What the wealthy won't tell you. SMH article

[moyjos]

http://www.smh.com.au/executive-style/what-the-wealthy-wont-tell-you-20120822-24lwa.html


Interesting. This article does not mention investing (in any form other than saving).

Given that a "millionaire" is someone with investible assets -- excluding primary residence, collectibles, consumables . Does anyone think that the average joe can work a nine to five job save 10% and become a millionaire without doing anything else? Given that we have a 9% super rate, I don't think I know anyone with close to a million in super.

Thoughts? I am happy to be proven wrong .

 

[Peter_Tersteeg]

My parents managed to put around $1M into their super cash management accounts, essentially by saving. They're both self employed but never paid more than 30% tax.

I've met a lot of people around retirement age who have $1M+ in cash related investments such as managed funds. It is acheiveable.

My parents have also made a lot more by purchasing property and holding it for 40+ years, but property investment was never their goal. Dad just wanted a site for his business and a paddock for a few cows. The rest was just time.

The article isn't talking about investment strategies, it's talking about the habits and attitudes of people who become wealthy. It's all great advice.

 

[moyjos]

Thanks PT Bear.
I agree it is good device . Most of which we do. We are also self employed and don't often pay more than 30% tax

Good to know that it can be done...

 

[Peter_Tersteeg]

Most of the people I've seen acheive $1M in savings are in their 60s. Interestingly most of the saving was done after the kids left home and was acheived in less than 15 years. They also have other investments which are mostly paid off but this was done earlier.

I figure they always worked hard to pay down debt (or avoided it entirely). When the kids left home they didn't change their lifestyle, they just redirected the money.

Imagine if you and your partner each earn $80k (gross) and own your own home. With no kids or other commitments and a fairly conservative lifestyle, it's quite possible to keep spending to less than $40k. Take out tax and without figuring out the exact figures, you're still able to save around $80k per annum.

Add that up over 10 years assuming your savings returns 5% compounding. It gets even better if you put some of it through super and save even more on tax.

 

[Angel]

I haven't read The Millionare Next Door for at least ten years, but if I recall, these tips come straight out of that book.

Every year Money Magazine publishes an article about how to accumulate a million dollars. By doing nothing other than putting $100 a week, (i think, do you want me to find an article?) in the bank and then popping it into TDs, it will become a million at around 40 years. Dont know about iinflation, either. Not too many of us had a spare $100 a week 40 years ago, hey.

 

[Aaron_C]

Yes well everything seems so easy in hindsight. Numbers from excel spreadsheets are just that - numbers.

 

[BayView]

Every year Money Magazine publishes an article about how to accumulate a million dollars. By doing nothing other than putting $100 a week, (i think, do you want me to find an article?) in the bank and then popping it into TDs, it will become a million at around 40 years. Dont know about iinflation, either. Not too many of us had a spare $100 a week 40 years ago, hey.

Even just the old 10% of savings rule works - if you start early enough (I didn't).

Our 10 year old (nearly 11) already has close to $3k saved for his first house through this method (we've added a little bit to help it along).

 

[china]

The real challenge is how to have one million or better still, two million in cash/investable assets excluding super, PPOR by age 35 rather than age 60. Then we are young enough to enjoy being a millionaire.

 

[BayView]

Anyone is happy to enjoy a million at aged 50.

What you need to do is enjoy getting there.

 

[redwing]

http://www.smh.com.au/executive-style/what-the-wealthy-wont-tell-you-20120822-24lwa.html


Interesting. This article does not mention investing (in any form other than saving).

Given that a "millionaire" is someone with investible assets -- excluding primary residence, collectibles, consumables . Does anyone think that the average joe can work a nine to five job save 10% and become a millionaire without doing anything else? Given that we have a 9% super rate, I don't think I know anyone with close to a million in super.

Thoughts? I am happy to be proven wrong .

Your right, saving your way to a million would be hard

Whats a definition of wealthy though?

Is a Millionaire wealthy?

A Million dollars in a bank account earning interest at 5% per annum will yield $55,161.90, not withstanding the ravages of tax and inflation

MAY 2012 public & private sector earnings accoding to ABS were $1, 058.70 average weekly earnings, so around $55,050 p/annum

Double the Australian average weekly earnings would be wealthy to me, so around $110,000.00 investment income

The distribution of wealth among households is closely associated with age. In 2005-06, average household net worth peaked in the 55-64 year age group at around $824,000 and then decreased for those aged 65-74 years ($743,000) and 75 years and over ($575,000). This partly reflects the common pattern of people gradually accumulating wealth throughout their working life and drawing upon this wealth in retirement. While nearly three-fifths (59%) of people aged 55-64 were employed, this declined for those aged 65-74 years (17%) and those aged 75 years and over (5%). While mean household net worth was generally lower in 2003-04, the pattern of distribution across the age groups was the same.

