How to achieve your first $500,000 in wealth
When building wealth the question should not be “when?”, it should be “how can I start now?”. Human beings have a tendency to delay the actions we know we should be taking now because we have an overly optimistic view of our future self.
Most of us have dreams and desires to have greater flexibility in the future. Whether that’s to cut back to part-time work to pursue creative hobbies, to take a year off work and travel the world or to travel three months every year, investing is the most effective way to make these dreams into a reality.
Let’s face it, our wealth will only grow to $500,000 if we lay the foundations to invest now and move the dial forward, rather than waiting for the right time. With $500,000 in investments at a 4% income rate, you will be earning an income of $20,000 passively. For the average traveller, this give you that 3 months of travel a year!
1. Start with your intentions
- Write down your values. To help you set your values, you can ask yourself the following questions – Why do you choose to live your life the way you do? Why does your week consist of certain activities? Why do you choose not to do other activities?
- Using your values as a guide, write down how you would like to intentionally spend your money?
- With each intention, how much do you require? By when? Could it be an annual spend? Or an ongoing target?
- Have a ‘Get Out of Jail’ account in place / Ongoing / $15,000
- Travel to Tasmania / Easter long weekend / $2,000
- Travel to Japan / Christmas or February / $10,000
2. Taking stock
- On a sheet of paper, draw out two columns labelled “Own” and “Owe”.
- Under the “Own” column, list all your financial assets. It’s important that we don’t list lifestyle assets (possessions, cars, etc.) here. Don’t forget your superannuation!
- Under the “Owe” column, list all your liabilities and associated interest rates. Don’t forget your HECS!
- Add up the “Own” and “Owe” columns – this is your starting financial position.
3. Align your intentions with your cash flow
4. Build your wealth strategy
- Get Out of Jail savings account
- Travel savings account
- House deposit investment account
5. Be the boss of your cash flow
- You will need a bank account that will act as the central part of your cash flow structure, we call this the “Cash Hub”. This is where your income will be received and all expenses will come from here. The key with this account is to not have any debit card attached to it.
- You will need a “Personal Spending” bank account. This will include all the day to day expenses included in that part of the budget. In your budget, there will be a line that calculates your “Total Weekly Personal Spending Requirements”. Whatever that weekly amount is, set up a direct debit from your Cash Hub to this account. This is now your pocket money for the week and is the key to the success of your budget.
- The remainder of your accounts will depend on your wealth strategy. For example, I will have direct debits set-up into my Get Out of Jail and Travel account. Every month on the 15th, my share portfolio will debit my Cash Hub a set amount to invest. This automation will enable me to build my wealth constantly and is the key to success.
- Invest $500/mth over 26 years, you will grow your wealth to $521,000.
- Invest $1,000/mth over 19 years, you will grow your wealth to $533,000.
- Invest $1,500/mth over 15 years, you will grow your wealth to $519,000. By 22 years you will hit $1,000,000.
Your life will change over time so it is important you repeat the above steps as your income or expenses change or when you have new intentions you would like to focus on. Starting now is the most important step and with time on our side, anything is really possible with the right structure behind you.
* 8% assumed total growth and income rate and no current investments
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