Three Ways To Maximise Your Savings For Early Retirement

Money — that five letter word that can be the difference between living a life of plenty and living a life of duress. We need money to provide shelter, food and even water for our loved ones and ourselves. Our lives revolve around earning it, spending it and trying to save it for our future so that one day, we can relax and enjoy our lives before we die.

It sounds slightly depressing, but this is what most Australians do – put off living their lives until their golden years. But don’t get too depressed: there are ways to reach financial freedom well before you reach retirement age. In order to make money, however, you need to already have some to begin with. Here are three things you can do to maximise your savings and be on your way to financial freedom before old age sets in.

#1 Make a budget and start saving money

Before coming up with a budget, it is important to have a clear goal of how much you would like to save, says Hasitha Perera, founder and Principal Advisor at Dynasty Private Wealth – an independently owned Financial Planning Service and Authorised Representative of GPS Wealth Ltd, which is the licensee. Next, have a look at your weekly spend. To do this, Perera recommends using the budget calculator provided by ASIC’s MoneySmart site.

This will help you to identify your current savings capacity, as well as look at ways to cut out or reduce ‘luxury’ expenses. Look back over the past year – have you saved as much as you could have? Be honest with yourself about spending habits so that you can change them for the better.

Set up a savings account with good interest and commit yourself to making regular payments. This carries less risk than other types of investments, but also generates the least amount of income because interest rates are generally low.

#2 Invest in property and build equity

Nathan Birch is the co-founder of the BInvested Group of companies. He has spent the last 13 years of his young life building an investment portfolio of more than 200 properties – an asset base that rakes in $500,000 every year following expenses. Birch built his success by developing a three-part strategy that helps to minimise risk.

Firstly, he says, investors should purchase below market value in order to build equity from day one. This will prevent against overcapitalising and will help to protect you if the market drops. It will also provide a buffer to cover closing costs if you suddenly need to sell.

Secondly, investors should focus on locations that will provide good growth. Metropolitan areas, particularly capital cities, offer more consistent growth prospects and higher demand. This offers more protection against capital loss and prolonged vacancy rates. Thirdly, your property should have a self-sustaining cash flow. This will ensure your investment will pay for itself so you won’t be out of pocket. By following these principles, as well as purchasing in line with what they can afford, Birch says, investors can build a foundation portfolio of ‘Bread and butter’ properties that will deliver good capital growth and/or pay a passive income (depending on the type of properties purchased).

Investing in property carries risk – especially since investors use borrowed money in order to reap higher gains. Just like you would go use a financial planner or broker to help you strategically buy shares, you would go to use a property success team such as Binvested to structure your financing correctly and help you develop the right strategy.

#3 Invest in shares

Perera says, a trusted financial planner can help you to calculate the gap between the amount you wish to save and the amount you are able to save, before giving you advice about the right mixture of investments that may help to bridge the gap. Depending on your financial situation, the goals you wish to achieve and your appetite for risk, a good financial planner will be able to identify the right diversification for you. He says, investors should research how companies deliver returns to their customers.

“There’s really one of two ways,” he says. The first way is to pay dividends to shareholders. This is when the company distributes its net profit equally to shareholders, resulting in a “tax-effective income.” The second is through delivering growth in equity, which occurs when share prices go up. Some companies offer both components. In either case, investors should look at the historical results of a company before making their choice.

What to consider

High ROE and ROCE stocks

These are two different ways of rating shares. ROE stands for ‘return on equity’ and, according to, signifies the “amount of net income returned as a percentage of shareholders’ equity.” ROCE stands for ‘return on capital employed’, which basically measures the profitability of a company against how efficiently its capital has been used. The higher the ROCE, the more efficiently capital has been employed.

By comparing the ROCE or the ROE of different companies, it is possible to see which company has performed best. By comparing the ROCE or ROE of the same company over a period of years, investors can rate the volatility or consistency of the company’s performance.

Accumulating gold

It is said that one ounce of gold will buy you roughly the same amount of goods and services as it would have in the past or will in the future, whereas currency fluctuates and is subject to inflation. Louis James is a Senior Investment Strategist at Casey Research. In a recent interview published by The Daily Reckoning, James says accumulating physical gold is a strategy aimed at “prudence,” explaining, “we own it for wealth protection,” whereas, “gold stocks are speculation. We buy them for wealth creation.”

“Each person has to determine his own mix based on his own priorities (wealth protection versus creation) and risk appetite,” he says.

Most seasoned investors will allocate less than five percent of their overall portfolio to gold and other commodities. When it comes to accumulating physical gold, make sure you keep it somewhere secure that you (but no-one else) can readily access.

Exchange traded funds

Exchange traded funds are designed to mirror indexes, such as the ASX 200. By investing in an ETF, you can diversify your investment across the companies represented without any minimum deposit requirement – this provides a low entry point for investors. Say, for instance, you wanted to invest $200. By investing in an ETF that mirrors the ASX 200, you are diversifying your investment across the whole index of 200 companies, instead of needing to invest in each one manually. Returns are delivered via dividends and investors can sell short and buy on margin.

When it comes to the stock market, there is no best thing in which to invest. There is also no guarantee of success. It is important to diversify your investments in order to mitigate risk, as well as enlist the help of an independently run financial advisor or planner that is renumerated by the hour, such as Dynasty Private Wealth, which is part of the BInvested Group.

Kate McIntyre is an employee of property investment group BInvested.

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