Critical

SEVEN Wealth
Principles

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Inside Wealth Pty Ltd. Copyrights 2013 www.insidewealth.com.au

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Understanding the rules of money and debt is pivotal to
creating wealth. People dont particularly become wealthy by
accident. They generate wealth usually by way of consciously
making decisions on how to better understand the principles
of how money works, the rules of how to manage debt,
create leverage and generate profit.
In this report we will uncover 7 Critical Principles to Building
Wealth & Understanding Debt.

State of Mind
Actions first step comes from within. The true deep and
inner-motivation to any action first starts from a single and
tiny but most powerful thought. As human beings it is these
thoughts that make up just one of the dynamic characteristics
of who we are today. Our emotional process, methodological
ways, our rational and irrational behaviors all impact our
state of mind at the time of any experience.
Whats more interesting, our social influence and outside
interactions can too create certain changes to our state of
mind. Its our modern way of life to realise through
interaction & influence a shift in our state of mind can create
many variances both internal and external.

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 Like the saying goes the more I think about it the bigger it
gets. The way we think typically is the way we act!
Understand state of mind is simply a conscious decision or
thought. Its a present state of feeling and how we have
associated ourselves to it. Its true meaning is really only what
we decide to commit to and associate its meaning to in our
own souls or code.

Unlimited potential starts

with you.

If you create negative associations and thoughts to a cause,

this ultimately will become the outcome. But if you change
your state of mind into positive thinking, clarity and an
abundance of positive action will evolve.
The quality of my questions
Life can be measured by the quality of questions you ask.
Have you been in a situation where maybe the question you
asked wasnt the right one, or the approach to the question
didnt really have the affect you were looking for, and it

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backfired! A question could have been muffled,
misunderstood or unclear? Or the questions intention simply
had none, was misconstrued or maybe even unintentionally
or intentionally a rhetorical one?
The quality of your life comes down to the quality of the
questions you ask. But have you really spent time to evaluate
the quality of questions you ask yourself? Evaluate your goals
and what is important to you, and then ask yourself what
would be the consequences if you did not achieve them?
Take the time to write down the questions that you believe in
yourself that will create a better you and step you through
life towards whatever it is that makes you happy.
Pay yourself first
From an early age we have been taught to study hard and
work hard. It seems to have been the western universal law
of financial survival. And theres nothing inherently wrong
with this advice its just a very long way to reach any form of
financial independence.
The problem is by following this code, no one is really
teaching you how to pay yourself first. You pay all your bills,
living and current financial commitments but never really pay
yourself. Theres no one teaching you how to drive your
assets or build wealth and educate you on finance. We get
deeply hypnotized by money and wrapped up in the cycle of
having to work for money, not money work for you.
Entrepreneurs and astute investors apply this principle at the
very forefront of their wealth decision-making process, so

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consider paying yourself as an important bill when you run
the household budget of bills to be paid.

Understanding the rules of debt is pivotal to creating wealth.

People dont particularly become wealthy by accident. They
generate wealth usually by way of consciously making
decisions on how to better understand the principles of how
money works and the first rules of how to manage debt.
Debt comes in various forms and disguises, and can be good,
bad and even sometimes quite daft or dumb. First you would
need to break down the types of debt you currently hold and
weigh up how to minimise or transfer the not so good debt to
actual good debt. And remember debt and one-night stands
dont go together. Clich or not, its like a marriage a
relationship that needs time, patience and plenty of
monitoring. Understanding these principles will ensure you
place an effective & well-managed debt plan that will gear
towards reducing non-tax deductible debt and build wealth
through a well-structured investment plan.
Always clear the credit debt of high fees, interest costs and
non tax-deductible interest first, and evaluate solid cash flow
projections before entering into new debt. Appropriate
management of your home affairs is typically a good indicator
youre ready to explore investment debt.

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DSR (Debt Service Ratio) is a typical indicator of how any one
person can service an amount of debt as scaled by a credit
provider. From an investor its good to gauge an idea of what
your actual serviceability is before advancing any funds from
a financier. Know your credit score, LVR loan to value ratios
and equity assessments with financiers and ensure you adopt
comparable cost-effective finance strategies that are right for
your investment situation. Typically interest is your most
exorbitant holding costs towards any geared investment plan,
so engaging the right advice and basic principles of finance
will smooth out some of the confusion when looking to
invest.
A great source of options including principle and interest
loans to interest only loans that includes either variable, fixed
or both product styling options and a great variety of
products can determine a very different outcome to your
bottom line. Always ensure your finance structure is geared
to your personal situation and assessed appropriately taking
into consideration of both your current and future
expectations.
The use of cross-securitisation or stand alone security plays
an integral part in the process of structuring loans. So be sure
to first evaluate and profile your risk before going to just one
funder to facilitate your finance. Spreading it across various
funders can help minimize the complication of cross-securing
your property portfolio and ultimately improve diversity,
security and convenience in the likelihood of your interests,
not the banks.

