By Amanda Morrall
It is often said that if you don't know where you are headed, you're bound to end up lost or perhaps just spinning your wheels.
The advent of global positioning systems (GPS) may have antiquated this bit of Eastern wisdom, however the philosophy still largely holds true in the case of personal finances.
Amid the day-to-day quotidian affairs of life, most of us tend to get trapped in a financial hell-hole or else purgatory, where we're simply adrift.
Martin Hawes' latest book, "The Money Map,'' was devised as a navigational aide to get you moving.
As with other trips of a life-time, the mapping of one's financial fortune starts with a dream, says Hawes.
| For a chance to win a copy of Martin Hawes' latest book "The Money Map" email amanda.morrall@interest.co.nz |
In praise of having a dream
Normally derided as the airy fairy stuff of longing and wishful thinking, Hawes regards the dream as an essential compass to making one's fortune, whatever that might be.
He says only from a desired end point (the dream), can one begin to put in place a plan pegged with landmarks called goals to ensure a safe arrival at your destination.
The greatest financial traction is made when the two are working in tandem.
Hawes writes: "Without qualification, I would say that setting a goal for your finances is the most important part of planning them. If you were only ever going to do one thing about your finances, it should be to set yourself a big goal for your future.''
The dreams is the emotional underpinning of the goal, he says.
"If the dream is a warm, fuzzy vision of your future, your goal is quite the opposite; it is numeric, measurable and you know that you have either achieved it, or you haven't. The dream is the 'why' of what you're doing; the goal is the 'what.''
"It isn't good enough to work only towards a soft-focus dream of your future, it may be moveable, and you'll never quite know whether you're there or not.''
Hawes 'dream catcher' solution against head-in-the-clouds syndrome is a SMARTI-goal. It must have the following features: specificity, measurability, achievability and relevance. On top of that is should be time-bound and written.
Without those six facets, Hawes believes dreams will always remain just that.
It may seem like straight forward stuff but in his experience as a financial advisor, Hawes has found common sense sadly lacking.
His intention in writing the Money Map was to address those short-comings and oversights and to set people along a financial path that would have a better chance of finding an arrival.
The bare bones of a financial plan
The book challenges readers to ask of themselves:
"Where are you at this moment, where do you want to be at some point in the future and how do you bridge the gap between one and the other. That's the bare bones of a financial plan. You have to add a lot of flesh and sinew onto it, but the basic process is to say: `This is where I am, this is where I want to be,' then to draw a route between the two.''
As a book geared to general audiences, you won't find the usual financial jargon and intimidating equations for wealth creation.
Instead, Hawes works with the basics and impresses upon readers the importance of the building blocks as a means to reaching one's goals.
The only real prerequisites for wealth creation, is literacy and numeracy, bolstered by will, he says.
"The thing that holds people back is between the ears; it's attitude, and discipline.''
Hawes suggests that one's hunger for knowledge is more important than the knowledge itself; as without the drive, there is no fuel.
While Hawes has made a career from giving advice, he said the cornerstone of his teaching is to encourage people to take greater responsibility and interest in doing it themselves.
"Largely I am helping people by advising them about how to direct and manage their money themselves.''
Hawes acknowledges the pitfalls and risks of the DIY approach, particularly for those just setting off on the path.
The common mistakes
The most common mistakes? Taking bad advice from well-meaning relatives; investing before paying off debt; and investing in the "wrong" areas.
"The obvious one is finance companies,'' says Hawes, who had misgivings about the sector before it crashed and burnt and took mum and pop Kiwi investors down by billions of dollars.
"I thought at the time, it was writ large, a disaster waiting to happen. New Zealand has all these small unregulated banks and that's what they were. I thought that was a disaster waiting to happen.''
Concerns over investment property
Hawes harbours similar fears about the residential property market, New Zealand's investment of choice.
With wage constraints, mortgage obligations, rising interest rates on the horizon and low yields, Hawes doesn't like what he sees.
"We've had three of four years of very flat returns there and it could be that that continues for a fair while yet.''
But has residential property really underperformed as an asset class, relative to the alternatives?
Hawes said fair comparisons can only really be made over longer periods of time. On that basis, performance differences between the share market and residential property are only slight, with shares edging out property only by a thin margin.
So what can be read into historical benchmarks when weighing up the value of a residential property investment in today's market?
Using yields as a measure, nothing good, according to Hawes.
"When you look at conditions as they are now and try to extrapolate in to the future, what you can say when you look at residential property is that it is very low yielding.
"The yields are so low that to purchase a rental property is not really an investment at all. You are really speculating. Your investment can only stand up if prices rise and that's no different than speculating on gold or buying oil futures because there is no income there.''
Investing versus speculating
Hawes says those bent on property as an investment should understand the risks they are taking -- in terms of banking on a steady price increases for the housing sector.
"An investor looks foremost for income (capital gains is just a bonus) whereas a speculator just wants to see price changes one way or the other. Residential property at the moment, the yields are so low, you're really only speculating."
"For me to invest my money in property, I would need a really well located property, rented to the types of people who make good tenants and I'd want a net yield of 7% or else I'd say why brother, as I'd get a better yield with a listed property trust. Why would I bother owning only a single asset and having all the management difficulties.''
That's not to say that there aren't some viable properties out there that could make a good, solid investment. They're just likely to be few and far between, he says.
"Keep out" of property
"Where can you get a well located residential property leased to a really good tenant for 7%? I doubt you can. What's an intelligent response to that? It's to sit on your hands and to do nothing, to keep out of it. That's my advice to people with residential property at the moment.''
Investors' anxious for a change in the climate could be waiting for a while.
Hawes doesn't anticipate any notable improvement in the economy for at least three years.
"I think the global financial crisis (GFC) is likely to continue in a more subdued way. The difficulties that created the GFC are likely to go on for three to five years.''
That said, Hawes said his long-term outlook is a positive one.
"I think if you look out 10 years, human beings won't stop inventing things, businesses won't stop making money. So I'm very optimistic about the future but I think the next three to five years are going to be fraught and very dangerous.''
Cash is king
That may be cold comfort to those individuals who are cashed up and ready to invest.
Hawes and his business partner and wife Joan Baker cashed up in 2007 after getting nervous about a long period of conspicuous consumption coming home to roost.
They got out just in time and were spared the scorching losses many investors suffered with share markets tumbling 40% or worse.
While he has waded back into capital markets on a highly selective basis, Hawes says his short-term strategy is to stay put, mostly in cash.
For mortgage holders and others carrying debt, Hawes sees this period of low-interest rates and uncertainty as an ideal time to bury debt; the faster the better.
Watch for interest rates to rise
"I'd say make sure you use this time to cut the mortgage as fast as you can, when interest rates start to rise -- and it's not if but when -- cutting down debt will be much more difficult.''
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