Noel Whittaker is one of Australia's leading Financial Advisors and he has written 13 best selling books including 'Making Money Made Simple'.

The following email was a cry for help: 
“You always write about ways high income people can get ahead, what about something for the lower paid workers?” 
Fair enough, but keep in mind that how you manage your money is normally far more important than how much you earn.  It’s amazing how often we encounter people on relatively low incomes, who manage to amass a fortune over their working life.  Usually they do it by persistence and by spending more on investments than they do on status symbols like flash cars, clothes and furniture. 
 
Borrowing for investment is the best way to get ahead because the interest is tax deductible, which substantially reduces the cost and as long as you hold the asset for at least a year, you will only pay tax on half the profits.  Until recently you needed to have a hefty deposit, or else a large equity in your home to borrow for investment, but now there is a process called regular gearing that enables anybody to start small. 
 
All you have to do is nominate a set investment each month and a lender will match it with an agreed amount of borrowed money that may be up to double the sum invested.  This can be a highly effective wealth creation strategy even if you can find only $50 a week to start.
 
CASE STUDY
In January 1990, you decide to embark on a regular gearing plan whereby you invest $300 a month and the lender contributes $600 a month to a quality share trust.  The total monthly investment is $900 of which $600 is borrowed.  After 12 months, the total investment is $10,800, made up of $3,600 of your own contributions and $7,200 of debt.  By the end of October 2005 you have invested a total of $171,000 - $57,000 of your own money and  $114,000 of borrowed money.  If your portfolio matched the All Ordinaries Accumulation Index, it would be worth $470,000.
 
That's a staggering return on your money and one of the major benefits of regular gearing is that you can vary the program if your circumstances change.  For example, if you felt that $114,000 was adequate debt, you could maintain or even suspend the contributions of $300 a month, but cancel the borrowed monthly contribution.  Then the debt would stay at $114,000 leaving the portfolio to grow through normal capital gain.  Repayments if interest only, would require a tax deductible $670 a month.

Regular gearing could also be used for a family who wanted to provide for their children's education.
 
CASE STUDY
A young couple have a three year old child and decide they need $40,000 for school fees for grades 8 – 12.  They start a regular gearing plan into a good share trust, using a deposit of $350 and an initial loan of $650 to accumulate $1,000 to kick it off.  They invest $160 a month from their family tax benefit and this, combined with a loan of $320 a month, makes a total investment of $480 a month.  The investment is in her name, as she earns only $10,000 a year.
 
If the fund averages 5% growth and 3% income, the investment would be worth $88,939 at the end of the tenth year, when they would withdraw $8,000 to help with the costs of year eight.  CGT on the withdrawal would be $740.  At that stage the loan would be $39,050.
 
They now discontinue their contributions and simply pay interest of $60 a week (tax deductible)on the loan, which would be left at $39,050.  They continue to withdraw $8,000 a year for a further four years and the balance at the end of that period is $83,749.  At that time they could choose to keep the investment going or redeem it entirely and have $41,673 left after paying out the loan and CGT of $3,026.
 
This last case study is a dramatic example of the way that small sums can make a huge difference to your lifestyle over time.  All it took was a contribution of part of the family allowance and a small tax deductible sum for the interest, for this family to accumulate $40,000 for school fees and have another $41,673 to help fund a university education.  But, as ever the key is to start.  As Confucius said “the longest walk starts with a single step”.

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Noel Whittaker is Joint Managing Director of Whittaker Macnaught Pty Ltd,
AFSL Number 246519 – email noelwhit@gil.com.au  
www.noelwhittaker.com.au.

“This advice is general in nature and readers should take their own expert advice before making financial decisions.”