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5 Ways You’re Killing Your

Passive Income
...and what to do about it.
THE DELTA FINANCIAL ‘PASSIVE INCOME’ SURVEY
In preparation for our white paper 5 Ways You’re The Three Leading Obstacles to
Killing Your Passive Income Delta Financial Group
Wealth
recently surveyed a group of IT professionals about
what the biggest obstacles they encountered for Almost 80% of IT professionals we surveyed put their
creating ‘passive income’. lack of wealth creation down to three issues:

Remember that this is income received on a regular


basis with little effort required to maintain it. 1 No Structured Plan or Long Term
Goals

Why IT Professionals?
“Planning addresses cash flow
The reason for selecting IT professionals was that,
from our experience, they often command top management, risk avoidance,
salaries but fail to generate real wealth from it. good debt practices and also
The industry seems to reflect a more general situation
focuses on reduction in tax
we have in Australia where the link between wealth paid, property taxes etc. As
and income is not strong. the saying goes: ‘Those who
The subject of this white paper is taking the necessary fail to plan, plan to fail!’”
steps to get our money working better for us so
that we can enjoy the retirement we dreamed of.
So, it was first necessary to understand the biggest The lack of a plan, even early on in a career, means
blockages that IT professionals meet, when trying to you can miss the opportunity to invest and earn
turn income into wealth. compound interest to help secure your financial
future. Having a plan to invest earlier in life can have
huge implications on your retirement funds.
The Survey Results
Our research study questioned 1250 participants
from the IT industry, to determine the five leading
blockages to creating wealth.
2 Avoiding Risk by Taking No Action
Some people believe that investing is too
risky; often the opposite is true. With the right
The results are as follows: financial advice it’s possible to manage risk and
return intelligently.
Blockage Results (%)
No structured plan or long term 32 “When I bought my first
goals property everyone was saying
Avoiding risk by taking no action 24 it was impossible to do, and
high risk: ‘you will lose all your
Poor cash flow management 23
money’. I was only 21 with a
Paying too much tax 13
low income, and now it’s almost
Not enough good debt 9 doubled in value 7 yrs later.”

5 Ways You’re Killing Your Passive Income 2


3 Poor Cash Flow Management Lack of a budget and “frittering” money away
on expensive frills is common, especially when
retirement seems a long way off. Most wealthy
“Most people, especially Gen Y, people have very few “expensive toys” and instead
would rather spend $150+ on invest their money where it grows.

a Friday night at the pub than Just addressing the above can make a big
difference to your wealth creation efforts.
gear an investment that will
give them the freedom to pub Our 5 Ways You’re Killing Your Passive Income
white paper is the place to start on the road to
it every day if they wish!” planning for the secure financial future and the
lifestyle you want.

5 Ways You’re Killing Your Passive Income 3


INTRODUCTION
Real wealth is what most high-flying executives and Here in Australia over recent years the opportunities
consultants desire and expect, but so few take the to earn very high incomes have rarely been better for
necessary steps to make it happen. top executives and consultants.

Wealth is the key to the lifestyle you want; early Yet an Australian government study recently found
retirement with a large enough income to do all the following:
those things you wanted to do when you were
slaving away for 40 or 50 hours a week. It allows your
children to get the best education, for you and your
partner to do all that travel you always dreamed
There is not a very strong
of and for you to spend more time out on the golf
course or wherever. It’s freedom. linkage in Australia between
I mean, who wants to be working all their life? wealth and income. That is,
there are quite a lot of people
Many executives have this all planned out in their
minds and are working towards the day when they with good incomes but not
retire…but without paying attention to the what will much accumulated wealth,
actually make this a reality and not just a dream.
and vice-versa. In some cases
They score a top job, with a top salary, and their elite
the reason is that wealth is
earning power makes them feel great; they’ve got
it made and everything has fallen in to place on the inherited. But most wealthy
road to wealth.
people are ‘self-made’ men and
Except…it doesn’t work like that. You have to take women who have accumulated
the steps to get your money working for you – and
the earlier you take these steps the sooner the work
their assets through successful
turns into real money: the kind that keeps on coming careers and years of saving.
in while you’re lying on the beach sipping cocktails;
the sort that rolls in while you’re enjoying the ski
slopes of Switzerland. That’s passive income.
So, you have the salary, but not the wealth – you’re
In Thomas J. Stanley and William D. Danko’s 1996 book not alone. But you do have the opportunity to create
“The Millionaire Next Door” they profiled millionaire wealth, whether you are a 22-year old high flyer, you
US households and guess what they found? have been in the game a while but have blown most
of your savings, or you are just starting to panic that
There were generally no extravagant lifestyles, few actually that “retire at fifty” option and the lifestyle
unnecessary luxury goods or ultra-expensive cars or we described in the opening couple of paragraphs
other ‘big boys toys’; just sound investments earning is not at all realistic.
passive incomes for the households. The authors
even make a clear distinction between the ‘Balance This paper shows you what you’re doing wrong
Sheet Affluent’ (those with actual wealth) and the now and how you can put it right to achieve your
‘Income Affluent’ (those with a high income, but little financial and lifestyle goals in the future – starting
actual wealth). right now.

