What does “wealth” mean to you?
What did it mean to you before your separation?
And how has that changed since everything else changed?
For some, a separation is a fresh start. They can plunge into their new life with a decent share of the asset pool, secure in their financial future.
But for many – most, actually – the financial aspect of their new life is an intimidating basket of worries.
Forget about building wealth. The first order of business is simply not making any mistakes or getting ripped off.
And for yet another group of people, they’re starting all over again.
They may not have had much going into the relationship, but they certainly have not been left with much coming out of it.
No matter which group you’re in, I’m sure the importance of taking what you have now and building on it to create real wealth is clear.
But, then, what does “wealth” mean to you? Because I bet it’s not some magic number or amount of money.
In my experience, what matters most is not the amount itself but what it represents.
It might represent freedom.
Or security.
Or options.
Or comfort, control, progress, success, achievement.
Any number of things.
And, to me, it’s these concepts that define real wealth.
So, here are 5 tips to help you build your wealth after your separation.
Once you have determined what “wealth” means to you, you should try to set goals based on that.
For instance, let’s say “wealthy” to you means:
Then, you can set yourself some goals or milestones around that.
And, in this case, ‘enough’ income is $40,000 a year, so you’ll need $687,000 in assets in 15 years’ time.
There’s goal number 1.
Once that headline goal has been set, you can work backwards and set milestones along the way.
Perhaps you want your current $100,000 in superannuation to be worth $185,000 in 5 years.
There’s goal 2.
And so on.
Another option is to use clear, discrete goals to design your ideal financial future.
A fantastic tool for this is Keith Abraham’s 25 Questions worksheet – which will prompt you think of the things you’d like to do in the future.
Once you’ve noted down your answers, you’ll have a list of clear goals to tick off as you achieve them.
In my experience, setting goals helps concentrate your efforts on what you need to focus on to build your wealth.
They also make the inevitable sacrifices that you’ll confront much, much easier to accept because you can see how they’re contributing to your wealth.
I’m sure it’s no surprise that coming out of a separation without much money behind you makes for a difficult recovery.
It’s hard to think about your financial future when the financial present is so tough.
But if you’re in a position where you have enough to cover the survival part of your budget and still have a little bit left over, there are things you can do.
The key is to work within your own reality while recognising the cumulative impact of small, consistent steps.
Perhaps you can put $100 a month towards building some level of wealth for you and your family.
While that reality might mean retiring early is off the table (for now), that’s still $1,200 a year, $3,600 after three years and $12,000 in ten years.
Say you also have a personal loan that is costing you $150 a month. Putting this $100 against that each month might halve how long you have it for.
For a few years, you would pay $250 a month off that loan until it’s gone. Then, you can direct that $250 towards the next wealth-building item.
This rolling snowball can feel a little ineffective early on because it won’t seem like a big amount.
But over 10 years, it works out to nearly $39,000 (at 5% a year). While I know it takes a long time, that’s still a significant amount of money for an extra $100 per month.
It’s these gradual, consistent steps that have real, long-lasting impacts.
And, of course, if you’re in the position of being able to dedicate a larger amount towards your goals, then that impact is multiplied many times over.
So, instead of chasing the big, one-off impact, think about what small steps you can start taking towards your goals today.
Being clear on the money coming in and out of your life is the biggest step you can take towards building the wealth you want.
The thing is, budgeting sucks. Tracking every cent you spend, feeling bad when you go over or slip up – that’s not much fun.
Instead, I suggest that you avoid the traditional ‘budgeting’ approach and consider using rations.
I recommend splitting your expenses between Needs, Wants and Worries. Then, divide up your income into fixed percentages between each category. I suggest:
Using these fixed percentages makes it easier to manage – and avoids having to track every cent.
The reason “budgeting” is so powerful isn’t just because it helps you recognise when you’re spending more than you’re earning or because it helps you prioritise your financial decisions or start building a nest egg.
It’s because it’s YOU doing it.
And because it rewards progress instead of perfection.
It’s a great way to start building your financial self-esteem and start making progress towards to your future wealth.
One reason money can be so intimidating is the absolute fear of getting ripped off or being pressured into making a bad decision.
I wish I could say this won’t happen, that you can trust everyone in the financial world.
But I can’t, sadly.
The spruikers, the charlatans, the self-interested, conflicted and just plain dodgy will always be out there, looking to help themselves to your money.
The best defence, in my experience, is an educated scepticism.
It is important that you arm yourself with some information about money.
Learn some of the basics about things like compounding, inflation, interest rates, fees and taxes.
Get a feel for how superannuation works, what ‘shares’ are, and what the reality of investing in property is like.
This information is not only important as you work to build wealth in the future, but it will also help you develop your BS detector so you can tell when something sounds a bit too good to be true.
It will help you ask that extra question that might make things a bit uncomfortable (“how do you get paid” is always a good one).
It will help you smell when something’s a bit off.
This is your money, your wealth and your financial future – so be sceptical and a little demanding of those offering to “help”.
The MoneySmart website is a great resource to help you get up to speed on some of the areas you might be unsure about – definitely take the time to check it out.
I thought about saying “start now” but realised that’s easy for me to say. I’m not the one trying to make ends meet, and I’m not the one deciding between filling the petrol tank and paying the phone bill.
So, start when you can.
Don’t wait for the ‘perfect’ time; don’t wait for everything to line up.
Invest in a money tin and start stashing coins.
Write down your goals and put them on the fridge.
Start learning about those core financial ideas.
Because, one day, things might loosen up a little and you’ll be able to start taking steps towards the financial future you want.
Getting ready for that now means that when the time comes (if you’re not there already), you’ll be primed and able to take off quickly.
Any of these five tips will help you build wealth on your own, but doing all of them will put you on the path to real financial freedom.
They’ll help you build the wealth you need to construct your best financial future, but more importantly, they’ll help you understand why you’re doing it and what you’re aiming for.
And that kind of certainty is a pretty good foundation for your own personal level of wealth.
General Advice Warning: The information contained in this post is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a financial adviser.
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