Lost control of your finances? With sacrifice and smart planning, all of us can grow our nest eggs.
Rick Morton recently published a book about growing up on the poverty line. An extraordinary piece of social commentary, One Hundred Years Of Dirt opened my eyes, challenging me to think differently. He writes of wealth: “For all the patronising axioms about money never buying happiness, it does allow for other things that help. It buys time to spend with families, mobility, the uniquely preservative state of having a home to sleep in and knowing that you always will.”
For me, the freedom and choice that comes with financial security is something I crave deeply.
Rather than worrying my whole life about money, I set a goal: to be financially secure when I turn 40 in six years’ time. I’m not a highly paid investment banker and I don’t come from family money. On a journalist’s wage, I had to get creative when I decided on this goal. I tripled my money on a marijuana stock but then, cocky from my lucky gain, lost $30,000 in one day investing in a speculative health company. I’ve done some things right, though: automating my savings and low-cost investing. So now I’m on track to have almost a million dollars in cash and shares by my 40th birthday. Here are the lessons I’ve learnt so far.
Lesson 1: friends first
In my experience, conversations about money flow better over wine and cheese (or kombucha – choose your poison). And sorting your financial shit out once and for all is easier when your friends join you. Sophie McNaught, founder of Women and Money (which organises forums for women to learn about money), has a theory: “Women don’t talk about money because there is no social setting in which it’s acceptable to do so.” So, create your own safe space. Message your sister or your best friend or both and get set for a big night in with your money-accountability buddies.
Then dream big. What opportunities would wealth create? The ability to quit the job you hate? Less conflict in your relationship? A down payment on a house? Write down your dream and its price tag and put it somewhere you’ll see – an everyday reminder of the new direction you are heading towards.
Lesson 2: health check
Expenses, income, credit card debt, mortgage, savings … it’s time for a money audit. Cool apps like Pocketbook can help you easily gauge your financial pulse. Tonya Rapley runs My Fab Finance, which specialises in helping women build their financial future. “Women say to me all the time: ‘I’m a financial wreck!’ Often you get under the hood and realise they’re not as bad off as they think,” she says.
Understanding where your money is going will give you more confidence to take financial charge. If you are a latte-twice-a-day type, you might not realise that you are spending about $2,900 a year on coffee. Neither did my fiancé until he went through this consolidation process. Afterwards, he bought a coffee machine to make his morning espresso at home. Subscribe to Netflix and Stan? Be brutal: cull where you can. Save yourself thousands in fees by combining your superannuation. The myGov website helps make this easy by showing details of all your super accounts, including those you have lost track of.
Lesson 3: becoming rich is not all about what you earn
I hit the salary jackpot in my first full-time job earning $28,600 a year. I could cover my $110-a-week share-house rent and still afford to go to the local Thai restaurant once a fortnight for the $10 dinner special. Living the dream! In the back of my mind, though, was my mum’s money mantra: “Always funnel part of your wage straight into savings, no matter what your income.” So, dutiful daughter that I am, I set up a weekly direct debit of $90 into a high-interest online savings account.
Let’s crunch the numbers: imagine at my age of 34, you start putting aside $90 a week, every week. By the time you’re 60, assuming an average investment return of seven per cent, you’ll have $321,000. Let’s take this same scenario, but start younger. Aged 21, saving $90 a week means by the age of 60, you’ll have almost $869,000. Google ‘compound calculator’ and play around with the figures. It will feel like magic but it’s just maths – exponential maths.
Casey Halliley, founder of Wealthology 101, which provides financial advice and support to clients, explained it to me like this: “Becoming rich is not really about what you earn, it’s about what you do. Taking advantage of the power of compounding interest as early as possible is the smartest decision you can make.”
Lesson 4: show me the money
Ask for a raise: I can hear the excuses already: “I don’t earn much and never will.” “My company works in strict salary bands; there’s no negotiation.” But there is almost always room to negotiate for valued employees. If your supervisor rules out a monetary increase, think laterally. Can you ask for an extra week of annual leave? A car park? If you do get a pay rise – awesome! Now let’s pretend it never happened …
“When I got my first huge raise, I acted like I didn’t: I funnelled all the extra into a different bank account. Before I knew it, I had a deposit and bought my first house at 31. I was earning $67,000 at the time,” says entrepreneur Kelly Legends, who kept up that discipline, and now, aged 40, owns two houses.
Side hustles: Airlie Walsh is a news reporter at Parliament House in Canberra. A passionate photographer, she has built a photography print business on the side that is loved by celebrities and interior designers. “Squarespace made building my website and selling online really simple. Since I started a few years ago, we’ve shipped my limited-edition prints all over the world.” Passion plus profit equals win-win. What skills do you have that others would pay for?
Rent a room: do you have a spare room where you live? You could be sitting on a gold mine. When I moved overseas, I supported myself by putting a single bed into my tiny study and renting it out on Airbnb.
Closet cull: own a few designer handbags that are collecting dust in the back of the wardrobe? Take a leaf out of my housemate’s book and list them on eBay. She earnt almost $3,000 selling (somewhat reluctantly) her Louis Vuitton Lockit. As Marie Condo preaches, if something doesn’t give you joy, get rid of it. Or, even better, sell it online.
Lesson 5: automate
I love Tim Tams, especially the dark chocolate ones, but need to hide them on the top shelf otherwise they are too tempting. In the same way, every month I automate a percentage of my income to go to an online-only investment account so I can’t touch or spend it. Once you’ve accounted for your expenses and some play money, work out how much you can save. Let your financial-accountability team know and commit to an automated transfer into a savings or investment account. I’m not a millionaire yet, but with my nest egg compounding, I may just get there. Six years to go.