How to build wealth the smart way

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Financial Advisory
By
John Liston
John Liston
Director | Adviser
November 21, 2020
8
minute read

Wealth building tips and strategies for long term growth

Building long term wealth may seem like an unachievable goal. Whether you are building wealth for retirement, or building wealth from nothing at all, there are risk-free avenues you can take to making the most of your money.

Liston Newton Advisory is here to help you identify the best strategies and assets for building wealth. Get in touch with us for a free financial strategy session.

Why build wealth for the future?

One of the key conversations we have with clients is the concept of ‘Getting Free’. By getting free, we mean financial freedom – building up enough wealth to give you the ability to choose if you work, and how often you work.

Interestingly, this is often a difficult and uncomfortable conversation to have, and many people will noticeably wince when this discussion arises during one of our meetings. This is usually for one of two reasons.

  1. They have given it absolutely no thought and don’t have an idea of what financial freedom means to them.
  2. They have lofty goals, but the fear of being seen as a tall poppy makes them uncomfortable to disclose their real dreams.

Financial freedom shouldn’t be a far-off dream or based on winning the lottery one day. It can, and it should be a very real game plan in your life. So how exactly do you start planning to get free?

For sound financial advice, the legendary investor Warren Buffet is a great place to look. We are firm believers in his quote “Never depend on a single income. Make investment to create a second source”.

In short, to be finally free - you need to be able to free your dependence on one single income. You need to create a second source of income, what we would define as a second business – a wealth business.

Wealth building tips and strategies

The conversations we have with clients is not about building wealth for wealth’s sake – or to accumulate as much as possible. Building your ‘wealth business’ is about building your financial freedom, taking control and giving yourself choice. The amount of freedom you want to have and the types of choices you want to make will define the level of wealth you need.

This means answering questions around:

  • Where do I want to live in 5 years?
  • Where will my kids/grandkids go to school?
  • Will I travel each year? Where will I go?
  • How often do I want to work?

We believe that if you look at wealth creation from this lens, wealth building strategies can be more easily tailored to your goals.

Building wealth for retirement

Getting free is not about retirement or only enjoying your hard work after the age of 65. For business owners, the joys and challenges of operating a business mean that retirement is not the objective —flexibility and choice are.

A key way to build wealth for retirement is to build a variety of assets over a working life. It could be a business owner buying and selling multiple businesses in their lifetimes and taking on a variety of projects - projects for passion, for profit, or for both. Or it can be an ambitious individual working in a job for part of their career, then launching a business later in life.

This means that the plans around financial freedom are not straight forward and are not 'set and forget' 15-year retirement plans. A practical plan for financial freedom needs to be responsive to changing circumstances and agile enough to incorporate both short term and longer-term goals.

Where does wealth building go wrong?

The resistance we encounter around actually making investments in order to build a second income is usually due to previous investments that went bad.

Say you invested in property because a friend told you it was a good idea. You purchased ‘off the plan’, and it hasn’t moved in value since the day it settled. Or you view superannuation as a waste of time because it went down in the GFC. The list goes on.

The key to getting on the right path is to view these things for what they are.

Investments — be they property, shares, businesses, or superannuation — are just tools to get you to where you want to go. They are not the end goal in themselves. They are powerful tools when used correctly, but when used incorrectly, they can be disastrous.

How to start building wealth

The most powerful and effective tool for starting a discussion on getting free is to model financial projections on your current situation. To do this, we calculate your current financial situation (your assets, liabilities, income and expenses) and project what your level of wealth will be in the next 5, 10, and 15 years. This gives you a base case for what’s ahead of you and can really open your eyes to the power of decisions made today.

If today's projections don't match the lifestyle you have planned for tomorrow, you can begin to experiment with various investment tools to alter the direction you're heading down.

Some of your best decisions can come to light when running a variety of ‘what if’ scenarios about your future.

  • What if you decide to rent where you live and buy an investment property?
  • What if you sell your unprofitable investment property?
  • What if you contribute more to super?
  • What if you can generate more profits from your business to build a share portfolio?
  • What if you sell your business, how much can you get for it?

Ready to start building long term wealth? The sooner, the better.

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