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.