Profit First. Reduce Risk. Build Wealth. Create Discipline.

Every single entrepreneur has one big dream: to be successful. This is not just about becoming rich, but also about living a life that’s free from financial worries. The problem for many entrepreneurs is they don’t know how to start this process of wealth-building. Is there something simple and easy they can do? Yes! Profit first will change your business and your life forever.

From start ups to established businesses, a profit first mindset will create lasting and real wealth. The concept is simple and the execution easy.

Here’s how it works:

• Every time you generate revenue in your business, set aside your profit into a separate bank account. This could be as little as $1 when you start, the key here isn’t the amount, it’s the mindset. You can start small but the aim will be to bring it up to at least 10% of revenue.
• Once you have $500 or more in this account, invest it.

Not back into the business, but into solid investments that will create passive income.

This could be real estate, dividend-paying stocks, ETFs or any other asset that growth. The key is to invest it and let it grow so you can live off the profits in the future.

This may seem like a difficult task in the beginning, especially when your business is just starting out. But if you make profit first a habit then it will become second nature and you’ll see your wealth skyrocket!

If you’re not yet convinced of the power of profit first, here are three reasons why you should adopt this system:

1) It builds wealth – When you invest your profits instead of reinvesting them back into the company, they start to grow exponentially

2) It reduces risk – You never know what is around the corner and in business that is especially true. Pulling money out can make it a lot safer.

3) It creates discipline – Making profit a priority in your business will create discipline and focus. This is something that is often lacking in small businesses.

It really is as simple as that! When you make profit a priority, everything else falls into place. You’ll be able to focus on what’s important and create sustainable wealth for yourself and your family. Isn’t that what we all want? So start today – put you and profit first!

When you make profit a priority, everything else falls into place. Remember: Profit First. Reduce Risk. Build Wealth. Create Discipline.

You might also like this: Is your inner entrepreneur calling?

Head over to our Instagram for more tips and tricks HERE.

We’re excited to have you join us for Wealtheon’s Interview with Craig Nenke. Our principal adviser, Kristopher Meuwissen recently sat down with business consultant and founder of Nenke Consulting, Craig Nenke, to have a chat about his impact on the business world, how he helps his clients smash their business goals, and what business life was like during Covid19.

Nenke Consulting are Australia’s leading Business Navigators, helping you take control of change within your business and harness it for growth. Craig and the team of skilled mentors can assist with navigating your business through and strengthen it for the future. They can support your business with smooth transitions and ongoing support through change. If you’d like to know more about Nenke Consulting or get in touch with Craig, let us know and you can find his contact details at the end of this post.

Business to Business Interview with Craig Nenke, founder of Nenke Consulting

Kris: So, tell me a little bit about you, tell me about your business, and family life and that sort of thing.

Craig: I’m married with two kids, one just turned 18, she’s doing VCE so it’s a big year ahead. My youngest boy, he’s 15, and he’s sports mad. He loves his tennis and his cricket, his footy, and he’s pretty busy with all of that. My wife’s a dressmaker, she works very hard in the fashion field. She’s very well known and works really well in that sphere.

Business wise, I’ve been running my own business only for three years or so. Prior to that, I was a consultant and manager in corporate fields, you know, mainly with an IT background. I’ve worked a lot in places like BHP, Shell, I did a bit of work with the banks and Telstra, so you know, a lot of the large corporates, and then decided three or four years ago to start my own business.

Kris: Yeah, brilliant. Now we’ve spoken before Craig, but tell me a little bit about the kind of people that you help at the moment, the kind of guys that you can get in and really make some positive changes for.

Craig: Well, I’ve focused more on small to medium business since starting out on my own. One of my main clients is a food, meat and dairy importer and exporter, and they have 20 to 30 staff. They’ve grown a lot through COVID, which many haven’t, and they have a number of business issues. One of them is with their ERP, and so I helped them implement their ERP. So I work as a project manager and a general consultant to their company, and help them in how to go about implementing it, what the sort of typical issues are with change management, so training, staff issues, what impact that would have on people, as well as the technology side of it, and making sure the system works and is tested. So that’s an example of how I’ve helped that organization, and that’s led to other work in terms of measuring staff performance, and I’m currently doing a systems review for them.

