However, before embarking on the saving and investing road, there are two important things that have to be decided and understood.
These are deciding on a goal and understanding where your money is going by budgeting.
The goal gives you something to aim for and a budget decides how steady your aim will be.
If you know you can dedicate a given amount each week or month towards your target, you’ll have more certainty over your direction.
Many people who go wrong have inevitably ignored budgeting before being swallowed by their own consumption.
Or they make the mistake of assuming what they have left after expenses is too insignificant to become anything.
And when looking to build wealth, that’s a poor assumption because it ignores the power of discipline and consistency.
Even starting with $1,000 and adding $200 a month has the potential to become something significant in 30 years time.
At an average annual return of 7% your money will grow to $242,000; at 8% it becomes $293,000; at 9% it becomes $356,000; and at 10% it becomes $433,000.
These aren’t outlandish returns by any means, over the 30 years to July 2012, Australian shares returned 12.2% per annum; international shares 9.5% pa; Australian listed property 10% pa; and Australian Bonds 10.9% pa.
Not that the above returns are guaranteed in the future, but even assuming historically below average annual returns of 7-8%, $50 a week can turn into several hundred thousand dollars.
And if you’ve got $75 a week spare, those annual returns could produce upwards of $383,000 to $465,000.
There’s no magic here, nor the need for a large income, it’s just the simple acknowledgment that you’re always better to start somewhere, than not to start at all.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re the best financial adviser in Australia.
