Wealth Building Is A Marathon, Not A Sprint
Get rich quick schemes abound. They sound great don’t they?
I invested $10,000 in XYZ company and now the shares are worth $2 million!!!
They trigger our greed glands and even better, we don’t have to work hard for it. Think about the latest billion dollar US Powerball Jackpot that saw record numbers of people shell out their hard earned money for a lottery ticket that provided a brief glimmer of hope.
Unfortunately for the vast majority, the reality of making money can be a lot slower than we would like it to be. How many millionaires do you know who made their fortunes instantly? Maybe the odd one or two whose savvy parents left them with a substantial inheritance, but not many. Popularised in the media, we hear of a few great business people who ‘made it’ on a stroke of luck. We seldom hear of the years of study, research and work well into the wee hours that occurred behind the scenes.
I love Thomas Jefferson’s quote on this:
I’m a great believer in luck, and I find the harder I work, the more I have of it.
The truth is that everyone needs to start somewhere. A house is built one brick at a time. A child learns to read by first learning the sounds of the alphabet. A person seeking to lose weight does so kilo by kilo. Why would the road to wealth be any different?
That may be a downer for some to read, but an alternate view is that a house becomes such a prized possession because it takes such a long time to build. Reading is celebrated because it is an incredible skill that takes a young child years to develop. A person who is overweight astounds everyone by shedding kilos and reaching their goal weight through hard effort and dedication.
Working towards your wealth creation is no different and it is something to be celebrated every step of the way.
This post is about establishing a simple habit that will dramatically reshape your financial future.
I would like to suggest one little, tiny change that you could make to your everyday circumstances that would have a huge long term effect on where you are in the future.
Allocate 5% of your income per week towards your retirement fund.
I can hear some already saying that there is no way they could possibly contribute 5%. Others might be argue that it is nowhere near enough.
In Australia, the average income for 2015 was $1,545.60 per week or $80,371.20 per annum.[i]
Let’s take a look at what 5% would look like over the course of a working lifetime.
[I’m sticking with the average wage as a basis, but it would be fair to assume that it would be less when you commence your career and slightly more as you gain seniority in your profession. 5% equates to $4,018.56 per year or just $77.28 per week.]
If you saved $4,018.56 per year from the age of 20 until the age of 65 you would have $180,835.20. This is a good start to have towards your retirement, but would you just keep that amount of money in an account bearing no interest? Unlikely. Most of us have some form of superannuation or a 401K retirement fund encouraged by our government and our work places. These tend to be invested in global markets, local markets and in cash.
In fact the Australian share market has returned 10.8% on average over the past 30 years.[ii] The beauty of this is that by leaving your money in that account, making regular contributions, receiving positive (and occasionally negative) returns that compound over time, this money drastically grows from your deposited amount.
As Albert Einstein said, compound interest is the eighth wonder of the world. It is a way to grow wealth slowly and it should be ranked as numero uno in everyone’s plan for wealth generation. Those $77 you deposit, directly from your paycheck into your retirement fund, compound and compound and compound over time. Incredibly, at retirement age you are left with a whopping $4,125,880!
Use ASICs Money Calculator tool to try it out for yourself at https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator
The beauty in compounding is that it is like a rolling snowball. Beginning as just a hand sized ball each year picks up and is added to. By the time the snowball reaches the bottom of a hill it can be quite formidable indeed! Please bear in mind, however, that the final figure does not take into account management fees, taxation or inflation.
$77 dollars per week may seem unattainable for some but consider getting all your insurance and utilities requoted, maybe only eat out once a month and perhaps give Aldi or Costco a go? A suggestion would be to not focus on that $77 as a punitive measure, but to focus on the cool $4.1 mill that could be gained at the conclusion of your working career.
I know we all have a tendency to gravitate towards a get rich quick scheme but there is something truly satisfying about having worked and saved for your financial future. The marathon is the most regarded of all the endurance races for the tremendous training and sacrifice required to complete one. Start today and save towards your financial future.
This post was originally posted on my blog site http://www.budgetbrilliance.com. As we live in a world of litigation I would like to state that I am not guaranteeing the returns mentioned, I have no idea of your personal circumstances and this is just a general post with a savings concept that I hope can help you and your loved ones.
Lots of great truth here Matt. The challenge is to set aside money consistently, year after year. It's all about delayed gratification. Thanks for sharing!
Consistency is such a challenge. As a kid it always felt like those coins were burning a hole in my pocket. As an adult it is no different. There is nothing quite like the feeling of being free of bad debt however. I love seeing that 'saving snowball' grow progressively over time.
Great article! It's amazing how many people still don't really grasp the power of savings and compound interest. Especially young people, as they have a chance to start early in building their own private pension. You just gained a follower from this article btw. :) Look forward to more of your work.
Hey thanks! I'm passionate about personal finance. 8 years ago I had maxed out credit cards, stress and sleepless nights because of bad decisions. Had a huge turn around because of paying my investments first and saving 30% of my income. Really appreciate the upvote and will be looking into some of your articles too. Take care and all the best @thefinanceguy!