Why do we need to invest

It is vitally important in this current day and age for all of us to begin taking control of our financial situation and start planning for our future, and the futures of our children. We can no longer rely on the government to hand out an aged pension once we retire. We cannot take for granted that at the end of our working life we will be taken care of financially. The world population is ageing, due to the baby boomer generation, and within 30 years there will be so many retired people, compared to the number of working age people, that it will be economically impossible for the government to afford to provide any reasonable source of monetary assistance for the elderly. The government has realised this, and that is why they introduced the compulsory employer paid superannuation scheme and are even now beginning to give financial incentives to Self-Funded retirees. Most of us have never sat down and even considered the ramifications of why the compulsory super was introduced and for many of us it is a matter of too little too late. Even for the young women in our society – who have a full working life ahead of them, they still cannot rest assured of a comfortable retirement. Why is this? It is because that unfortunately even with contributions at the current level of less than 10%, someone on an average wage who works continually for 30 years, is still going to find themselves trying to survive on an income equivalent to less than $20,000,00 per annum in today’s dollars. You will notice that I said continually working for 30 years. This is another reason why women are particularly disadvantaged. Firstly because they often have to take up to ten years leave from the workforce to raise children, secondly because women in general earn less than their male counterparts and thirdly because an enormous proportion of the women in Australia, for example, will never have received any superannuation contributions, prior to the compulsory superannuation being introduced, and will therefore not have had contributions made over their entire working life so far, giving them even less to fall back on by the time they retire. Many women may previously not have thought of lack of superannuation contributions as being a problem, as their husbands may have been contributing to super since they first began work. Unfortunately though with the high number of divorces in this country, it is unwise to rely on the fact that your partner’s superannuation will be there for you in your retirement years and even if a large proportion is awarded in a settlement – that it will be sufficient to sustain a comfortable retirement for any length of time. All of these factors are why women now more than ever, need to begin taking action to build up a source of ongoing income, that will grow to such an extent, as to be able to provide a secure and happy future for themselves and their children. It needs to be a source of income that is unrelated to physical work…that is an income that is generated from income producing assets – and not from our personal efforts. One of the best sources of creating this ongoing income stream is to begin building an investment property portfolio, also aptly paraphrased as bricks and mortar. We need to start investing in income producing assets now, so that they will have time to grow and develop so that we will be financially independent for our retirement years. The most important concept to grasp in relation to building wealth for retirement and for creating finances that can be directed toward charities, or helping out your family is that of Compound interest. In mathematical terms 72 divided by Compound Interest Rate of Return = Years for Money to Double in Value. Therefore if you have $1,000.00 invested at 10% interest, then the number of years that it will take for your money to double to $2,000.00 is 7.2. It will quadruple in 14.4 years and be worth 8 times as much in just over 21 years. If your money is invested at 7% interest, then it will take approximately ten years to double in value. If it is invested at 5% it will double in just over fourteen years. The two most important aspects of compounding are one: rate and two: time. The higher the rate and the longer the time something is left to compound, the greater the final result will be. This is why the sooner we start investing, the better.

