This is how your neighbour retired with over $5,600,000 working 9 to 5

Have you ever noticed the more you earn, the more you tend to spend? Don’t worry, you’re not alone. Many people seem to find a way of living up to their means or even beyond it. It’s called lifestyle creep, and it affects many.

Then how is it that we hear about all these other folk who have amassed great wealth? You know, that guy who worked a 9 to 5 job and retired with over $5,600,000 (outside of his unencumbered family home). The idea is simple. It’s the execution that will make it happen. Let me explain.

Let’s say the government stepped in and imposed a new 10% tax. You’d scream, you’d yell, you’d protest, and you’d pay it. Why? Because you have to.

This concept is the same. Impose a personal wealth tax on yourself. The money is for you and all the proceeds are going to go to your future self. How much of your regular salary can you do without, no matter what is going on in your life? Before you even get a chance to see the money in your bank account, channel it away into a segregated account that will in turn be invested. This process occurs over and over again with limited intervention.

I want you to think about this number, because this is the number that will largely dictate how much money you will have in the future. The objective is to set you on the path to financial freedom.

Let me show you what I mean. We have 3, 30 year old’s all earning $100,000 pa, all saving through superannuation at 9.5% pa. The first person doesn’t save anything over and above their mandated superannuation savings. The second person saves 10% of their annual income, and the third person saves 20%. Here are the results:

Assumptions: 8.5% pa rate of return, before taxes and fees, 35 years of saving and compound return.

A 10% saving in this scenario more than doubled your end balance, and a 20% saving more than tripled your end balance.

Most people have absolutely no clue of the power of compound interest. Albert Einstein once said:

Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.

This is the habit that is going to make the difference in your financial life and create lasting wealth. It will provide you with options, flexibility and ultimately, financial freedom. So you can take those regular overseas trips without worrying about dipping into retirement funds, you can pay for your children and grand children’s education expenses, you can go set up that charitable organisation that’s been on your mind for years. You can now do all of those things. The key? You need to put in the hard work, be patient, and disciplined. And you need to start early!

In the end the decision is yours. Think about your future, talk about your future, or do something about your future. Because without execution, your ideas aren’t worth much.

The market just made you look silly. Again.

Happy New Year everyone!

A new year is seen as a fresh start. A reset. Forget the old you, this is the new you. You know, the first blank page of a 365 page book. It’s also one of the busiest times of the year where you’ll be flooded with “high conviction” ideas, predictions, and forecasts by many gurus.

I beg you, before engaging or executing any of these convincing ideas, think seriously about what you are doing and why. As a friendly reminder, I share with you 16 (a mere fraction) of the usual hysteria of 2016. It was yet another year that made the prognosticators look silly.

2016 S&P 500

1) Jan 7 – “The stock market is off to its worst start to a year ever.” – USA Today

2) Jan 12 – “Sell everything…Oil will trade at $16 a barrel and stocks will fall 20%.” – RBS

3) Jan 13 – ‘I’m really concerned. We expect more victims ahead, including eventually safe-haven stocks.” – Douglas Ramsey, Leuthold Group

4) Jan 28 – “Time to put 30% of your assets in cash.” – Mohamed El-Erian

5) Feb 5 – “The world economy seems trapped in a death spiral.”  – Citi

6) Feb 15 – “Things haven’t gotten bad enough to get good again.” – CNBC

7) Feb 15 – “Don’t bother buying. It’s capital preservation time. Better to hold on and get a better moment.”  – Jim Cramer

8) Feb 29 – “Global funds flee stocks, raise bond holdings to five-year high as growth fears mount.” – Reuters

9) April 13 – “Stock funds posted outflows of $5.8 billion last week…..investor pessimism for U.S. stocks stems in part from low expectations.”  – Financial Advisor

10) May 18 – “This statistically significant death cross…could be the real deal. The first took place in 2001 and was followed by a 37% decline, while second pattern occurred in 2008 and preceded a 48% drop.”  – Intermarket Strategy

11) May 23 – “7 Unmistakable signs that a bear market is approaching.” – Jeff Reeeves, MarketWatch

12) July 5 – “Our year-end target remains 2,100, reflecting a potential 6-month return of 0.1. That represents a return of 2.74% for the whole year.” – Goldman Sachs

13) Aug 1 – “Sell the house, sell the car, sell the kids…sell everything. Nothing here looks good.”  – Jeffrey Gundlach

14) Aug 31 – “We are on the edge of a cliff right now.” – Robert Kiyosaki, author Rich Dad, Poor Dad, while advising all his listeners to exit the market completely

15) Oct 12 – “ With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT.” – Murray Gunn, Head of Technical Analysis, HSBC (Murray references his use of Elliott Wave Theory)

16) Nov 1 – “If Trump wins, we should expect a big markdown in expected future earnings for a wide range of stocks — and a likely crash in the broader market.” – Simon Johnson in Market Watch

Oprah Winfrey once said:

Cheers to a new year and another chance for us to get it right.


Source: Peter Mallouk, Creative Planning