The basic rules to accumulating wealth haven’t changed since our parents and their parents wondered how to maximise their savings.
It still requires patience, discipline, and compound growth. Yes, I know it’s dull – particularly for those of you who are impatient, ill-disciplined and just thought, “Compound what?”
But commit yourself to reading the next three paragraphs and it’ll be worth it.
Patience
Accumulating wealth takes decades. You want me to wait how long until I am wealthy? Sorry guys, if you want to get rich quick it isn’t called accumulating wealth, it’s called “gambling”. Walk past any T.A.B and you’ll see a heap of excited exponents of this method – which would be great if there weren’t all that infernal risk!
Discipline
I know, I hear you; “I can resist everything, except temptation”. But you’re not being asked to display the discipline of an Olympic athlete. Just be disciplined enough to put in place a smart, long-term savings plan so that it simply becomes routine. If you’re in paid employment now, are you missing the 9% super that your boss puts away for you? Few people give it a second thought because there’s no discipline required and yet, quietly over time, compound growth is working its magic.
Compound Growth
Now, let’s not get too mathematical – I hate math too! Just bear with me for a minute while I combine patience, discipline and compound growth. Think of it like combining dark-roast beans, creamy milk and sugar to make a delicious cup of coffee. If, like me, you love a regular cup of coffee (maybe one or two a day Mon-Fri) most times it’s easier to grab a $3.50 café brew down the street. Have you ever thought about what this is costing you over a month, a year, or even a decade? You might need to grab a coffee while I dust off this old calculator… but say you drink around 40 in a month – slightly over one a day – at $3.50 per cup. That’s a cost of approximately $140 each month.
If, instead, you bought freshly ground coffee and milk for the workplace – 500gms of beans is about $15 and a month’s supply of milk also $15 – that’s $140 saved less $30 spent, which means you’re ahead each month by at least $110. Now, employ some of that discipline I mentioned to save the spare cash or put it away into a super fund over a long time, and what would happen? Compound growth is what would happen!
$110 saved monthly and compounded at, say, 7.00% p.a. means at the end of 5 years you would have over $8,500 and, after 25 years, you would have just under $140,000! And all from making your own coffee! Even the initial outlay of a couple of hundred bucks for a top-notch cappuccino maker pales into insignificance in the face of such savings. Plus, if you’re eligible for the government super co-contribution scheme, this amount will be dramatically more. You might hate the taste of coffee, but I’m sure you get the point. Maybe try to focus on the taste of $140,000.
[Disclaimer: Individuals should consult a licensed financial planner for specific financial or investment advice].
