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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:
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.”
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.
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.
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”)
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.
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.
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.
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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
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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?
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.