The Midas Touch
Saturday 20 September 2014
Do you ever wonder why some people seem to have that Midas touch while others struggle with money all their lives? Do you ever look at people who have money and wonder how they did it, what their secret is?
It might appear that some people have had a lucky ride. While that might be so in some cases, it’s much more likely that there’s more going on behind the scenes than meets the eye.
Back in the 1970s two researchers by the names of Thomas Stanley and William Danko set out to find out exactly what it was that made people wealthy. They wanted to know what set rich people apart from those who’d never ‘made it.’
They spent two decades interviewing thousands of Americans (those who were rich and those who were not) and what they discovered blew all of their previous ideas out of the water. They discovered that wealth is not accumulated by earning a large income, and it’s very rarely about luck (winning or inheriting money). It’s not even about intelligence.
Wealth is [ … drum roll… ] more often the result of a lifestyle of hard work, self-discipline, perseverance and planning.
Sound boring? Maybe. But the good news about Stanley and Danko’s findings? It confirms that wealth isn’t only available to a lucky few. It means that you can achieve it too.
Studies have shown time and time again that you’ll give yourself the best chance of reaching your financial goals if you plan. You could decide you want to work towards paying off your credit card debit or you could finally bite the bullet and start working towards that home deposit or even (gasp) your retirement fund. And it’s just as relevant for beginner investors as those with more experience – everyone should take the time to take an honest look at where they are right now, and decide where they want to be.
In a nutshell, the three steps you’ll need to take in order to reach each of your financial goals are these:
1. Decide on your goals.
2. Write down your goals (making them clear, measurable and attainable).
3. Write down the action/s you’re going to take to meet each goal (making each action very specific).
By breaking your goals down in this way it becomes very clear exactly what you need to do to reach each one. For example, let’s say you’ve cleared your debts and you’ve decided that you’d like to save for a share portfolio.
Goal: Buy $50,000 worth of Australian blue chip shares over five years.
Action: In order to reach my goal I’ll immediately open an online savings account and have $200 automatically transferred to this account from my everyday bank account every week. Whenever the balance of my savings account hits $5,000 I’ll withdraw the money and buy a parcel of blue chip shares (with a focus on companies that pay franked dividends) until I’ve invested a total of $50,000.
You see? Specific and measurable.
With the festive season almost upon us, there’s never been a better time to dedicate a few hours to writing down your financial goals. If you start now, not only will you be prepared for the silly season (think of all of those gifts you have to buy), but you’ll start the New Year with a clear idea of what you want to achieve financially in 2013.
Read more by Stanley and Danko in the financial classic The Millionaire Next Door: The surprising secrets of America’s wealthy (Amazon / iTunes) – we also like Stop Acting Rich … and start living like a real millionaire, also by Thomas Stanley (Amazon / iTunes).
You’ll also find helpful financial calculators to work out how to achieve your goals at MoneySmart.