Other businesses I have helped more in the CRM space, so with their sales process. I’m currently working with a signage company, they do complex signs for industry, and they had a lot of issues with following up their leads and following up their contacts. They’re doing well, but they know they don’t follow up their clients as well as they should, so we’re going through a process of fixing that with a CRM and fixing other related issues with proposals and things like that.

Kris: And obviously, during COVID, business has been up and down, what have you found has been the biggest challenge coming out of COVID? For not just your business, but as a business consultant for other businesses?

Craig: Yeah, well there was a lot of fatigue associated with COVID I found and I know others did as well once the lockdown ended in around November. I think because everyone was just sort of over it and didn’t want to do new things, and everyone just wanted a break. And so that November to sort of February period, I’ve found a lot of businesses are just really fatigued, and I think that it’ll take a little while for that to pick up. I’ve noticed recently there’s a bit of change, there’s a bit of momentum going on, and some new things happening. So I think it’s hopefully going to continue more and more throughout the year, but I still think there’s a fair bit of lag there in terms of people picking up new projects, new things and wanting to make changes.

Kris: Yeah! I know, personally, I’m definitely feeling some of that fatigue, and it’s not just from a point of view of being busy and that sort of stuff, it’s also just been a slog, it’s been an absolute slog, and having to come up with new things and new ways of doing things, and finding new clients and that sort of stuff. It’s definitely been a bit of process that’s for sure.

What do you think is the biggest opportunity coming into 2021? You know, we’re in the second quarter of 2021, what do you say are the biggest opportunities for us?

Craig: I think the biggest opportunity is really with teamwork. I think people have realized the importance of people in their business, and looking after people, and there’s been a lot of talk about things like mental health and so on. The main issue is sort of mental health and the stress of how to deal with change, and how to deal with lots of Zoom meetings, lots of working from home etc. And the opportunity then is, well, how am I going to motivate my staff, how am I going to keep my staff? And how am I going to, I guess, congratulate them for making it through, but what are the new techniques? And what are the new things that we can do to make ourselves a thriving business through our people? To me, I think managers and leaders of organizations have learned that lesson, and I hope we’re continuing to learn that lesson and a need to continually find ways to their staff and build strong teams.

Kris: It’s really interesting as someone who is has a tilt and a focus towards technology background that you see the opportunities being people and the team that you’re building around you. It’s a really interesting thing, because a lot of people that I’ve spoken to in a similar sort of vein say you know, ‘technology, technology, technology’, you know, that it’s this all-encompassing way of the future. And I’m a big believer in technology being able to support your teams, but I have to say that I agree with you, I think people and the way that they actually come in and support business is probably going to be a massive opportunity, and working out how you can actually work with those people, and work with people that you previously didn’t have access to. It’s a Melbourne business being able to have access to an incredible person in Perth, or Karratha, or North Queensland, and you don’t have to have that same barrier to entry – you don’t have to have them come into the office and that sort of thing, and I think that’s a really good point.

Craig: Yeah, I think the power that you and I are here using technology to have a good discussion, which maybe previously we wouldn’t have thought of that, so there’s great benefits to it. But you need to have your limits, and you need to have your strategies around using technology in the best way, and that’s I think, the big opportunity this year in 2021.

Kris: Completely agree. And so from a financial point of view, have you ever seen a financial advisor in the past, and is it something that’s really had a lot of focus in your business?

Craig: Yeah I have, but I wouldn’t say I’ve had a big focus on it. With my clients I spend a lot of time talking about budgeting and finance, and not that I’m a financial expert, but obviously knowing your numbers, what your profitability is, and all that is very important. With my own finances I don’t always follow my own advice, so I guess I’m a bit mediocre when it comes to my own finances, but as far as financial advisors go, I haven’t really had a big focus on it throughout my career. I have worked with a firm that does insurance and financial advice, but I haven’t really used that to a great deal over the years.

