Last week I was driving my family home after having dinner at my parents’ place. On the way home I was pulled over by the police – “I’ve pulled you over sir because you were speeding”. After 15 minutes of patiently waiting in the car, and after my wife convinced my 4 year old son that daddy wasn’t going to jail, my infringement notice was handed to me – $322 and 3 demerit points.
Now, the last time I received a speeding fine was at least 5 years ago, so I think I’m okay on the demerit point side of things. How about the money? It’s not a small amount of money. I mean, this money could buy my wife and I a fancy night out at dinner, it’s almost half the price of my Collingwood footy club membership, or 3 months of public transport costs. I chose not to spend the $322 on any of these items, but the infringement must be paid – this got me thinking.
I could have easily taken this money and invested it. I could have paid off the credit card. I could have put it toward my children’s school fees. I didn’t do any of these, because I didn’t have the money (that’s what we tell ourselves I guess). Yet the moment I am handed an infringement notice, the money miraculously appears. Why, as investors, do we not apply a similar philosophy to our own financial affairs and prioritise our wealth accumulation? Imagine if we placed as much importance and discipline to our wealth management strategy as we do ensuring we pay infringement notices on time? Imagine if each month we issued ourselves with a wealth infringement notice – say 5% of our net monthly salary, no questions asked – not negotiable.
They say most of us overestimate what we can achieve in one year, and totally underestimate what we can achieve over a lifetime. Small amounts of money, invested over long periods of time can make an enormous difference to our wealth, yet we choose to ignore this fact.
Here’s my challenge to you: Apply a wealth infringement on yourself. Take 5% of your income, and everytime you get paid, direct that money into a long-term investment portfolio. Whether the market is booming or otherwise, religiously invest that sum of money each and every month. You’ll be blown away by what your portfolio could be worth 10, 20, 30 years from today.
Actually, I’ve done the work for you. I’ve compared three individuals. They all begin with a $1,200 investment, each investment earns 8% pa, and they invest for 30 years. Investor 1 simply makes a one off investment of $1,200. Investor 2 makes further investments of $6,000 every 5 years, and Investor 3 makes a $1,200 investment each and every year.
As you can see from the above chart, the portfolio of Investor 2 and 3 portfolio each ends up with a relatively close amount. However, Investor 3’s portfolio is worth 7% more than Investor 2. Small amounts of money over long periods of time make an enormous difference. Imagine swinging your golf club 2 degrees to the right off the tee. The further that ball flies away from you, the more and more it will swing to the right, well and truly beyond the 2 degrees from when you struck the ball. Investing is no different.
And if you think you may not have the money to save and invest, just think about it this way: If interest rates rose tomorrow, and the repayments on your loan subsequently increased, you’ll probably have the money to make the extra repayments. No different to if you were issued an infringement notice each month, you’ll probably have the money to make the payment.
How often do we look back to situations and think, I wish I had done this, or if only I had done that – especially when it comes to investment decisions. I’m sure you or someone you know has looked back and thought, if only I had bought that property 10 years ago, or, if only I had invested my money 20 years ago when I had the chance.
As human beings, we’re constantly in the pursuit of instant gratification. Work out what you really want, put in place a plan, execute, and remain disciplined. Once it becomes a regular thing, you won’t even notice it, and you’ll thank yourself later for it.