If there’s one simple and effective financial strategy that is sure to work it’s about creating a discipline. I’ve been in the financial planning industry for almost 26 years and what stands out more than anything is the difference in peoples’ attitudes towards investing and saving over that time.
I joined the industry at an interesting time with the demise of insurance products like Whole of Life and Endowment assurance policies (some of you may recall or even still have such policies) and the promotion of investment plans and term insurance contracts as the way to go. Many people who were given poor ‘advice’ to surrender these policies and start a new investment fund when they may have been better off retaining them.
It’s true that the old style life contracts didn’t perform all that well from an investment perspective but they were designed to primarily to be life contracts with cash surrender values. What has always amazed me is that people continue to pay the premiums year in year out, which shows their ability to save regularly.
Fast forward to the last decade or so and the attitude by many investors is quite different to days gone by. It’s rare to see someone commit to saving regularly over 10 years or longer (outside of their superannuation). There seems to be an impatience with investors today who expect great short term results. Perhaps a good illustration are share market investors. In the past it wasn’t uncommon for people to buy and hold shares for many years. Today for many, it’s the exact opposite. I put it down to the ease of online access and instant gratification – we want everything now and quickly! I might add the problem is also with our industry that offers a plethora of ‘exciting and sexy’ investment products.
It might sound like I wish things never changed and we went back to using candles. That’s not what I’m on about and the point I want to make is that some of the ways of the past are just as relevant today as they have always been. The path to creating real wealth hasn’t changed. If you weren’t born rich then the most effective way of achieving wealth is to regularly set something aside by establishing a savings discipline. Then let compounding do its magic. It might sound a little simplistic but it works.
In fact, being successful at almost anything has a lot to do with being disciplined and focused. Look around and you can see many examples of this.
The first step to creating wealth is to have clear goals and outcomes that motivate you. Quantifying your goals will help you to identify the time frame and how much money you need to make them achievable. Now you’ve got the reason to start saving regularly. That’s being disciplined.