Advice on converting your income into assets

By DavidGreth on January 20, 2011 In Investing

This article is brought to you by the people at Los Pandos

The vast majority of individuals do not start off with a lump sum of money with which to build assets. Only those who receive a windfall inheritance or a lottery win experience that luxury.

So a strategy needs to be formulated to change surplus income with assets over a certain timescale.

By creating assets individuals are effectively creating a future providing security and freedom of choice, and therefore is a major step in creating financial independence.

In generations past savings meant putting a little away on a weekly basis and utilising the proceeds for annual holidays or special occasions.

In the last 25 years with the financial industry becoming more mainstream and accessible and banking facilities such as Direct Debits becoming the norm, individuals have a widespread opportunity to access the myriad of offerings available. These offerings range from tax free products, through Life Company and Unit Trust products to basic Banking and Building Society deposit accounts.

By definition the timescale involved is crucial when deciding which type of savings vehicle to utilize. Generally speaking the longer the time before assets need to be utilized to create income the less needs to be saved and a lower risk option can be chosen.

The use of as many tax breaks as possible is crucial to consider as this benefit alone can create substantial increase in growth over the long term.

Your Emergency Fund

The first consideration is to create an ’emergency fund’ which will remain accessible and not be utilized for anything other than an emergency. Generally speaking this emergency fund should be accumulated to . the equivalent of 3 months running expenses i.e. if your month to month expenses are $2000 then an emergency fund of $6000 would be appropriate. Once you achieve this fund then surplus over this amount can be utilised into different types of investment vehicles. It must be remembered however that if the emergency fund is utilized or a proportion of it, then the next period of savings needs to be utilized to build it up again.

Credit Card Balances

The next point that needs addressing is the relationship between saving regular amounts and running a credit card. The main point of strategy here is to prioritize and ensure that whatever surplus income you have which you may consider savings is utilized firstly to pay off credit card balances. In other words if you do not pay of the balance at the end of each month it is much better to utilize whatever surplus funds you have to pay the balance down as quickly as possible. You should really only take on the commitment of regular savings when you are in a position to pay off your credit card at the end of each month.

Utilizing the Tax Breaks Available

It is logical to always consider saving as tax efficiently as possible but be careful not let the “tax tail wag the investment dog”.

As an example if you invest $100 per year in a tax free environment over 5 years at a 10% return a total amount of $671 will be accumulated, if however this had been held in a taxable account and assuming a 25% tax rate the amount accumulated would be $624. So for every $100 saved over 5 years a bonus of $447 is experienced. If you expanded this to $1000 per year this gives a benefit of $470 over 5 years, quite an increase for no increase in risk, just structuring the investment more advantageously.

Another factor within taxation structure is ensuring that partners or married couples structure investments according to their individual tax situation. In other words if one of the partners is a non-tax payer then it may be wise to put some of the savings/investment under the non tax payers ownership to enhance tax returns. This can of course also be appropriate for children’s savings.

Pound Cost Averaging

Many potential savers or investors are anxious about having enough knowledge to time their investments into a market correctly. When utilizing a regular savings plan to buy shares the question of timing does not arise.

If you save the same amount each month in units or shares, you get the advantage of buying more when prices are lower and this is balanced by being able to buy less when prices rise. This is called pound cost averaging
And it is argued that by doing this the average price paid for each share is lower than their average price over the period. In actual fact the more volatile the shares are the more advantageous is the pound cost averaging.

The project of Los Pandos covers an area of 5000 hectares in the locality of Almansa in the Albacete province.

Part of the larger region of Castilla la Mancha, Los Pandos, is within just one hour’s drive of the airports of Alicante, Murcia and Valencia. Each also boasts a sea port with Valencia’s being the second largest logistical port in Spain.

There are train links from all three to Madrid and Almansa is also well connected by road with motorway links to all major towns and cities. Although present infrastructure is more than adequate for the development of Los Pandos, a high speed rail network – the AVE – is already underway.

The central hub of the new rail connection, due for completion in the coming months, will be in Almansa. This superior transportation network will make Los Pandos one of the most important strategic and logistic platforms in Southern Europe.

As the vineyard is undoubtedly the focal point of Los Pandos, initial investment and development is being directed into that area. Extensive studies have been undertaken and are ongoing, reformation of the existing farmhouse and other buildings will allow for the state of the art and experimanetal bodegas. Brands are in development and marketing strategies in place for taking Los Pandos vineyard firmly into the 21st century and creating a high quality, yet profitable wine business.

As the project moves forward, plans for the development of eco-villages, leisiure facilities, technical and industrial zones, state of the Art sports facilities – all utilising the latest in sustainable development techniques – will come to fruition.

So come with us on our journey of discovery, in building what we think will be the benchmark for sustainable living for centuries to come.

Please feel free to navigate around the site, check out our videos and digest as much information as you can about the project and associated opportunities, if you have any queries you can phone or email us, or better still we can instantly answer your queries if you go to our live chat button now!