One of the biggest goals for many women is to become financially secure, sooner rather than later and to kick butt when it comes to creating their own wealth. Beyoncé kindly points out, ‘best revenge is your paper’, but exactly how do you drive your own financial success?
The best answer is to arm yourself with more knowledge. Finance doesn’t have to be boring and the savviest female entrepreneurs ensure they have a basic understanding of the fundamentals, even when they outsource the finer details to the experts. The more you learn about your financial matters, the less you have to blindly trust that someone else is going to make it happen for you.
There are so many aspects to financial success, from budgeting through to debt reduction, so let’s canvass three of the most significant yet simple strategies to truly accelerate your personal financial situation.
Compound Interest – how it can make or break you.
Understanding how compound interest works is important to knowing why you need to pay your mortgage or credit cards off quicker, or why your savings or investments perform the way they do.
Basically, compound interest is calculated on the initial principal or amount and also on the accumulated interest, so your interest earns interest.
This works for investing, saving and is also how your loans are calculated too. In effect, you ‘compound’ your investment returns and accumulate a larger amount.
This simple principal is important when you consider investing in any asset (there are generally four; shares, property, cash and bonds) as it assists in wealth creation by essentially ‘reinvesting’ your earnings. Then, to get the most out of the extraordinary effect of compounding interest you add ‘time’ to grow. Some experts say this is the best way to get rich slowly. For example, if you were to invest $5,000 at 8% for 45 years it would grow to approximately $180,000!
Dollar Cost Averaging – taking advantage of any market movements
Now that you’ve thought a little more about magic of compound interest, let’s consider the idea of adding ‘regular contributions’ to this investment or savings plan (called Dollar Cost Averaging), you make the compounding interest effect even more powerful. So using the $5000 example above, let’s say you also added $5,000 each year for the 45year term, you would have over an astounding $2,000,000!
This strategy can take the guess work out of ‘timing’ any market and as the name suggests, ‘averages’ out how much new investment your money buys each month or year. For instance, assuming you invest in shares (direct shares, unit trusts, managed funds) each time you make a fixed contribution, you’ll buy different amounts given how much it’s worth, basically buying more when the price has fallen and less if the price has risen. Over time, this creates an ‘averaging or drip-feeding’ effect to your investment, which can see you accumulate more profit.
Diversify – not all your eggs in one basket
Diversification is one of the most crucial parts of any well-rounded wealth creation portfolio. Diversifying not only spreads your money over many different assets, like properties or shares, it also helps to reduce your investment risk.
For many successful investors, a balanced approach to wealth creation means they don’t try and pick the winners, preferring to stick with a longer-term more consistent approach. So instead of chasing returns based on past performance or try to ‘time the property or share market’, they assess what has consistently performed and use the ‘set and forget’ strategy. Adopting this type of approach to your investment philosophy means you might not get the super highs or super lows, but you’ll be set up for consistent returns over the long run.
Always seek professional advice as there are so many brilliant strategies you can use to maximise your own situation, effectively putting your hard earned money or savings to work!
Jodie is passionate about teaching people about money, the core fundamentals that should be taught in our schools – but still aren’t. Jodie is making a real difference in not only adult financial education, but more importantly for our next generation to give them the best financial start possible. After struggling with her own financial situation, Jodie found a way to direct her energies into a path to retrieve her wealth and help people along the way. Whether one is looking for solutions to personal finance issues or needs to maximise their business presence, each section of the book demonstrates step by step how one can easily recover and advance ones own financial position.