If you can’t pay cash, you don’t deserve it and other get-rich tips

Eight simple hints to get going on the path to financial independence and a lifetime of options.

National Australia Bank head of wealth management Andrew Haggar was recently quoted sharing a disturbing statistic: half the population lives from pay cheque to pay cheque.

Meanwhile, on the same day Haggar was quoted, an article in a national publication discussing opposition Treasury spokesman Chris Bowen’s concerns that 70 per cent of the benefits of negative gearing go to just 10 per cent of income earners featured a family of four earning $200,000 who have four properties in the Northern Territory with a market value of $1.95 million on which they owe $1.7m.

It strikes me that both examples demonstrate a lack of financial knowledge and an understanding of risk.

Financial education was not part of the school curriculum in the 1970s and 80s when I went to school, but if it had been I suspect there would be far fewer people able to identify with the two categories described above.

Times, however, are changing and I have been asked by my son’s school to speak to his year cohort about investing and the stockmarket.

Encouraged by this enlightenment, a column offering the foundational elements of personal finance may not only plant the seed of future financial security for many, but also satisfy the germinating demand for financial literacy and competency.

What follows are the eight basic habits I employed from my first paper rounds through to butcher shop clean-up-kid then busboy and part-time accountant while at university.

Habit 1. Work hard and/or smart. Australia has its fair share of the lazy and idle so rising above the pack is not that difficult. All that is required is a solid work ethic. Parents of all financial persuasions must demonstrate the benefits of hard work, even if you are financially secure. You aren’t loving your kids by buying them every latest gadget. And if you’ve taken them on holidays with you to every country in the world by the time they’re 17, please explain what they have to work hard for when they grow up?

I know of one parent of two adult kids who holds down two jobs, and who on her way home collects toys, tools and furniture dumped for council collection, cleans them and sells them at weekend flea markets. I also know of a successful young banker who sells bacon-and-egg rolls at a community market each weekend. The extra cash might not make a difference, but it’s the demonstration of industriousness that will assist their kids to transition from dependency to a successful financial future.

My son looks after his bicycle more than any previous bike because he paid for it himself and he wants to sell it in the future for the highest justifiable price.

Habit 2. Pay yourself first. Whether you call it saving, wealthing or squirrelling, what matters is that from the first receipt of income your youngsters pay themselves first.

Many adults who are living from pay cheque to pay cheque are simply spending beyond their means and by the end of the week or month there’s usually nothing left to save. Reversing the typical habit of spending first and saving what’s left can arrest the risk of falling into this trap.

A better plan is to divert 10 per cent or more of one’s income to an account with little or no access. Then spend on necessities, luxuries and philanthropy what is left. I kept such an account for many years and I would cut up the ATM cards that were sent to me every few years by the bank. An old friend destroyed his access cards and would put the cash that he was free to spend in his wallet at the start of the week so that at all times he knew how fast it was disappearing. Instead of paying everyone else from your income and keeping what is left over, pay yourself first.

Habit 3. If you can’t pay cash, you don’t deserve to have it. Don’t apply for a credit card. I have a personal credit card, but I am told the limit is smaller than most university students’.

Habit 4. Magazines and shopping malls are soul destroying and financially ruinous.

Habit 5. Invest in businesses or start one yourself. Either learn the path to successful investing yourself or, if you don’t know the difference between investing and speculating, regularly and consistently invest with those who do. Starting a business or owning equity in one won’t suit everyone, but take a look at the world’s rich lists and nowhere do you find: “Mr Smith. Wealth: $US5 billion. Source of Wealth: Salaried Employee.

Habit 6. Choose carefully. I am fortunate that I married a person who does not care for material possessions.

Habit 7. Be patient. Most of the adverse or permanent shocks to one’s wealth stem from a lack of patience. You can become very wealthy without ever borrowing money, provided you aren’t in a great rush. The accumulation of debt is more often a function of impatience and the fear of missing out.

The stockmarket in particular has a habit of transferring wealth from those that have no patience to those that do. When it comes to debt, less is always more.

Habit 8. Sacrifice. Nobody really wants to hear this, especially the young, but at the very core of financial success is the idea that choices with opportunity costs need to be made. A high school student can sacrifice a year or two of partying and instead choose to knuckle down, secure great grades and set themselves up for a life of more enjoyable choices.

A lifetime of better options awaits the person willing to defer pleasure. And don’t forget: you will be older before you know it, and for longer than you think.