Australians should learn how to build enduring wealth to avoid a situation of being “asset rich” and “cash poor”, according to a firm of accountants and financial advisers.
HLB Mann Judd Sydney warned that many people, and in particular many home-owners, were too dependent on the fortunes of a single asset and their lifestyle and the associated expenses tended to be covered by borrowings.
Head of wealth management, Michael Hutton, also encouraged all prospective investors to ask themselves a few questions which would serve as a “reality check” and help them assess if they were able to manage a financial emergency without increasing debt.
Hutton said people should learn to build good quality, sustainable wealth by spending less than they were earning while saving the difference to make extra repayments on mortgages or making regular deposits to an investment portfolio.
He also stressed that any investment strategy should be appropriate for a person’s stage of life and circumstances.
“Not being able to repay credit card debt each month is often the first sign that your personal cashflow is in trouble,” Hutton said.
“You can be “asset rich” but “cash poor” when too much of your wealth is tied up in illiquid assets, such as direct property or unlisted shares. This can leave you exposed if your income circumstances suddenly change and you can’t easily extract cash from these lumpy assets to cover living costs.
“Finally, having adequate insurance and estate planning arrangements in place will ensure your wealth is protected and a legacy passed down to future generations,” Hutton said.