5 Ways You’re Killing Your Passive Income 4


PASSIVE INCOME – THE GIFT THAT KEEPS ON GIVING
Imagine you run your own business; in fact some your role means you start to work “on” your business
of you reading this may run your own business – rather than “in” it, and it allows you to take that
perhaps you are an IT consultant or have your own three-week break on safari in Kenya or take a couple
Systems Administration business. of months off to help a family member when they
need you.
You command a great hourly rate that most can only
dream of and you work all the hours possible to pull Whether you are running a small business or you are
in the income you’ve always dreamed of. employed in a blue chip company in a senior IT role,
the same applies – getting your finances working
Do you really have a business or are you trading time “behind the scenes” brings a great degree of freedom
for money? Which means you might be working to your life.
hard to get ahead but, in reality, as soon as you stop
working no income is coming in. Surely that’s what it’s all about – that’s why we work
in the first place, to get the lifestyle we want. Passive
Investing some of that high salary to create passive income works for us while we’re not working and it
income streams and training up others to take up really is the gift that keeps on giving.

5 Ways You’re Killing Your Passive Income 5


5 WAYS YOU ARE CURRENTLY KILLING YOUR
PASSIVE INCOME

Passive Income:
  Earnings from a business that requires no direct involvement from you

  Property rentals

  Dividend and interest from securities, such as stocks and bonds (sometimes called “portfolio income”)

  Pensions and superannuation

If some or all of the above never appear on your Not investing enough until it’s too late to do much
tax returns at the end of the year, it’s time to have a about it is a mistake that many people make.
re-think, because you are not converting your high
income into passive income. Some people fail to understand the power of
compound interest over years of investing. For
It probably means that you are falling foul of a few of example:
the common mistakes that high income earners/low
wealth generators make, and we take a look at five of
these below:  Jeremy is 40 years old and starts investing
$20,000 a year for retirement, worried by
how quickly it is coming round.
1 Poor Cash Flow Management
Is the temptation to spend all that “lolly” on
 Jane is just 21 years old and is a forward-
thinker. She invests $5,000 a year for her
flash sports cars, heated bathroom floors and the
retirement.
latest hi-tech gadgets too much? If so you may be
suffering from a case of poor cash-flow management  By the time they retire, Jeremy will have
which can be a killer for individuals and small invested $400,000 and Jane $220,000.
businesses alike.  Because of compound interest, Jeremy
would retire with half the money as Jane,
High outgoings need to be stemmed before you
even though he has invested twice as much!
can hope to start creating wealth. As we mentioned
previously the truly wealthy amongst us rarely waste  Jeremy would receive $1.97 million and Jane
their hard-earned money on unnecessary “glitz”. $3.26 million.

2 No Structured Plan
Next in line to poor cash flow is the lack of a
Some people use the excuse of not having enough
time to devote to a financial plan. With differences
plan for your finances. The time to get a plan together in retirement income as gargantuan as you see
is early on in your career, before you see that planned- above, it should encourage you to make time for this
for retirement age getting closer. important task.