Kris: And we’ll maybe touch on that a little bit later, because I think that most people are in exactly the same boat. I think most people haven’t actually spoken to an advisor. What has been the best thing that you’ve done from a financial perspective? What’s the best strategy that you’ve implemented, or what you’ve seen as the best success in your life from a financial strategic point of view?

Craig: I think it’s getting in a mode of knowing what your costs are, and to me, living within your means. Because you and I both know if you’re running a business, some years you have good years, and you think that’s going to go on forever, and of course then something hits, and it doesn’t. So you’ve got to have a view of your costs, and how you can safeguard against risks so that if you do have a couple of months or six months of practically no revenue, how can you survive? And so to me, finances is really about keeping within your limits and understanding what you can spend and when, and knowing your risks and the risk profile.

Kris: Yeah, totally, totally, totally agree. And one of the things that I see from working with a lot of people is that cash flow is king in a business, and you can be the most profitable business in the world, but if you can’t make it between now and when you get paid, it’s going to be really hard, because it’s just all accounts receivable, and that’s money that’s coming later. If you can’t actually get through to the point where you can get a hold of that money, then you’re up against the wall.

Following on from that, the biggest indicator of financial success that I’ve seen time and time again, is people’s ability to save money with every single time that they get paid. So if you can manage your expenses, manage your budgeting, so that way every time you’re getting paid you’re putting something away, or you have the ability to pay off more on your mortgage or put more towards investments or whatever it might be, your options just explode.

What would you say is the biggest lesson that you’ve learned in regards to your finances? So the mistake that hurt the most but also taught you this lesson?

Craig: That’s a tough question, Kris. But I think the biggest lesson to me is making sure you know what you’re purchasing. So if you’re purchasing an investment or a house, that you know if there’s room for growth there. I think we can get emotionally carried away with buying something new, whether it’s an investment property, or a new house or a share portfolio, whatever, that we think we’ve just got to do it and we’ve got to do it quickly. To me, it’s all about, ‘is that the right move?’ And is it going to be something that you can work with over the longer term, and not worry about every short-term spike. People have said to me over the years, you simply must buy these shares, or you must buy an investment property, or you must do this, you must do that, otherwise, you’re going to get too old. And I’ve I guess been bit conservative in that sphere, not been carried away with just doing something because you ‘should’ do it all because others have done it, you’ve got to do what’s right for you. And if that means, as you say, just paying down your mortgage quicker, or putting more into super, or a conservative investment, then you’ve got to do what’s right for you. I guess that’s the biggest lesson I’ve learnt over the years.

Kris: Yeah, perfect. It’s something that a lot of people wait a really long time to work out. I think that you’re absolutely spot on, it’s something that I see time and time again. I was speaking to a couple of clients the other day about it, and they’re talking to me about wanting to invest, and to buy an investment property. But then when we’re actually talking about what’s really important to them, and how they see risk, they’re all about not over-stretching and not going into debt. It’s all about doing the right thing for you, and knowing there’s more to it than just chasing a return.

You can get in touch with Craig and Nenke Consulting on 0438 524 506 or by visiting https://www.nenkeconsulting.com/contact-us/.

The costs of raising children from birth until adulthood are frequently reported by media and vary widely depending on whether you want your children to go to public or private schools and whether they plan to go to university or college. We’ve put together a few ideas on how to save for your kids education.

For example, if you send two children to a private high school which costs an average of $20,000 a year for each child, by the time they both graduate you will have spent $240,000 on school fees. And that’s not counting extras such as school uniforms, trips and sporting clinics.

Public schools are much cheaper but there are still extra tuition fees, textbooks, uniforms and school camps to pay for.