The age of household members is also reflected in the composition of household wealth. In 2005-06, the average value of shares and trusts in older households (where the reference person was aged 65 years and over) was higher than in younger households ($39,000 and $12,000 compared with $7,000 and $3,000). Older households had less wealth in their superannuation funds and more in the values of their accounts held in financial institutions. The latter may reflect retirees receiving a lump sum payment from their superannuation funds and depositing it in financial institutions. Total liabilities tended to be lower in older households as they are more likely to have paid off most debts, especially those relating to mortgages.

http://www.abs.gov.au/ausstats/[email protected]/Lookup/by Subject/1370.0~2010~Chapter~Older people (5.3.4.2)

 

[marg4000]

Most of the people I've seen acheive $1M in savings are in their 60s. Interestingly most of the saving was done after the kids left home and was acheived in less than 15 years. They also have other investments which are mostly paid off but this was done earlier.

I figure they always worked hard to pay down debt (or avoided it entirely). When the kids left home they didn't change their lifestyle, they just redirected the money.

Imagine if you and your partner each earn $80k (gross) and own your own home. With no kids or other commitments and a fairly conservative lifestyle, it's quite possible to keep spending to less than $40k. Take out tax and without figuring out the exact figures, you're still able to save around $80k per annum.

Add that up over 10 years assuming your savings returns 5% compounding. It gets even better if you put some of it through super and save even more on tax.

Bear in mind that many of us in our 60s who have saved for an independent retirement did so without the benefit of 2 salaries. At best, most (not all) women took time out for child minding and, if they returned to work, it was after the youngest child started school and usually part time. AND without the benefit of superannuation until around 1990 onwards when it became more widespread.

In today's times, even with higher house prices, I can't see it difficult for a couple with both partners working for amass more than $1m by retirement - especially with the help of the soon-to-be 12% employer contribution via superannuation.
Marg

 

[Peter Parker]

I haven't read The Millionare Next Door for at least ten years, but if I recall, these tips come straight out of that book.

Probably so. The American spelling (eg paycheck) is a giveaway.

Though SMH did dress it up at the start by writing the preamble with our spelling (eg 'neighbour').

 

[Ideo]

Life is too short to drink Nescafe.

 

[Aaron_C]

Life is too short to drink Nescafe.

Amen. Makes my Eastern-State tastebuds recoil in agony.

 

[redwing]

Life is too short to drink Nescafe.

We had a toecutter come through a business one year and we wound up with Black & Gold coffee as part of cost cutting measures, near had a revolt on thier hands

 

[china]

Your right, saving your way to a million would be hard

Whats a definition of wealthy though?

Is a Millionaire wealthy?

A Million dollars in a bank account earning interest at 5% per annum will yield $55,161.90, not withstanding the ravages of tax and inflation

MAY 2012 public & private sector earnings accoding to ABS were $1, 058.70 average weekly earnings, so around $55,050 p/annum

Double the Australian average weekly earnings would be wealthy to me, so around $110,000.00 investment income



http://www.abs.gov.au/ausstats/[email protected]/Lookup/by Subject/1370.0~2010~Chapter~Older people (5.3.4.2)

So two million sitting in the bank is what we really need.

 

[Peter Parker]

So two million sitting in the bank is what we really need.

Only temporarily, if you want $110k/year income in 2012 dollars and wish to spend it all each year.

Needs to be nearer $4m if you want to spend it all and compensate for inflation so the amount remains the same relative to average incomes indefinitely (ie double the average).

Assuming interest of 5.5% and inflation of 3% then you could only withdraw 2.5% of your capital each year if you wanted to preserve the real value of your capital.

Counting tax and using a wage inflation figure (instead of CPI) would make the numbers worse.

 

[geoffw]

So two million sitting in the bank is what we really need.

What you need depends vastly on your expenditure and what you need in retirement. It varies hugely. One size does not fit all.

It may fit more to say that you need enough in passive income to replace your current income.

And I certainly wouldn't have that amount of money just sitting in the bank. That would be a huge wasted opportunity.

 

[china]

What you need depends vastly on your expenditure and what you need in retirement. It varies hugely. One size does not fit all.

It may fit more to say that you need enough in passive income to replace your current income.

And I certainly wouldn't have that amount of money just sitting in the bank. That would be a huge wasted opportunity.

I suspect that most australians would never get to having 2 million of cash sitting in the bank or equivalent on retirement. Therefore, the amount of money necessary to have a reasonable retirement for most people must be a lot less.

 

[Graemsay]

I did some calculations last week which I posted in the financial freedom without debt thread.

If you started saving $8500 per year thirty years ago, rising inline with inflation to around $20,000 today, and in an investment returning 6% to 7% per annum then you'd have about a million dollars.

Rolling it forward, if you want the equivalent of $1 million in 2042 (which will be around $2.5 million assuming inflation remains where it is) then you'd need to save $20,000 per annum, rising with inflation. For China's $2 million target, that increases to $40,000, and GeoffW's $4 million requires $80,000.

Looking at the numbers, it strikes me that saving a decent nest egg is a substantial, long-term commitment. It's possible, but it could be painful.