5 Ways You’re Killing Your Passive Income 6


3 Avoiding Risk by Taking No Action
Some people believe that investing is either
4 Not Enough Good Debt
Good debt is essentially tax deductible debt.
too risky or not worth it, so they take no action at all. Borrowing from banks to invest in property or shares
In fact, NOT investing can be just as risky as diving in is generally classified as good debt because it is tax
and not considering the risks at all. deductible; you’re getting a tax advantage and can
write off interest on an asset that’s appreciating
Risk and Return are the two basics of investing – the over time.
more you risk the higher your potential return or
your potential losses. That’s the trade off. So generating your passive income streams may
involve borrowing – but the risk will be minimised
Avoiding risk altogether by keeping your money in partly by the benefits it has to your tax situation.
a suitcase in the basement means that you have no
exposure to the ups and downs of property and share
markets. But essentially your money is staying static.
True - you may be creeping down to the basement in
5 Paying Too Much Tax
The main reason people pay too much tax
the middle of the night with another wad of notes, is because of the above issue – they do not have
but none of the money kept there is growing – not enough good tax deductible debt. This is money
even in line with inflation. So the “real” value of that down the drain – you are already in a high tax bracket
suitcase load of notes is falling. because of your high income; doesn’t it make sense
to claw some of that tax back and have some extra
Good advisors with knowledge of the global and funds for reinvesting?
local market trends will help you minimise your
risk by diversifying your investments; they will also The above common mistakes usually stem from
ensure you don’t miss out on chances to grow your receiving a lack of good financial advice. Luckily all of
wealth significantly by capital growth in investment these problems are fairly easily remedied.
markets (like the growth in China and India in the
past decade, for instance.)

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HOW TO GET STARTED ON THE ROAD
TO GENERATING WEALTH
You probably don’t need us to tell you that the road people feel when considering their own investments
to generating wealth starts with reversing the habits – greed and fear need to be taken out of the equation
above and turning zero wealth generating strategies and risk and return carefully evaluated.
into passive income creators.
You are not usually going to find that type of expertise
Easier said than done? Yes, but still very doable! outside of financial planners who have made it their
purpose to advise people on their financial future.
Their reputation lives and dies by this advice so
1 Get Good Advice
Good advice won’t usually come for free but
they need to make considered and results-driven
decisions for you. They want your investments to
the potential value that it creates will dwarf your succeed as much as you do!
investment.
Investing a little in financial expertise can reap
Many professionals do not realise the opportunities handsome rewards, whether it’s consolidating or
that exist for people with excess income to invest. self-managing superannuation funds, diversifying
Identifying where you can best make that money your share portfolio, purchasing property or making
grow is a skill that comes with experience and changes to pay less tax.
knowledge of financial markets and systems. It is
also something that comes with looking at situations Remember cost only becomes an issue when there
objectively and without the emotion that many is no value.

5 Ways You’re Killing Your Passive Income 8


2 Managing Cash flow to Create
Surplus Income
4 Consider renting and accumulating
investment assets
Next, you need to introduce a cash flow management If the current family home is not the last family home
system to ensure you are generating the maximum you want to live in then this can be a good investment
funds for investment. move. Carefully-monitored and managed shares also
remain a good possibility if you get into the habit of
This is often an area where successful IT execs fall reinvesting intelligently.
down, because their substantial income is spent on
lifestyle liabilities and living expenses.

However much you earn, unless you have a way of


budgeting it and monitoring it, it’s difficult to have
it earning passive income for you. Implement a cash
management system with a financial planner and
more resources will be directed to assets that can
earn you money consistently.

3 Set up a regular investment plan


The third step, once you have freed up the
cash is to create an investment plan to get that
money actually working for you.

You need to consider where you are in terms of


your current investments, debts and income,
your superannuation, investment properties or
shareholdings and your life insurance policies.

Based upon this, you and your advisor can develop a


5 Focus on good borrowings
Finally the focus needs to be on having
detailed financial investment plan that starts moving more good tax deductible debt, which will lower tax
your money to where it will see the best rewards. payments.

You should create short and long-term investment Debt on your family home or credit card debt is
plans – three, five, seven and ten-year goals with a not considered “good debt” because it is not tax
retirement plan also in place. Any financial advice you deductible.
receive should be linked to these goals and should
start preparing your finances now for what you hope
to achieve in the future.

5 Ways You’re Killing Your Passive Income 9


How Paul and Belinda Achieved
their Financial Goals
Y

Paul Haraldson is a 40-year old Sales Manager


at SingTel Optus; his wife, Belinda, is a stay home
D

mum of 34 and they have two kids, aged 1 and 2.

They sat down and prepared a budget in order


U

to set up a cash management plan to ensure


their surplus savings were invested into a wealth
accumulation strategy. The long term expected
outcome is a $1M share portfolio within 10 years.
T

They already had an investment property and wanted to buy another one using their
super funds. They were referred by Delta Financial Group to a property specialist to gain a
S

better understanding of their property goals and to utilise negative gearing to ensure they
incorporated a plan that dovetailed into their overall financial strategy.

