For 25 years Noel Whittaker has been advising us how to keep our finances on track and to celebrate the milestone, his book, 25 years of Whitt and Wisdom brings together the questions he’s been asked over this period, and the sage answers he’s given.
Noel has also taken the time to share with you the three important lessons he has learned, all of which make perfect sense to us.
The biggest lesson I have learnt over the last 25 years is the power of what I call ‘the guaranteed secret of wealth’. In a nutshell, it means that most people pay their commitments, such as rent and loan repayments, spend what is left over and are broke on payday.
It therefore follows that the best way for most people to get ahead financially is to make investment their first spending priority. We never miss what is taken from us. For example, when I was a young bank officer I requested to be taxed as a single person – this meant I paid a higher amount of tax each pay but ended up at the end of the year with a nice fat tax refund cheque. This is why I am totally opposed to people with rental property losses signing a form requesting that the tax is deducted from their pay, the reduction being applied in anticipation of a tax loss. They are much better off to pay their normal tax as they go and then use the tax refund cheque for further investment.
That's also the reasoning behind my strategy of paying house loans fortnightly and not monthly. Think about a couple that is paying $2000 a month – if they changed to $1000 a fortnight, they end up repaying $26,000 a year instead of $24,000 a year. That's an extra $40 a week that they’re unlikely to miss.
The next lesson I have learned is that negative headlines in the media are the investor’s worst enemy. If the market falls it is reported in billions – for example $90 billion wiped off superannuation. However, if the market rises it is reported in points – markets rose 90 points today.
It is my view that shares are the investment most suited for the average investor. They are the most flexible as they can be cashed in, whole or part, on short notice, and provide unique tax benefits in the form of frank dividends. The price we pay for all these benefits is volatility – history tells us to expect four negative years in every 10.
Far too many people quit the market when it is down, thus turning a paper loss into a real one. The secret of investing is to agree with your advisor on a set asset allocation percentage and stick with it through thick and thin. It is time in, not timing, that gives the long-term results.
Finally, we should never forget our greatest asset is our health. Certainly a serious health problem can strike suddenly but most people's lives could be improved by a wise exercise and diet regime. It's a bit late to start when the problems come.
So there you have it, three invaluable lessons of which we’d be well placed to take note. And if you know of some who could do with the gift of wisdom, or perhaps it’s a gift you should give yourself, then Noel’s latest book is the perfect Christmas present.
Priced at $49.95, you can purchase from Noelwhittaker.com.au
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