The absolute basics of managing your wealth

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10 points

Never abdicate your responsibility

Personal finance can be overwhelming and complex, but if you want to partner with an advisor to help you protect and grow your wealth there is a bare minimum you need to know so you can assess whether your wealth is invested properly and you have the factors you can control on your radar. There is nothing more dangerous than being ‘unconsciously incompetent’ – not knowing what you don’t know.

Here are the handful of numbers you must know (in order of priority):

  • The “repo” (repurchase) rate (currently 7%), prime interest rate (usually 3.5% above repo rate, now at 10.5%) and the interest rates of all the loans, mortgages (usually close to prime), credit cards ( as high as 18-24% at the moment), car loans etc. that you have. Why? This will illustrate which debt must be paid off first. Read HERE for more on ‘Smart debt’. This will also give you a benchmark that you can rate your investments against.
  • The inflation rate (currently 6.3%, the top end of the target range is 6%.) If you know this number then you can do a simple calculation on how well your investments are doing. If your investments don’t keep up with inflation then the ‘purchasing power’ of your investment erodes. The actual rate of return, minus inflation, gives you the ‘real’ rate of return which is what you should focus on, not the bottom line.
  • The difference between “Interest” (money market), “Yield” (bonds but taxed as interest), “Dividends” (from shares) and “Capital growth” (shares and property). These all grow your wealth but are very different, have different risks and are taxed differently.
  • The very basics of your annual budget. Your net income, fixed expenses, investments, variable expenses (groceries, entertainment, clothes, fuel, cell phones etc) and ‘disposable income’ (what is left over.) If you ever apply for a loan or mortgage you’re going to need these numbers anyway. Disposable income should never be zero. If money burns a hole in your pocket, put it out of the way on payday, say into a call account. Living within your means and continually saving is the key to long-term wealth.
  • The age at which you (realistically) want to retire. This is the line in the sand where you essentially stop investing and start drawing down on your income.
  • What your annual budget will look like at retirement. Once you have your present day budget, this is easy. You take out things you won’t be doing at retirement – mortgages, school fees, debt and add back things you will – travelling more perhaps. You or your advisor will now be able to project how much you will need in investments to retire and live on your income until at least 95 or 100 years old.
  • The monthly contributions you need to go into your investments to retire on your due date, at your desired income. Knowing the actual capital amount you need (above) is useful 10 years out from retirement, longer than that it is pretty meaningless, focus on eating the elephant one month at a time.

  • The bottom line of your ‘balance sheet’: all your assets, including things like your pension, less your liabilities (debt, bond). Don’t be discouraged if early on the liabilities, especially from your bond, make your balance sheet look bleak. Have one goal- never go backwards. If a new car or house would make it go backwards – don’t do it. Those contributions should grow at inflation plus 5% per annum at the very least, much faster in the 15 years into retirement (what we advisors call the accumulation phase of your retirement savings).
  • Your credit rating. Get a free credit check every year to make sure no bills have fallen through the cracks. (You can apply HERE  or HERE)
  • The fees you are paying on your investments and how competitive they are, and the value for money you are getting. (I will be writing a blog on just this topic shortly.)
  • What your liabilities would be if you were to die today (debts, children and stay at home spouses). Quite frankly, this is only really important if you have a family that is dependent on you. If you have no dependants your ‘stuff’ can be sold to pay off liabilities.


Action:  Always partner with an advisor to help you manage your wealth unless you’re a financial professional yourself, never abdicate that responsibility to anyone – especially not a life partner. Be present at all the meetings and know where all your family’s wealth is invested.

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Author Dawn Ridler ©

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