Habits of successful investors
In my career as a Financial Adviser I have had the opportunity to see many clients from all walks of life. I have had the chance to see how each client manage their money, what they invest in, their debt levels and also gain insight into the thoughts, feelings and motivations towards investing.
From all of this I had made several observations, which I will share now with the main aim to help you learn from other people's successes and failures.
1. Budgeting: The clients I see in the best financial health can account for where they spend their money and make sure they live within their means. The clients I have seen that are facing harsh financial circumstances are often the ones who are living a lifestyle they cannot afford and this will most certainly catch up to them sooner or later. People who don't budget and often live week-to-week, paycheck-to-paycheck, and are merely treading water until the penny drops and they are left with very few options. The onus is on you and you alone to get control of your spending; the earlier you do it the better off you will be. It is never too late to take action.
2. Income streams: I have seen quite a few clients who have many different sources of 'passive income'. This is income that they make with no (or very little) ongoing personal exertion. Things like investment property income, book royalties, music royalties, share dividends, sponsored links on a website etc. These income sources all continue with little or no effort. If you can establish one or more of these for yourself you will boost you savings capacity or quickly reduce your debts (such as a mortgage) much faster.
3. Research! Many clients have tried convincing me that investment properties are better investments than shares. My reply is always: “It depends on the property, it depends on the company, show me your research!”. People often buy shares after doing very little research themselves. With so much information available through financial press and broking websites, there is a lot of material and analysis there to look at. Investment properties are totally different. Often it’s a Real Estate agent telling you what property is a great investment (usually the one they are trying to sell you). I bet they are not supporting that statement with a detailed breakdown of income, fees, charges, interest and the likely net profit/loss. If you were going to take your hard earned $100k and borrow $400k to invest in shares there is no doubt you would research the companies inside and out. Why should you approach an investment property any differently? Do your research and do a detailed breakdown of the income and costs to make sure the investment is worth the effort and risk. Don’t take the word of the Real Estate agent as gospel as their only interest is getting their commission on the sale of the property you are about to buy.
4. Overtime: Don’t be afraid to work a bit of overtime here or there and use the extra money to reduce debts. Or perhaps you could take on a second job on a Saturday or Sunday morning in the pro shop of your local golf club, a local coffee shop/cafe, or helping a friend in their business. Not only will you have the extra money available but you can also use this as a chance to pursue a hobby or passion you have and get paid for it too.
For those of you looking to have children now is a good time to do this as after having children you will have little time available for extra work as you will want to spend as much time as possible with your kids. For those of you approaching retirement taking on a small part time role now will give you a chance to establish a part time role you may want to continue once you fully retire from your current position. The money you make means the less you need to draw from retirement savings. The less you draw the longer it will last. This will also allow you to stay active and involved albeit on a lessor scale.
5. Be realistic: when looking at an investment it is important to analyze it from all angles. Work out what you are looking to achieve by taking on the investment and establish what the risks and your expectations are. If you are investing/saving for something short term you may want to be conservative and make sure your funds are easily accessible. If it is a long term investment you can perhaps invest more aggressively. The successful clients I have seen have not tipped their savings into speculative shares and crossed their fingers and hoped for the best. This is no different from gambling. You are investing the money you have worked hard to earn, be practical and prudent when choosing what to invest in. No one will look after you money as good as you can.
These are just a few of the observations I have made from the clients I have seen in my years as a Financial Adviser. There are more however the points above are the fundamentals. Implement these in your own financial situation and you will most certainly benefit now and in the years to come.