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 Australians are famous for their love of anything that can be a
tax deduction. Negative gearing is a simple concept and a
term used often today. It refers to a situation where the
expenses to maintain an investment property exceed the
income of that property. This is known as the negative part.
Gearing relates to the amount of borrowing in an investment.
For example, if the costs including all expenses to buy a
property, interest, maintenance and all outgoings outweigh
the income/rent or dividends derived from the investment
property, then this would create a negative cash flow. This
amount allows the investor to claim a tax break against their
taxable income based on their marginal tax rate.

So do you negatively
gear or positively gear?

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Why do this?
If the value of a property has risen from $450,000 to
$500,000, but the negative gear was $5000 in the same year;
the trade-off is the investor has still achieved a net $45,000
gain. And dont forget the $5000 loss is also creating a tax
deduction savings against their taxable income.
Positive Gearing
Conversely positive gearing is the negative gearing opposite.
Providing you a positive cash flow from your property
investment and averaging a surplus to your bottom line.
Conditions of the economy can impact the nature of how you
gear your investments and your approach, styling, structure
and innovation to your property investment strategy can too.
But to put it simply and commercially, positive is always
better than negative. So, yes Australians may love the
negatively geared property to help reduce their tax bill and
offset this with longer gains in the capital growth of their
investment. But it just makes commercial sense to achieve
both the capital growth and actually making you money
whilst doing it.
If you only buy assets that make money, youll have no option
but to actually make money. It makes common sense to
identify opportunities in the market that will make you
money and build you capital growth.
Contrary, the negative gear strategy is not completely dead. It
has its purposes, especially during strong growth cycles in the
market. Namely where the gains outweigh the losses and

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where you gain a better profit with equal or less risk, for
equal or less aggravation elsewhere.
Understanding the market, property cycles and implementing
specialized investment strategies including dwelling type
restructure, dual income and title changes to zoning are just
some strategies to help impact any specific property to your
advantage.
Principle 6 talks about property and its cycles.

Understanding leverage and its true principle will unlock

equity faster than you think. The power to use (OPM) other
peoples money to amplify your gain is an empowering force
investors grasp early to contribute to the pace and
performance of any investment portfolio. Below is an
example of some investment strategies used when leveraging
through the effort of OPM.
Why do it?
If you invested $40,000 of your own money and the
investment increased by 10 per cent, then you have
gained $4000.

If you invested $80,000 ($40,000 of your own funds and

$40,000 that was borrowed), and 10 per cent increased

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 occurred you would have earned $8000. Which is 20
percent on your initial $40,000.

If you invested in $500,000 and used $50,000 of your

own funds and borrowed $450,000 and the investment
rises by 10 per cent the gain would be $50,000, which
is doubling your initial investment.
The above illustrates the power of gearing/leverage. There
are other factors to consider including costs & interest. The
trade-off is values can too fall instead of rise, so in this
example you would have lost 10 per cent, 20 per cent or 100
per cent, respectively, of your initial $40,000 to $50,000.
Typically through property, values have increased in the long-
term and holding on to any investment can typically smooth
out fluctuations inherent in geared investments.
Unlocking Equity
Sleepy equity is dead equity. To activate equity, an investor
must learn these principles of leverage. Evaluating risk to
return and the appropriate splitting of loans and finance
structures assist effective equity and leverage capabilities.

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Its all about delayed gratification. In that you will earn
growth on growth, which makes compounding returns as one
of the most powerful forces available to investors today.
If little Aaliyah was prepared to wait 30 minutes for 3 jelly
beans instead of getting one immediately, the question is
how many would she get if she was prepared to wait a week?
20, 30 or maybe hundreds?
If you put away money to invest, reinvest the gains and let
the investment continue to grow year after year, then
compounding growth will be earned growing your portfolio
exponentially.
For example: You invest $100,000 and it grows by 10 per cent
in the first year that would grow your investment to
$110,000. If you continue to invest with the same rule of 10
per cent for each subsequent year in the second year you
would earn $11,000 (10 per cent of $110,000) so by the time
you hit year 10, its growing at more than $23,000 a year.
Consider what happens if you delay
This graph shows investors who have decided to put away
$1000 a year for 30 years. The first investor starts now and
the second investor doesnt start putting his $1000 a year
until year 10. With the assumptions that each investment is

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earning a 9 per cent each year and all proceeds are
reinvested.

The investor who started immediately will have $142,441 at

the end of 30 years. The investor who delayed will have just
$53,462 at the end. The lesson is to start your investment
plan early and add to it consistently. The cost of not putting in
that $1000 each year for the first 10 years is not $10,000, but
nearly $89,000 with compounding growth.
Income realisation comes in the form of compounding growth
in the held asset, and the efficiency of the income that the
actual asset returns less all the outgoings is otherwise known
as yield.
Evaluating the yield comes down to a proficient assessment
of all outgoings and maximised earning potential against the
value of the asset. There are a number of factors that
contribute to the overall yield of an investment including:

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 1. Rental income
2. Expenses
3. Other income streams the asset could generate
4. Subsidy costs to offset expenses
5. Incentives, grants or government assistance
6. Depreciation
7. Individual income assessments & tax savings
8. Vacancy period
9. Finance Structure, interest and fees
10. Gearing capacity
11. Use of a quantity surveyor
To ensure the right investment strategy suits your
circumstances and is performing well, always have the
strategy assessed against your specific financial situation and
make use of the right professionals.