The cost of going to university or college can also vary. If your child is eligible for HECS-HELP (a government loan available to tertiary students) they can choose to defer payment of university fees. Even if they don’t pay fees upfront, your child will have to pay for books and materials, union and sports fees and transport costs.

The earlier you start saving for your children’s education, the better. Education costs are usually a long-term goal that can take more than 5 years to achieve.

There are four key steps to set up a savings plan for a child:

1. Set a savings goal – decide what is being saved for (eg education – type of education and at what level, private schooling and/or tertiary education?)
2. Set a budget – how much needs to be saved to reach the required goal
3. Choose an investment option – decide which product or where the money should be invested
4. Who should own the investment – whose name should it be invested in.

To help you reach your goal, you could put your savings into:

• Direct investments such as shares
• Managed funds or insurance bonds
• Term deposits or savings accounts
• Education funds

Starting your savings plan sooner makes it easier to keep your savings growing, reducing the risk that you may have to fund any shortfall when the school fees are due.

This is due to the benefits of compounding interest.

Compound interest is like a layer cake for your savings. You earn interest on the money you deposit, and on the interest you have already earnt – so you earn interest on interest.

An example of an account which earns compound interest is an online savings account which pays monthly interest.

If you invested $10,000 at 5%, you would earn $2,834 in compound interest after 5 years, giving you a total of $12,834. This is because every month the interest is added to your account and you’ll earn interest on the interest.

Compound interest on a $10,000 investment at 5% per year (compounding monthly)

However, before you decide to put your money into any saving options you should consider your other financial obligations.

For example, you may be better off repaying your non-deductible debt such as the mortgage or car loan first, before you start saving.

Your financial planner can assist you will all of these decisions, ensuring that the future of your child’s education is off to a great start.

Have some questions? Want to know how it applies to you? Want a review of your personal situation? Click here to book a Free 15 Minute Discovery Session, give us a call on 1800 577 336, or email us at hello@wealtheon.com.au.

Account-based pensions are the most popular type of retirement income stream for retirees. They offer both flexibility and ease of understanding and can be purchased from a professional fund manager or run within a self-managed superannuation fund.

What are account-based pensions?

An account-based pension is basically an income stream that is payable from a superannuation fund.

Anyone with accessible superannuation money – that is, “unrestricted non-preserved” superannuation money – can either rollover to, or directly purchase, an account-based pension. You don’t necessarily need to be retired to start the pension but you do need to have met a condition of release so that your money becomes accessible. In some cases, you can open an account-based pension even before your superannuation money becomes unrestricted non-preserved (under transition to retirement rules) but you should seek help from a financial planner to determine if this is appropriate for you.

You can purchase an “off the shelf” account-based pension from a fund manager, or alternatively you can commence one within your own self-managed superannuation fund.

How do account-based pensions work?

Account-based pensions operate similarly to a regular bank account in that investment earnings top up the account balance, and withdrawals in the form of regular pension payments reduce the balance.

Pension payments within a financial year must be at least equal to the legislated minimum amount (based on age). There is no maximum on a standard account-based pension so you can choose how much you want to receive. You can elect to receive payments at regular intervals, for example, monthly, quarterly, half-yearly or annually.

In addition to regular pension payments, lump sum withdrawals – known as ‘commutations’ – may be made from account-based pensions unless the transition to retirement rules apply.

Account-based pensions can be invested in a broad range of investment options that can be selected to suit your needs. They allow investment in the major assets classes such as cash, bonds, shares and property in addition to alternative assets classes, if desired and depending on the offer by your selected provider.

Why are account-based pensions so popular?

The popularity of account-based pensions is due to tax concessions but also due to their flexibility and versatility. Account-based pensions allow flexibility in relation to income, access to capital, investment options and payment possibilities in the event of your death.

Each year you need to take a minimum pension payment from your pension but you have a great deal of flexibility to increase the pension payment anywhere up to 100% of the account balance. How much you take will impact how long your pension lasts. If you need additional money in a particular year you can take out extra by increasing income or taking a lump sum commutation.

