Top 10 Ways to Grow Your Wealth (no matter what the economy is doing)

General | Wealth

Every time my fuel light comes on, I have to fight the urge to just keep driving past the service station because it is just deeply unpleasant to fuel up right now. Fuel prices have been at record highs in the last few months, and this is one of the most in-your-face signs that the economy is facing pressures from all sides.

With inflation sitting at 5.1%, the Reserve Bank lifted the cash rate by 0.5% to 0.85% in June and this week raised it again to reach 1.85%.  The Guardian reports interest rate rises may send up to 200,000 households into mortgage stress.

The prospect isn’t completely negative, as the Australian economy is still growing relatively strongly at an annual rate of 3.3%.  From May reports, retail trade rose 10.4% in the year to May on the back of low unemployment and record-high household wealth.  However, since March there has been a global sell-off in shares, a slowdown in the Australian housing market and cost of living pressures are mounting.  The Consumer Sentiment Index shows that consumer confidence continues to weaken.

We know that, even in times of recession or economic hardship, there are ways to protect your money and lay foundations for growing your wealth as the economy recovers.  There are many techniques suited to both the brave and the cautious, but in this article we have gathered 10 top ways you can ensure you are both protecting yourself and making the most of your situation. The key to building wealth is creating multiple sources of income, and ensuring that your money is protected and providing ongoing returns. These 10 ways cover a spectrum from those who have significant wealth or investments, to those who are just starting out.

So let’s get into the good stuff!

1. Don’t let your money lose value.

It’s likely that you have money in savings accounts, term deposits, or offset accounts.  Savings are good – everyone knows that. Keeping it in your bank account feels safe and its liquidity makes it easy to access should you need it.  However, when inflation rises, you are effectively losing money by leaving your savings where they are.  Inflation can exceed your interest rate gains, whittling away the buying power & value of your money.  If the predicted 7.75% inflation rate continued, it would only take 9 years for your money to halve in value!  A high interest rate savings account is a better option as it can offset these impacts, but with the current high inflation rate, there are very few high interest savings accounts that will be able to keep up with inflation.

You want to ensure you have savings and your emergency fund available to you at all times. However, ensure the majority of your savings or accumulated wealth is working for you – clear any high-interest debt that is eroding your wealth and invest your money into areas that will grow. This primarily looks like investing in good growth assets. With the interest rate over the last 20 years sitting around 2.64%, investment returns for Australian shares were 8.8%, global shares 7.4%, and property 10.2% (Savings.com).  Read on to find out more about investing in shares and property!

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2. Use debt as a tool.

Traditionally considered, especially for ordinary folks building their lives and families off hard work and a 9-5, debt is bad, dangerous and to be avoided at all costs.  However, debt can also be used positively in ways to help grow your wealth.  Once a tool of the rich that was looked down on by ma and pa, using debt positively to increase your returns and maximise your tax benefits is accessible to most people who own at least one significant asset, such as a house.

The key to using debt to positively increase your wealth is based on good debt and bad debt. It’s important to remove bad or inefficient debt as soon as possible, as this will reduce your wealth through high-interest rates and fees. This could look like prioritising paying off credit cards, consolidating personal loans or using debt-recycling. Good debt can be used to leverage greater returns on investment or create wealth-building assets that appreciate in value, and often has accompanying tax benefits.

One common way that someone like you might use this strategy to grow wealth is through your home equity.  The value accumulated in the asset of your home can be used to purchase an investment property in a good location, which can begin to earn money for your family. You could also use this money to invest in shares that increase in value over time. This strategy is known as gearing.  In this way, bad debt, that was sucking away money through interest, can be turned to good debt that is earning you income.

3. Create cash flow with income streams

Cashflow is key, and those who have achieved a wealthy lifestyle usually nurture multiple income streams. However, this can be a difficult thing to master.
There are numerous opportunities all around  you that you could capitalise on to increase your cash-flow or income streams – you’re only held back only by the time, energy and money you are willing to invest. When you have a healthy cash-flow, you are happier and healthier because your stress levels are down, and you can invest in further wealth-building techniques with your extra money!

Some of these ideas include:

  • Rent your car for ride-sharing or travellers. Platforms like Car Next Door or Go Get offer opportunities for you to use an asset you already own.  You could also look for ways to hire your pool on Swimply, your designer clothes, or other assets you may have.
  • Rent a room in your house. Some people may struggle with the idea of renting part of their house to a stranger, but with rent or mortgage being one of your biggest expenses, this can be one of the fastest ways to improve your cash-flow.  Whether you rent or own your house, if you have a spare room or two, this is a very good option.
  • Start a business. If you have a skill or service that can be used to make money, it might be time to think about how you could put it to use. There has never been an easier time to get the word out, whether you are just starting small or looking to scale a business. Using a host of online platforms, you can easily get your product or service in front of your audience. Digital tools are getting better all the time, so you don’t even need coding skills to create your own website or app. To truly build wealth, you will need to change your perspective on your time and your income, and often business is a key way that you can do this.
    For those just starting out, you can use Facebook, Etsy or Gumtree to start and market a side biz. Whether you can make Christmas wreaths, design wedding invitations, or you love ironing, there are many opportunities for you to bring in some extra dough!  Just beware of multi-level marketing business styles that require purchasing stock or a large time investment to make a profit.
  • Buy an existing business. If you are ready and find the right business for you, existing businesses can create a good stream of active or passive income.  While we can’t all follow Shaquille O’Neal’s example and own hundreds of fitness centres, restaurants, and car-washes, there is a lot of potential in this idea. Professional advice can help you find the right business for you and ensure that it is a quality investment with positive cashflow.

