A little each time, regularly and often
One of the principles of successful investing is to make regular contributions – in this way, no matter what’s happening in your life, the economy or the markets, you’re always providing for your future retirement.
It’s easy to get started. And it’s a great habit to build into your work/life routine.
Step 1 – Pay Yourself First
Many of us fall into the trap of paying everyone else first and then we get what’s left over. This not only diminishes our thoughts of self-worth, but more often than not, there’s not much left over when everything else has been paid.
So, step one in establishing a regular savings plan is to pay yourself first. Even if it’s only 5-10% of what you receive… it’s yours (and after all, you’re the one who’s worked hard for it!). Then you can start paying everyone else.
This rather simplistic approach really does work. And if you can make it a part of your regular routine so that it happens automatically, you’ll be far more successful.
Step 2 – Hide the Money Away
Just like your superannuation payments are paid by your employer before you receive your wage, find a way to withdraw small but regular amounts straight from your daily transactions account. As little as 5-10% over a long working life offers most people a considerable base for their retirement.
Just make sure you set aside a separate bank account to place those funds into. Set up an automatic transfer – the same day your pay hits your transaction account, transfer funds immediately to your savings. If you can’t see the money in the account, you can’t spend it.
Don’t worry too much about which type of bank account you put it into for now … the interest you will receive is hardly worth spending the time doing comparison shopping. Just for the moment, develop the discipline to keep putting that 5-10% into a bank account that you know you won’t touch!
It’s amazing how when you have to live and pay your bills on what’s left in your daily account, you can.
Step 3 – Put Your Money to Work … for You!
While you are saving, start looking for opportunities to invest your money to give a higher return.
One option is to invest in a managed fund. Managed funds pool your savings with hundreds or thousands of other investors, thereby giving “small” investors access to a wider range of quality investments, managed on their behalf.
These funds often allow you to start investing with as little as $1000, and you can usually automatically transfer monthly instalments from your “savings” account.
The power of compounding
Think about it this way. If you earn $60,000 pa and you adopt this habit of paying yourself first, you could be saving up to $6000 a year. (That’s saving $500 a month or around $16.40 per day). After 10 years, you might have set aside as much as $60,000.
If you’d invested that money wisely over that same 10 year period, and you received a conservative average growth on your money of 6-10%pa, you could potentially have as much as $80,000-$100,000 at the end of a decade. That’s an additional $20,000 to $40,000 of money you might not otherwise have earned.
If your investment had averaged 15%pa (compounding monthly) over that same period, it could be worth as much as $137,000 at the end of 10 years, or more than double the amount you personally contributed. That’s the power of compounding and better returns over time.
| Funds Contributed | 6% Distributions | 10% Distributions | 15% Distributions | |
| Year 1 | $6,000 | $6,168 | $6,283 | $6,430 |
| Year 3 | $18,000 | $19,668 | $20,891 | $22,558 |
| Year 5 | $30,000 | $34,885 | $38,718 | $44,287 |
| Year 7 | $42,000 | $52,037 | $60,475 | $73,564 |
| Year 10 | $60,000 | $81,939 | $102,422 | $137,608 |
| * All figures based on compounding monthly and contributing $500 per month ongoing and assume consistent ongoing income for illustrative purposes, and assuming income distributions are the only returns achieved. | ||||
Basically, by getting in the firm habit of saving a small amount regularly and investing it well, it’s possible that you could have a retirement savings far greater than the money you save.
This is putting your money to work for you.
Now the realities of any investment, like life, are that things don’t always go to plan. All investments go up some years and down in others. And some investments carry more risk than others. (Shares, for example, compared to term deposits.) So you should do your research to make sure you’re comfortable that you have your money invested in a manner that’s best for you. But even with those fluctuations over time, if you’re saving your money and not spending it, it’s still money you wouldn’t otherwise have at your disposal in later years.
So get started paying yourself first (saving and investing) today. You’ll be amazed at how quickly you are able to build your financial nest egg.
Invest in Your Future
Pay Yourself First is one of the keys to financial success. Over the long term it's possible to access greater returns than bank term deposits alone by investing in a fund like Excela’s Accelerator Fund.
Term Deposits At time of writing, it's possible to find an annual interest earning rate of 6%pa. Please be advised, interest rates fluctuate. There is no guarantee you would continue to receive 6%pa for the duration of your retirement. If you received less than 6%pa, you would have to spend your capital in order to maintain your budget of $50,000-$60,000. Over the last 21 years, the 1 year term deposit rates have averaged 6.3%pa roughly in line with today's 1 year rate. Sourced from BTIML.
Residential Property has averaged a total return of 9.8%pa in the last 20 years to Dec 2009. Source: Long Term Investing Report, Australian Stock Exchange & Russell Investments.
Shares have averaged a total return of 9.7%pa in the last 20 years to Dec 2009. Source: Long Term Investing Report, Australian Stock Exchange & Russell Investments.
Buy Write Strategy According to the ASX, in the 14 years from Jan 1993 to Dec 2006, $10,000 invested in the S&P/ASX Buy Write Index™ increased to over $71,000, or a 15%pa total return. Source: ASX Buy Write Strategy Fact Sheet
Assumptions
- Investments rise and fall over time and past performance does not guarantee future performance. Calculations above do not provide for any movement in the value of the underlying assets.
- The figures above are illustrative in nature and do not take into account your location, your preferred lifestyle, your dependants or any debt you may have at that time. Considering how much income you'll need in retirement is specific to your situation.
- No consideration has been given to the effects of any government assistance in retirement.
- Income estimations do not take into consideration any income tax payable on earnings or investments.
- Estimations of lifestyle possible on certain levels of income do not take into account inflation and the rising costs of living over time.
- No consideration has been given to what is an acceptable level of risk in investing for any individual.
- It is not prudent to put all of your capital into one investment. Consideration has not been given to what represents a balanced portfolio or how the Accelerator Fund might play a part in a balanced portfolio.
Important Information
The Accelerator Fund aims to produce in excess of 1% per month (or 12%p.a.) on average in premium income distributions.
A realistic expectation of income distributions from the Fund could be up to between 0.8% - 1.5% per month on average.
The capital value of the Fund can rise and fall with changes in market conditions and sentiment. Payments of distributions can have a negative effect on the unit price of the Fund.
Percentage monthly income distribution figures were calculated using the distribution amount against the average balance of the fund for that month.
The fund does not guarantee any particular return or that distributions will be paid monthly (however it aims to do so).
Investments can go up and down. Past performance is not necessarily indicative of future performance. To fully understand the potential returns and risks associated with the investment please refer to the PDS.
For the current performance of the Accelerator Fund please go to Historical Performance.
This information has been prepared without taking into account your investment objectives, financial situation, or needs. Before making an investment decision you should consider the appropriateness of the information having regard to these matters. Before you invest it is important that you read and understand the terms set out in the Accelerator Product Disclosure Statement ("PDS"). In particular, it is important that you understand the risks associated with an investment in Accelerator set out in the PDS.
Fundhost Limited ABN 69 092 517 087 AFSL 233 045 ("Fundhost") as the Responsible Entity is the issuer of the Excela Australian Equity Income Accelerator Fund™ ("Accelerator") ARSN 139 641 946. Excela Funds Management Pty Limited ABN 25 124 028 244 ("Excela") is the Investment Manager for Accelerator. Excela is a Corporate Authorised Representative of Excela Equities Limited ABN 17 010763041 which is the holder of an Australian Financial Services Licence (246510) and a Market Participant of the Australian Securities Exchange ("ASX").
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