If you are age 60 or over and the pension is paid from a ‘taxed’ source, pension payments and commutations will also be received tax-free. If you are under age 60, tax may apply to pension payments and commutations, although a portion may be tax free and/or entitled to a 15% tax offset.

Investment earnings on the underlying assets of an account-based pension are added to your account entirely tax-free but you are only able to roll over a total of up to $1.6 million of superannuation savings to start retirement income streams. If you have higher savings in superannuation, the balance will need to remain in accumulation phase (with 15% tax) or be taken out of superannuation.

It is also important to note that the tax-free status of earnings will not apply to any pensions paid under the transition to retirement (TTR) rules. The earnings in a TTR pension will be taxed at 15%.

In the event of your death, the account balance may be paid to your beneficiaries or estate as a lump sum. Some beneficiaries may be eligible to select to continue the benefit as a pension. This is a complex area and advice can help determine the best option.

Your situation can be examined to determine the taxation implication of account-based pensions.

What about the disadvantages?

Probably the biggest disadvantage of an account-based pension is the risk that your savings will not last your lifetime and your income will stop. This will largely be determined by your starting balance, the investment performance of the underlying assets and how much you choose to take out each year.

There is also a limit on how much money you can have in account-based income streams.

Illustration of an account-based pension

Consider an account-based pension purchased by a 65-year-old for $300,000. Suppose the assets earn 7% per annum and the annual pension is elected to be $20,000 in the first year, indexed at 3% each year thereafter.

The following graph indicates how much pension would be paid each year as well as how the account balance changes over time.

Is an account-based pension for you?

For most retirees, account-based pensions will play a significant role in generating retirement income.

The attractions are undoubtedly the flexibility and the tax-free environment from age 60. It makes sense to consider investing part of your retirement savings in an account-based pension to provide flexibility to meet your changing needs but with advice to ensure your individual needs are met most effectively.

Get in touch if you want any more information about account-based pensions – we can explain whether an account-based pension is appropriate for you. Have some questions? Want to know how it applies to you? Want a review of your personal situation? Click here to book a Free 15 Minute Discovery Session, give us a call on 1800 577 336, or email us at hello@wealtheon.com.au.

Reducing Risk in Your Portfolio

By Kristopher Meuwissen

As the title suggests, this article is all about removing or reducing risk in your portfolio and that means you need to understand what RISK is for YOU.

Allow me to elaborate by using an example.

The average person faces many different types of risk in a day. Some risks we all face such as the weather and general hazards like tripping over that box you have left next you’re your front door for a week (Yes, we all that a box at our front door). But some people take a lot more risk in their daily lives such as electricians with live wires and carpenters using saws and working at heights.

The reason why I am explaining this is because you will have often have different investment risks that are intolerable to you that you in particular need to avoid. For example, a retiree needs to avoid loss of capital as much as possible which makes a large use of cash and bond assets more useful whereas a 25 year old needs to protect themselves from the effects of rising living costs which makes cash investments far less desirable.

So what are the common types of risk that may affect your portfolio?

The table below summarises some of the risks that an investor may incur when investing money in different markets. Please note the list below is not extensive and that your exposure to risk is not limited to the list below.

Parts of the above table are extracts from “Understanding Investment” a joint publication from the FPA & Macquarie Investment Management Limited

Although risk is usually associated with the probability of losing all or part of your capital, in investment terms it is the likelihood of achieving or not achieving your expected returns or goals in a given time period.

So, whenever you make an investment decision it means that you are prepared to take a risk of some sort. This decision will relate to the amount of money you have to invest and your existing circumstances and your needs for the future.

You will never be able to remove all risk from investments but by understanding which risks are intolerable, you can start to pull the right levers to mitigate against catastrophe.

Have some questions? Want to know how it applies to you? Want a review of your personal situation? Click here to book a Free 15 Minute Discovery Session, give us a call on 1800 577 336, or email us at hello@wealtheon.com.au.

You can also check out our other articles to get you started on your financial journey here.