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4. Invest in Property.

Property is one of the most secure and least volatile investments you can make. Although it requires quite a capital investment to get started, owning an investment property can provide high capital growth, and has the potential to grow your net worth and provide you with a secure income.  If you currently own your own house, you may have equity that you could utilise, so now could be the right time to start researching for your investment property.  It’s important to note that the housing market currently is unpredictable, and financial problems can result if your home depreciates in value while your loan remains the same.

Therefore, make sure you consider the location and development of an area when you purchase your investment property, as you’ll grow wealth more effectively if it is positively geared and increases in value. This means that it is vital for you to consult your financial advisor to ensure your financial situation, tax implications and preferred location will effectively balance the liabilities inherent in property investment. These liabilities can include property & location trends, lack of liquidity, high entry and exit costs, interest rates & maintenance costs.  If you don’t currently own your own house, consider if this is a goal of yours and how you will work towards achieving it.

5. Invest in shares.

The market has fallen considerably over the last three months, alarming many investors.  This is a fairly typical market correction, with Motley Fool reporting that “since 1987, modern-day corrections have resolved in an average of 155.4 calendar days (about five months).”

Those who are familiar with My Wealth Solutions’ take on investing know that we never time the market. We focus on long-term returns and our CARE philosophy is designed to weather market fluctuations and corrections.  In a down-turn, shares remain a good investment, not least because they are cheaper to purchase.  However, remember that investing is a long term strategy, and you need to be ok if the market goes down or corrects further before it starts to recover.  We recommend using dollar-cost averaging – regularly putting a set amount of money into your investments regardless of whether the market is up or down that day.

Index funds or ETFs are a top choice, as you are investing across a sector rather than a more volatile individual stock. If you are purchasing individual stocks during a downturn or market correction, avoid highly-leveraged companies with significant debt, companies that focus on discretionary products or services, and unproven companies.  Instead, look for companies with low debt and strong balance sheets who will continue to thrive.

Time proves that investing in shares is a strong strategy for wealth creation, with an average of 10% return over 30 years, despite recessions – AND you don’t need to play games to reap the rewards.

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6. Protect yourself!

One of the key things that can often be forgotten is the importance of protecting your income and your assets. You don’t know what will happen in the future, and you should plan ahead in case tragic or unexpected circumstances occur.  You are your biggest asset, and most likely your income is how you support your family. You should have an emergency fund set aside in a separate account that you can contribute to, and you should also consider speaking to your financial advisor about what insurances you have. Here at My Wealth Solutions, we regularly work with our clients to initiate or improve their income protection and life insurance cover.

7. Seize your tax & super opportunities.

Never let yourself be surprised by your tax situation by planning for tax ahead of time.  This is particularly important as you begin to grow your assets and income.  We recommend enlisting the services of an accountant and financial advisor you can trust to ensure you are structuring your assets, investments and tax in order to avoid any future complications, and to take advantage of all the tax benefits available to you.

We also recommend a similar approach with your superannuation. It is a good idea to spend time with a finance professional to build a superannuation plan that will deliver the retirement that you want.  If you have built wealth, you should consider seeing a financial advisor  to discuss self-managed superannuation funds, wealth management, and estate planning, and how these integrate with your tax requirements.

8. Change your mindset

A scarcity mindset sees limitations instead of opportunities. It sees the world as a set number of pieces of pie, with most of those slices already taken. This mentality restricts growth and our ability to identify and claim opportunities, as well as recognising our own abilities.  It’s important to change your perception of your world in order to change the trajectory of your life.  Put the work in to cultivate a growth and abundance mindset, and surround yourself with people who have this mindset and will encourage it in your life.

Set reminders to experience gratitude for what you have and what you will have each day.  You have something to offer the world – think about what you have developed mastery in, or what you can get better at, and how you can use that to make your world better.  Your mind has a lot of power, and if you spend your time limiting yourself, nothing will change. Set big dreams and goals and take a small step each day towards them.

9. Give as much as you can

Money can’t buy happiness. It reduces stress, but guess what else reduces stress? Yes, giving to others has been shown to lower blood pressure, reduce stress, promote longer life, build social connection and release feel-good hormones!  People who give are not just healthier, but the positive consequences such as trust and connection can have a social impact that spreads contagious generosity and gratitude from person to person, according to a study by James Fowler and Nicholas Christakis published in the Proceedings of the National Academy of Science.  For those who work hard to grow financially, often this comes hand in hand with a desire to give back and help those who are less fortunate.

As you grow your wealth, philanthropy as a personal and social responsibility might be something you value highly.  If you need assistance, your wealth management advisor may be able to assist you to set up your giving.

10. Get your financial plan

Many of the above strategies and investing techniques don’t function well in a vacuum. You need a comprehensive understanding of your financial situation now, and where you would like to be, in order to evaluate your risk tolerance, your ability to leverage debt, and how much you can afford to invest. Your financial plan is actually Step 1 – it will enable you to find the gaps in your financial life, and what strategies are available to you as next steps.  Few wealth-building strategies come without some risk associated – this is the nature of taking action and growing something from nothing.  Having a professional overview can help you avoid risky mistakes and navigate making life-changing money decisions with confidence.

Our financial advisors are well-versed in these techniques, and create personalised plans that reflect your financial situation, as well as your vision for your future lifestyle and goals.  Chat to our advisors today about wealth creation and wealth management.

Want advice specific to your unique situation?

We hope this resource gave you a start in tackling the financial challenges you may be facing.

If you’d like guidance tailored specifically to you and your particular needs, we’re here to help.

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