They ended up combining husband and wife super and opening up a Self Managed Super
Fund (SMSF) so that they could buy a second property and have an actively managed share
portfolio with the remainder of the funds.
E

Their long term strategy is to sell the property in SMSF when a pension has commenced, as
there will be no capital gains tax payable on the property - just like when selling a family
home. This is a great retirement strategy.
S

They were underinsured and were recommended a personal protection plan including
income protection, life and total permanent and disability insurance, which they
implemented. These insurances were structured in such as way that they were all 100% tax
A

deductible.

A sound estate plan was developed to ensure that their wealth passed efficiently to their
children.
C

Their potential wealth would ultimately become quite significant and hence a Testamentary
Trust was incorporated into the Will document to provide additional flexibility.

5 Ways You’re Killing Your Passive Income 10


CHANGE YOUR LIFE – CHANGE YOUR FINANCIAL PLAN
Like Paul and Belinda discovered, it takes an initial
shift in mindset and a little professional assistance to Five Positive Life Changes from
start creating wealth.
a Positive Financial Plan
Once you make the decision to manage your cash flow
better you will free up funds to start earning a passive
income; then you need to get some professional
advice on how best you can reach your financial goals
1 You can start wondering about how
you will enjoy the long, leisurely days
of your early retirement. Does the golf
within the prevailing market conditions.
course look good?
A clear plan with informed, expert advice minimises
confusion and risk in the process. If you stop doing
the five things that are currently preventing you
creating passive income and start taking the five
2 You can spend more time with the
children and grandchildren. Sand castles
on the beach?
steps towards wealth, you can accomplish all your

3
financial goals.
You can have that 2-month holiday in
And what does achieving these goals mean? Europe you’d always planned but never
had time for. London Eye? Eiffel Tower?
Money, of course, is not the ‘end game’ – it’s just a way

4
to improve your life and that of those around you.
If you don’t want to give up work
Whatever the end goal of money means to you, there
completely, why not go part-time, so you
is a financial plan to help get you there.
can create more of a balance in your life?
9-12 in the office, 1-4 playing tennis?

5 You create a stress-free later life – there’s


enough going on without having to
worry about paying bills, covering
health costs or funding that new car.
Lawn bowls may not be your ‘thing’, but
we’re sure you’d rather be relaxing than
stressing about money matters.

5 Ways You’re Killing Your Passive Income 11


ABOUT MIKE AND DELTA FINANCIAL GROUP
Mike Sikar created Delta Financial And What’s the Big Difference Between
Group to help clients navigate their Delta Financial Group and the Others?
future success and security.
Delta Financial Group offers a fee-for-service pricing
More than just financial planners, model. We agree a flat fee with you before we start,
we’re personal lifestyle and based on the type of advice you want, and the
wealth advisers. That means we create a unique complexity of the strategy you need. Unlike other
wealth creation and protection strategy designed planners, our fees aren’t based on the amount you
around your personal and lifestyle goals. Our goal have to invest, and we don’t accept commissions
is to educate and empower you, acting as your from the investments we recommend.
professional partner through your various life stages.
Because our fees are agreed with you up-front, you’ll
His team at Delta Financial Group offers a holistic
always know how much you will actually pay. And
wealth creation and executive financial advice
because we’re not taking commissions, you can
proposition. By taking a life-planning approach, they
trust that we are always acting to achieve your best
design a financial plan around the unique values and
interests.
both short and long-term goals of clients.
Becoming a client of Delta Financial Group means you
Mike has more than 15 years’ experience in the
get access to our network of selected professionals
financial industry and has developed a unique and
with complementary skill sets and competencies to
broad skill set, allowing him to provide informed,
ensure you receive “best of breed” experts across all
strategic and holistic financial advice to clients, no
advice areas.
matter what their personal and financial goals.
As a result, many of our clients have received
His strong background in stockbroking and advice
comprehensive financial advice focused on areas
means he’s well positioned to offer expert insights
which are rarely covered by our competitors such
into a range of investments, from direct shares to
derivatives, across both domestic and international as budgeting, debt reduction, property advice and
equity options for blue chip portfolio clients.
markets.

What Next?
It’s time to find out what’s possible for your future.

Our FREE no-obligation financial health check (worth $1,650) will show you where
improvements to your current financial strategies can start creating the passive income
you need for your personal wealth roadmap.

To find out more visit http://deltafinancialgroup.com.au/free-financial-health-check/


Delta Financial Group Pty Ltd Phone: +61 2 9929 3343 Fax: +61 2 8580 5110
Lvl 7, 275 Alfred Street, North Sydney NSW 2060. Email: enquiries@deltafinancialgroup.com.au

5 Ways You’re Killing Your Passive Income 12

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