I recently did a presentation at my local football and netball club.

It was great to offer so many young people an insight into just how simple investing can be, and how small changes can have an enormous impact on their finances later in life.

The chart above comes from Rask Invest and shows the differences between two households.

Here are the assumptions I made:

  • The households start with nothing
  • They have take-home income of $1,000 per week
  • Taxes and inflation are excluded (these are important things to consider, but I wanted to make it simple)
  • An average yearly return of 10% is reinvested again and again

One family, the household which invests 5% of their income, save $78,000 and retire in 30 years with almost $428,000.

The other family, the 10% investors, save $156,000 and finish with $855,369 — 99.8% more. 10% of savings is around the same amount as the Super Guarantee. Imagine what would be possible with a 20% savings rate!

According to the ABS, however, at the beginning of 2018 the average Aussie household saved just 2.1% of its income. Using the assumptions above, 2.1% in savings results in just $208,000 after 30 years.

So what?

The way I see it, there are three things all Aussies require to give themselves a shot at retiring wealthy or early:
1. Spend less than we make
2. Invest the difference for the long-term
3. Avoid being whipped out

It’s about money working for you. Not you working for money.

Some people do that by investing in property, others in shares of public businesses, in Super, running private businesses or by parking it in high-interest savings accounts. I buy small parts of large businesses.

Imagine this…

Some of you may have heard the story of Theodore Johnson, the postal service worker who never made more than $US14,000 per year but had $70 million put aside by age 90.

As Tony Robbins notes in Unshakeable, all Johnson did was save 20% of his salary (incl. bonuses), and invest in his company’s shares. But most importantly, Mr Johnson never underestimated, “the awesome power of disciplined saving combined with long-term compounding.”

***

Happy EOFY! 

As one financial year ends another begins. When you complete your tax return, ask yourself:

  • How much did I earn this year from working?
  • How much did my investments make for me?
  • How can I improve?

Use our free compound interest calculator and see what might be possible if you can invest just a little more for the long-term.

Cheers to our financial futures!

Owen
Founder, Lead of Adviser of Rask Invest

 

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