Jimmy B. Prince - Building Wealth and Loving It: A Down-to-Earth Guide to Personal Finance and Investing

First published 2010 by Wrightbooks

an imprint of John Wiley & Sons Australia, Ltd

42 McDougall Street, Milton Qld 4064

Office also in Melbourne

Typeset in Adobe Garamond 12.5/15.5pt

Jimmy B Prince 2010

The moral rights of the author have been asserted

National Library of Australia Cataloguing-in-Publication data:

Author: Prince, Jimmy B.

Title: Building wealth and loving it: a down-to-earth guide to personal finance & investing / Jimmy B Prince.

ISBN: 9781742169958 (pbk.)

Notes: Includes index.

Subjects: Finance, Personal.

Wealth.

Investments.

Cash management.

Dewey Number: 332.024

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Cover image danzo80, 2009, used under license from Shutterstock.com

Tables on pages 51, 234 and 241: Australian Taxation Office 2008, copyright commonwealth of Australia, reproduced by permission.

Printed in China by Printplus Limited

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Disclaimer

The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based upon the information in this publication.

About the author

Jim Prince is a fellow of CPA Australia and a tax specialist. He is a former lecturer and tutor in income tax law at La Trobe Uni- versity, and teaches a number of wealth creation courses for the CAE in Melbourne. He has authored several investment books including Tax for Australians For Dummies and has written articles for Your Mortgage magazine and . In 2000 Jim was nominated for an Adult Learners Week 2000 outstanding tutor award.

In his earlier years Jim worked for the Australian Taxation Office and also consulted to CPA Australia Technicall.

Preface

Many years ago I regularly bought lotto tickets on the off-chance that I would become an instant millionaire. For a small outlay of a few dollars I would select six numbers and hope theyd be the ones thatd be drawn out of the barrel. On one occasion, while I was watching the draw on television, I happened to get the first number. And within a matter of seconds I had the second one. When I got the third number I became a little excited. When the fourth number came out I called my wife, as this was starting to get a little serious. When the fifth consecutive number was drawn I was within seconds of becoming an instant millionaire. While I was waiting for the last number to appear, a voice from the beyond casually whispered the following message in my ear, Ah, sorry mate, youre not meant to win. And what normally happens when you get such a message? I missed the last number by the narrowest of margins. If I had selected 26 rather than 27 I would have been an instant millionaire. When I recovered from the shock of missing out on the chance of a lifetime, I concluded if the lotto gods werent going to make me wealthy, Ill need to turn to plan B and try to do it myself.

There are many ways to build up your wealth. They can range from saving and trying to do it quickly at the casino or races to the thrill and fun of building wealth from investing in shares and property. While sitting in the comfort of your chair or resting by the pool sipping a cold drink, its possible to literally make heaps if the value of your investments especially your share portfolio were to rise. But you can also lose it just as quickly. The secret to wealth creation is a willingness to have a fair-dinkum go, and not to overemphasise the risks. Sure you can lose money along the way but lets be positive here, you can also make a truckload as well.

Building wealth is similar to driving a car. When you sit behind the steering wheel theres a risk you could have an accident, and cars are costly to keep on the road. But the rewards you will gain from driving will encourage you to keep plugging along. When you invest youll need to know what youre doing. And that will come from understanding the basics and getting good advice from the professionals. Potential investors often come to me and say, Im eager to invest but Im scared of losing money. Welcome to the club. Youre not the only one. Concerns that you could lose money are natural feelings youre likely to experience. Unfortunately, when you invest theres no-one out there ringing the bell to tell you whether youre on a sure winner. If it was that easy we would all be winners. I always say to potential investors, If youre afraid to have a go, what are the alternatives? The answer is quite simple: put your money in a term deposit and lose it that way. Because if you persist with this strategy (although your money may be safe), your wealth is not going to grow. Regrettably, there is no cast-iron guarantee that whatever decision you make is going to be the best option. Over the years Ive lost heaps and made my fair share of mistakes. But Ive also made some great investment decisions. So if you do happen to make the odd mistake along the way try not to dwell on it whats done is done. Sitting in the corner and feeling sorry for yourself or vowing never to invest again is not going to solve the problem. The solution is quite simple: see where you went wrong and move on.

This book will appeal to readers who would prefer to read a one-stop book that will conveniently cover all the major ways of investing to build wealth. Its written in plain English and explains in simple terms the core investment principles and tax issues you need to be aware of. This book is written in three parts, all centred on the general theme of building wealth:

part I: let the games begin: getting organised

part II: watch your money grow: building wealth

part III: reaping the harvest: superannuation and retirement.

Throughout the book you will find numerous practical case studies and handy tips to help you understand core investment principles and to reinforce the learning process. So let the games begin. Its time to build wealth and love it. Incidentally, if you make $100 000 after you read this book, you owe me lunch!

Jim Prince

Melbourne

December 2009

Part I: Let the games begin: getting organised

There are many reasons for wanting to build wealth, ranging from a desire for security to wanting to make a heap of cash. All are valid reasons if you can manage it. But before you can kick-start the process youve got to lay down the foundations, including preparing a budget and planning ahead. If you can get this right at the outset youll be well on the way to building wealth and loving it. In part I we examine how to prepare a budget and the key steps youll need to examine before you start investing. This part also covers choosing a suitable investment structure and issues associated with borrowing money to help you to build up your wealth.