Simple Wealth Inevitable Wealth!
Last week we welcomed members back with a reminder that it’s never too late to get financially fit, and there’s no better time than now, being a new year and all…
As a quick refresher, think back and ponder how you went with saving money last year? Did you have particular savings goals or objectives? Perhaps a cost of living crisis parked itself smack bang in the centre of your plans. But living costs aside, if your answers are “not good” or “I didn’t have any goals” then we strongly suggest you sit down with your future self and have that awkward conversation. At the end of the day, all our time clocks are ticking, and yes, you’re accountable to your future self, and maybe your family too.
We pointed out last week that getting financially fit is simple, but not necessarily easy. Yes, there are many reasons as to why we don’t find it easy, but it really is simple!
So now we’re going to show you how simple it can be to build future wealth (one component of financial fitness). And spoiler alert… easy too!
To set the scene let’s pretend we know a 21 year old uni student who can only afford half a cup of coffee, and if such a half cup of coffee were to exist, it would cost the student $3.
The uni student just happens to be studying financial planning and learns about the power of compound interest. They first work out that the $3 half cup of coffee multiplied by 365 days a year equates to roughly $1,000. The student then gets out their compound interest calculator and inputs the $1,000 each year multiplied by 24 years (being their estimated retirement age). The student puts in a rate of return of 7%, being what they’ve learned to be a safe assumption if you invest using growth-focused indexed funds.
When the student hits equals on their calculator it brings up a number near $300,000! That’s a more than a quarter of a million dollars they think to themselves… (a lot for a student!) all pretty much locked and loaded “if” they decided to give up their half a cup of coffee a day.
Now those of you who know us know we love coffee! So we say to the uni student forget cutting out the half cup of coffee, and scrutinise other spending instead. The uni student decides to buy second hand text books going forward, cancels their internet and instead uses the library internet on campus, and picks up a few more hours work packing shelves each week.
After a little cost hacking, the uni student quickly realises they can actually afford to invest the equivalent of an entire coffee every day – that’s $6 every day – they’re confident they can keep on funding this $6 for the next 44 years to age 65.
The student again hits equals on their calculator and it tells them by age 65 they’ll have financial wealth well in excess of $500,000!
This is the simple process of building wealth by using time and compound interest. The reason it is not easy is that it requires you to take action! And as many of us are now learning, ideally taking action 20 years ago!
But don’t worry, if you’re older, say 40… you’ve got some catching up to do BUT the process stays the same. Even though you’re near double the uni students age, compound interest somewhat discriminates against you and to reach the same $500,000 by age 65 you’ll need to save and invest the equivalent of around $25 each day (to age 65).
You can see that if you have time and savings, NOW is the time to take action.
But there is good news for us older folk. Consider your super, even better go sort it out, even better, learn how to supercharge it! Here’s an idea, what if the $25 each day were done via salary sacrifice? You’ll very likely pay less tax so you wont need as much money each day. Perhaps you haven’t been investing by using growth assets? Over the long term, growth assets are clear out-performers, so again, maybe your others investments can offer you a helping hand.
There are plenty of strategies you can use to boost your wealth. Within our Naked Wealth financial gym we have all the ingredients you need to make this story your story. And if you need guidance with a spending plan, setting goals, sorting out your super, automating your cashflow, cost hacking to free up more money, and much much more… we have it all!
To recap, let’s remember that the two main ingredients needed here are time and action. It’s SIMPLE and we hope you now agree it’s EASY to take action! Forget trying to find the perfect investment, or finding some shiny object to spend money on, you can instead invest now and change your financial future!
Cheers,
Dan and Dave
