Finance expert Ben Nash said there are little things you can do each day that can massively build your wealth. (Source: Supplied/Getty)
The idea of being ‘rich’ is something almost everyone can connect with. You’re living your ideal lifestyle with money not being something that’s holding you back - whether that means travel, freedom around how you work, or a wardrobe full of luxury brands.
Global financial data powerhouse Knight Frank publishes an annual report on how much money you need to be part of the top one per cent of the population, breaking this down for each country around the world.
The most recent Knight Frank wealth report shows that to be part of Australia’s top one per cent you would need to have over $7 million in investments - putting Australia into seventh place on the global rich list rankings.
Best ways to grow your wealth
There are a lot of different ways to get ahead when it comes to money, and there’s more than one path you can take if you aspire to be seriously rich.
That being said, there are some common success principles you need to get right if you want to make the most out of your money and get ahead faster.
Spend less than you earn
This is the most basic principle of success with money, you need to spend less than you earn to create savings capacity you can direct to building your wealth.
Most people try to increase their savings rate by cutting back on spending, but that’s only half of the picture - you can also increase savings by increasing your income. In the last decade helping people with their money, I’ve noticed a clear trend that the people that tend to get the best results are the ones who find a way to grow their income.
You can increase your income by getting a pay rise or promotion, changing jobs or industries, picking up extra hours, or even doing gig work or starting a side hustle. Every dollar of extra income you earn is effectively pure profit you can direct to building your wealth, so think through which of these pathways might work for you.
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Invest regularly
Saving money in a bank account effectively means that your money is going backwards over time. This happens in Australia because interest income earned on savings accounts is taxable at personal marginal tax rates, meaning you only keep around half of the interest income you earn.
On top, you then have the impact of inflation where the cost of everything is increasing each year. This means that after tax and inflation, money sitting in a savings account will be worth less in the future.
The good news is that there is a smarter way. When you invest money, you benefit from the power of compound interest - which grows your money exponentially into the future. Consider this example.
For a 20-year-old, investing just $5 daily would grow to $1.5 million by 65 based only on the average Australian long-term sharemarket return of 9.8 per cent. Investing $10 daily would deliver you over $3 million by age 65.
This shows the power of compound interest, and that you actually don’t need to do a lot to build a significant amount of wealth over time - you just need to get started and be consistent.
Today it’s never been easier than ever before to get started investing, with easier access to tech enabling investors to get started with as little as $5. On top of this, many of the investing accounts allow you to set up an automatic regular investment plan, which effectively allows you to put your investing success onto autopilot.
Use good debt to your advantage
When you borrow money to invest, you combine your savings with money you borrow from the bank. This allows you to then buy an investment that’s a lot bigger than you can get with just your savings alone.
The most common way people borrow to invest in Australia is through property, where a typical property deposit is somewhere from 5 per cent to 20 per cent, with the rest of the money being borrowed. This effectively means you are getting an investment that’s between five and twenty times the size of your savings balance.
Personally, I love share investing, and as you can see from the previous example above, investing with shares can seriously grow your wealth. But it doesn’t matter how good your shares are, there is no way they can do as well as an investment that’s five times the size, let alone twenty times the size.
This is why using good debt to your advantage is the fastest way to build your wealth.
It’s worth noting that debt does come with risk, and that managing that risk is important - but risk can be managed well with the right approach to your investment planning.
The wrap
Getting rich isn’t easy. In Australia, we’re lucky to live in an amazing country, but living well in Australia doesn’t come cheap - and if you want to create a life that’s not limited by money it will take some time, work, and a smart approach.
But the results are worth it.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. Ben’s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon | Audiobook.
If you want to chat about getting some help with your money, you can book a call with Pivot Wealth here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
