apprenticeship and am fully qualified?

Rhett

Hey Rhett,

You’ve brought a smile to my face. It’s guys like you who are the reason I do what I do. You probably don’t fully appreciate it yet, but what you’ve achieved over the past year will radically change the course, and quality, of your life. See, you’ve got something billionaire Gina Rinehart would kill for: time (and friends).

You’ve got a lifetime ahead of you to compound, and enjoy, your money. So with that in mind here’s my next piece of advice and, if you follow it, I see no reason why you won’t be earning well over $100,000 a year in your 30s and be on the way to being a millionaire in your 40s. When you finish your apprenticeship, it’s time for the real learning to begin. I want you to actively search out a job with the best tradie in your industry. Not the biggest. The best. The bloke (or woman!) who’s been around for at least 20 years and has a reputation for doing high-quality work and charging high prices. Learn from him. Think of it as a paid five-year uni course without the HECS-HELP loan.

You’ve learned how to do your trade, now it’s time to learn how to run a profitable business. How does this guy get new business? How does he price his jobs and manage his costs? How does he deal with his staff and subbies? Act like you’re a part-owner in the business. Your goal should be to work harder than your boss. The payoff for five years of hard slog, before you eventually start your own business, will be better than any stock market investment. It’s worth millions of dollars in future business earnings.

Very few people wake up wealthy (and those who do are not always so good at keeping it). Instead, people become rich over their lifetime by adopting wealthy habits. Here’s the key: if you can live OK now while you’re earning nothing as an apprentice, you’ll set yourself up to live like a king down the track.

In the first year after your apprenticeship, aim to build up at least three months of living expenses in your Mojo account. Switch your super to a low-cost fund that has a ‘direct shares’ option, which basically means you can invest directly into individual shares of your choosing. Build up your knowledge of shares, but start with the Australian Foundation Investment Company (AFIC). Also, take advantage of the super co-contribution — it’s an easy $500 gift from the Government.

Finally, if I were you, I’d be looking to aggressively save a 20 per cent deposit on an old house, with the aim of renovating it on the weekends.

Rhett, you’re a tribute to your grandparents. You rock!

FIRST HOME SAVER ACCOUNT UPDATE

KEVIN Rudd is hands down my favourite politician of the past few years. Not because I agreed with much of what he said or did, but more because I could relate to him. His prime ministership shared a lot of similarities with my first year of parenting: he was thrown in the deep end, and he basically just made most of it up as he went along -- and whenever he got a whiff that a No.2 was brewing, he’d quietly handball it on to his Treasurer to change the dirty nappy.

Still, his best thought bubble that turned into policy was the 2008 introduction of the First Home Saver Accounts (FHSA), which encouraged young people to save for their first home with a 17 per cent bonus contribution, plus interest, all taxed at just 15 per cent. The problem was that K-Rudd doused the FHSA in 7000 pages of legislative spaghetti, which caused the finance industry to shun them. Besides, there’s more money in selling high-leveraged loans to first home buyers than there is in encouraging them to save. In any event, the liberal government scrapped the FHSA when they got into power.

So what do you do now? You can access the money in your FHSA immediately if you’re buying your first home, or you want to pay it off your mortgage, or if you’re over 60. Otherwise, you’ll have to wait until July 1, when you’ll be able to take the money and run — and use it for any purpose whatsoever.

Behind the scenes I’ve been prodding the existing FHSA providers to come up with a good deal to keep these very valuable customers. Most aren’t planning on doing anything. However, I can reveal that ME Bank is set to launch a new version of the First Home Saver Account later in the year. The bank tells me it is hoping to make the product tax effective, and are in discussions with the Australian Tax Office. The bank also assured me that I’ll have the chance to give the product a good going over before it’s launched. Stay tuned.

Tread your own path!

Originally published as Start forming wealthy habits early and you will reap rewards