What does wealth mean to you? 5 questions to help you evaluate your finances

Presented by CommBank, the series draws on taking control of your future to help ensure you get the most out of your finances. Whatever your goal, take the first step and make today count. Find out more on CommBank and see how you can take the first step in accessing advice, super or insurance at commbank.com.au/maketodaycount.
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Being wealthy means different things to different people. Your idea of wealth might be to earn a high salary and own a number of investment properties and other investments, while another person’s idea is to be happy with enough money to maintain a healthy lifestyle, take the occasional holiday and have enough saved for retirement.

It is also very easy to get caught up on the treadmill of building wealth without some evaluation. Regardless of where you are financially, the following questions can help you to evaluate your wealth status.

1. Can your cash flow sustain your lifestyle?

Having an understanding of how much money you need to cover your lifestyle each year is a good place to start. Whether it is $50,000 or $200,000 plus, it is a good idea to calculate the amount you will need to give you the lifestyle you want now and in the future.

Today, Australians are living longer. If you are fortunate, or not, depending on your view point to live to 100 years old, have you thought about how much money you are going to need. This could mean an additional thirty years or so in retirement. Also, and just as important for anyone building on their wealth, do you have enough cash to do so and maintain it? This is a good exercise to do to help you to evaluate your money requirements.

2. Have you done enough to achieve your wealth goal?

French philosopher, Antoine de Saint-Exupéry, could not have said this any better when he said, “A goal without a plan is just a wish.” The same sentiment applies with to building wealth, as action is required.

First things first, and that is to identify your strategies for achieving wealth goals. Alternatively, if you have them in place, then evaluate the ones you have. The best way is to break them down into the following three goals.

  • Short-term goals are smaller ones that you can start today; such as saving for a deposit, building on your wealth or paying off debts. The aim of shorter-term goals is that they are achievable within a 12 month period.
  • Intermediate goals have a time frame from one to five years. For example, this could be investing in shares or managed funds or starting a business.
  • Long-term wealth goals involve financial plans that are five or more years away. For example, building enough for your retirement, buying property or creating a property portfolio.

3. Have you covered your risk, or put yourself at risk?

Too little investment risk can be just as dangerous as too much investment risk. No matter where you decide to put your money, do your homework. The world’s leading money guru, Warren Buffett said, “Risk comes from not knowing what you’re doing.” Obviously, some investment decisions have a low level of risk, such as putting money in a savings account. Depending upon your age and where you are financially, understanding your risk profile is important. For example, generally the more you have and the older you are, the less you can afford to lose. This is due to the fact that it takes longer to re-build back up again. World markets and economies change consistently; keep your eye on your investments at all times. Your ability to make wise money decisions can impact your current and long-term well-being.

4. Are you being realistic on what you can achieve?

It is easy to get caught up in a dream-state mindset of wealth. People’s ideas of wealth are as varied as the types of investments on offer. Take time to get real with what you are able to achieve and evaluate the reality – without getting caught up in the hype of building wealth. In a nutshell, do your wealth desires meet your true expectations and not others?

5. Have you done enough to manage my debt?

Evaluating debt is also an important part of financial management. Debt is not always a bad thing, so long as you have a tight and on-going payment plan. Good debt is referred to investments that will generally grow in value or generate long-term income, again, so long as you are able to continue to pay it off. Without good debt, many Australians would not be able to borrow money to pay off their mortgages and own homes. Bad debt is one where it generally costs money, in interest charges, without helping to build long-term wealth. With the current low interest rates we are experiencing, go after a lower rate as there has never been a better time to re-negotiate repayment on debts.

Take the first step today to get your finances sorted. For more tips on advice, super and insurance visit commbank.com.au/maketodaycount.

THINGS YOU SHOULD KNOW: This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking financial advice before making any decision based on this information. Advice and products may be provided by wholly owned but non-guaranteed subsidiaries of the Commonwealth Bank of Australia ABN 48 123 123 124.