Historically capital growth & rental returns have grown

significantly over the last 10 years, with the recent property
sector experiencing a downturn with both affects of GFC in
2009 & more recently in 2011 figures. But to put it simply, if
you were to view property valuations especially in major
cities, they have averaged 5 10% minimum capital growth
per year for the past 20 years. While property values do not
experience the same volatility of the share market with

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extreme ups and downs, there still are times when they
surge, decline and lay stagnate.
How do these cycles affect you?
For very short-term property traders, the timing of these
cycles become a more measurable denominator and timing
these cycles become evidently important. However, for long-
term investors, time typically smooths out these fluctuations,
as it is not necessarily timing the market, but time in the
market.
Below diagrams shows a theoretical sequence in stages &
property cycles.
Economic Property Cycle

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The repetitive nature of the property cycle is in somewhat
related to the herd mentality of human nature. Meaning, we
simply follow what others are doing. When everyone starts
buying, more get active and looking to buy, building surges
when everyone else is building and so on. Through the history
of time the only real lesson history has taught us is that
history really does repeat itself. It is human nature to do what
everyone else is doing when everyone else is doing it.
Those who want to achieve financial success through
property investing must learn to fight against this basic
instinct and align themselves with a partnership that
provides thorough research into identifying key performing
& tax-effective investments.
Diversify your portfolio
Enjoying the benefit of a well balanced property portfolio
starts with the combination of well-researched property, cash
flow strong returns and diversity.
Its like the saying goes you risk more if you put all your eggs
in one basket. If your goal is to build wealth then building
just one or two investments might make you rich, or it might
not. Lets be honest if you could be rich on just one or two
investments then everyone would be rich in one way shape
or form.
Wealth takers need to be confident to build a portfolio, but
build in diversity that reflects different types of investments
and throughout different times. There are cycles in all
investment categories and investing for the long term can
smooth out these fluctuations. But diversification can help

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mitigate some of these risks if anyone one investment area
plunges; its not bound to your entire investment portfolio,
only independently.
Remember with any investment there is the give/take rule
with wealth versus risk. So if only one out of ten of your
investments you made over a 5 or 10-year period doesnt
perform, thats not so bad in comparison if you had made 10
investments of the same type and nature and they all failed?
Some investments can perform poorly and some can perform
spectacularly. Its far more dangerous to pin all hope on one
than it is to have on a dozen.

Building the right framework begins with a goal setting

exercise, provision of planning, adoption of the skill set and
tools, and a great source of advice.

Goal Planning is the process of defining where you want to be

tomorrow by setting goals today. It is one thing to say, I
want to retire with a million dollars and another thing to
actually doing it. For most successful people, success is not an
accident or luck but the result of planning and hard work.
Goal setting is an important process in achieving success.

Successful people set goals and develop plans to achieve

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those goals. Unsuccessful people do not plan to fail or be
unsuccessful; they just fail to plan. The process of setting and
achieving goals can also give you the confidence to set even
higher and more aspiring goals and provide you an
opportunity for even greater success.

We believe that it is important to review your goals once you

have set them and monitor your progress towards achieving
those goals on a regular basis.

As part of your plan, set specific goals or visions with times

and amounts so that your achievement can be measured.
Also, when setting multiple goals it is important to prioritise.
Whether it is getting that new car, buying ones dream house,
buying an investment property, paying for your childrens
education, or having a comfortable retirement, almost
everyone, with proper planning and hard work, can achieve
their goals.

When setting your goals, use your imagination!

The next step is to align yourself with the right partnership.
Lifes too short to waste time learning everything, and in fact
this guide alone should be enough to outline the basic
necessities for when first wanting to approach the world of
property investment. Create the right balance that gives
enough knowledge to act, play confident but also leverage
the expertise of others to your gain.

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The best way to ensure you have a good team on board is to
evaluate what they actually promote, how they get paid and
ensure they disclose this to you.
It is vital that you have a selection of support professionals as
part of your investment team but declare the same core
objectives as your personal objectives. Meaning, they work
synergistically towards benefiting the member by taking
consideration of both your motivations and concerns
collectively as a team.
Your team should include a:
Solicitor
Accountant
Mortgage broker
Licensed property advisor
Property leasing manager
Financial planner
Quantity surveyor
Research Analyst
Also, professional people who have invested into property
and have done it correctly are a great source of advice.

Disclaimer

The information contained in this educational pack is

intended to be used as a guide only. It is the intention of
Inside Wealth to provide you with the most relevant
information at the time of writing, but Inside Wealth reserves

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the right to adjust any information following distribution as
circumstances may be beyond our control. This educational
pack should not be a substitute for professional legal, finance
or real estate advice. Please consider your individual
circumstance when purchasing property.

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