Residual income can be your key to wealth

Are you standing at the door to wealth but can't seem to find the right key? There are many keys on the key ring that can unlock the door to wealth, but you have to know which ones they are and how to use them correctly. In this article I'll focus on the "residual income" key that many have discovered can be used to enter the inner sanctums of the wealthy. But before I go too far, I should probably define what I mean by "residual income," (also called passive or recurring income). While there are perhaps a number of definitions for "residual income," I will be using the term here as follows: "Residual income is income that continues to be earned after the initial effort has come to an end." In other words, it can be thought of as the process of making a sale one time but getting paid over and over again. How can this be? That is, how can you make one sale and get paid over and over again? Well, let's take a look at some common examples of residual income. An insurance policy. When you buy an insurance policy, you normally pay premiums monthly, quarterly or annually. You made one purchase, but you continue to pay as long as you maintain you policy. The insurance company earns a residual income from you. A service subscription such as a pest control, lawn maintenance, or web hosting contract. When you purchase a pest control, lawn maintenance, or web hosting service you normally again pay a monthly, quarterly, or annual fee. As long as you continue your service, you continue to pay the fee. The service company earns a residual income from you. A membership subscription such as to a membership Website or a club. To continue your membership, you much continue to pay membership fees. The membership entity earns a residual income from you. In all of the above examples, the sale was made only one time, but you continue to pay the company over and over again. Residual income is distinguished from "linear income," where a single payment for a single one time purchase is made. For example, if you have an hourly job, you are exchanging one hour of your labor time for an hourly pay rate. You must work each hour to get paid. If you stop working, you stop getting paid. Your income is linear. However, if you sell memberships to a Website and your members pay a monthly fee to belong, then you continue to collect their monthly fees as long as they continue to remain a member. You made the sale one time but continue to collect an income long after the initial sales effort was completed. This is an example of "residual income." Which would you rather have, a residual income or a linear income? Generally, whenever possible, you should try to earn a residual income that will continue to grow over time as you make individual sales. If you put in a consistent effort toward earning a residual income, you will find that your income will compound itself as the amount of residual income continues to grow. For example, let's take a look at the difference between selling a $29. ebook and a membership to a Website with a $29 monthly fee. We'll assume that both sellers began their sales effort on 1 January and continued the effort for six months. With the sale of each ebook, the seller earns $29 but then has to make another sale to earn another $29. Hopefully, the seller has some backend or follow on products to sell to each customer in the future, but many do not. So each sale stands alone. Let's also assume that the cost to make each sale (including Web hosting fees, merchant card fees, advertising, etc) come to $4 per sale. Our merchant thus earns $25 net per sale. We'll assume that 10 sales are made per month so over the six month period he made 60 sales. So for 60 sales, he has earned $1,500. Now, let's take a look at how the membership site might do. Each membership sells for $29 per month and the cost to make each sale is the same $4 per sale so the site owner earns the same $25 net per initial sale. However, he continues to earn the $29 each and every month that the buyer remains as a member and there is no sales cost for the subsequent months. We'll also assume that our membership site makes 10 sales per month and that each buyer remains a member for 4 months on average before dropping their membership. Now lets take a look at the numbers. Month 1 = 10 sales for $250 Month 2 = 10 sales for $250 plus $290 residual income Month 3 = 10 sales for $250 plus $580 residual income Month 4 = 10 sales for $250 plus $870 residual income Month 5 = 10 sales for $250 plus $870 residual income Month 6 = 10 sales for $250 plus $870 residual income The total income for the six months comes to $4,980 plus there is still a continuing income that will come in from sales that were made during months 4, 5 and 6. Which would you rather have, the $1,500 made as linear income or the $4,980 plus earned through sales with a residual income tail? The sales effort was the same. As you can see from the above example, residual income can quickly surpass linear income if your sales effort remains constant. So, keep on the lookout for good residual income opportunities, they can be your key to opening the door to increased wealth.

Handling your money effectively

There is inflation every year. You cannot stop an increasing in living expenses as prices of consumer goods increasing all the time. Saving money becomes an extremely difficult task to do. Here are some solutions for saving a little so that you can still meet your needs and still find ways to trim off a little for the future. 1. Budget – Get one and stick with it! And set aside at least a small portion for savings while you’re at it; savings for your future, your retirement, your education, your vacation, whatever. Head to your local office supply store for planning workbooks or budget sheets to use. Or head to your favorite search engine and type in, “budget planning” for hundreds of sites with articles, free downloads, tips, ebooks and other resources to help with your budget setup and follow up. 2. Plan Ahead – Make sure to plan for emergencies and the unexpected, like an appliance break down or garage door malfunction. Even if you can only set aside $50 or so each monthly, place it in an account and earmark it for this “Miscellaneous” fund. Then when things go wrong, and they will – nothing’s perfect – you’ll be better prepared. 3. Non Monthly Items - Work out a monthly payment for items that you don’t pay monthly and set this up in your regular monthly budget. For example, for items like annual home owner or renter insurance, quarterly water bills and automobile insurance payments and annual trash bills, take the amounts and determine what they would be monthly. Then list the items on your budget log and pull these amounts aside, saving them in your account for those purposes. This way, when the bills hit, you won’t be caught off guard and have to scrounge for the payments. What works well, instead of handling multiple savings accounts for each company owed, is to use index cards and one savings account. Create one index card for each bill. Then simply log the amount you’re setting aside on the card and deposit it into your savings account. Keep the index cards with your savings passbook to remind you what the balance covers. The total of all your index cards should equal the balance in your savings account. (Make sure to create an index card for your regular funds that you are saving each month in step one above and a card for your Miscellaneous fund in step two above). So next time you get paid, take three giant steps forward. Grab your index cards, follow your budget and invest in yourself and your future. Get a grip on your money handling.