The most common question I get asked is “am I too old” to start investing and building my wealth?
The answer is no. But it is harder to invest and build wealth when you’re older.
In fact, if every Australian started building wealth and investing when they were 30 years old, we would have hardly any need for a pension system in the future.
Most people need to borrow money to invest and grow their wealth. To borrow money, you need a job and a predictable income. But if you’ve got all those boxes ticked, then there’s no reason why you can’t start building wealth.
A sad reality that we all face is that today is the youngest we will be for the rest of our lives!
The banks aren’t as willing to lend a 50-year-old money as they are to lend a 40-year-old money. Reason being that the 40-year-old has 10 more income earning years in them.
The main reason it’s harder to build wealth when you’re older is because of basic math. The less time you have to achieve a goal, the harder it is to achieve. At the same time, the younger you are, the more time you’ve got for your investments to grow in value.
Let’s say your goal is to live a comfortable retirement. To do that, you want $60,000 per year as an income in retirement, plus a debt free home to live in.
The typical Australian retires at 65 and lives to be 85. That means you need 20 years of income in retirement.
$60,000 multiplied by 20 equals $1,200,000. That’s the number most people need as a starting point to be comfortable in retirement.
Then we have to factor in the mortgage. Let’s say your mortgage is $300,000.
That means the gap between where you are today, and where you’re trying to get to, is $1,200,000 plus $300,000.
$1,500,000 in total (being $1,200,000 for your retirement income, plus $300,000 in debt that you need to pay off).
If you are 55 today and wanting to retire at 65 then you need to create $1,500,000 in net wealth in 10 years. That works out to be $150,000 per annum over 10 years. A big ask. Not impossible, but a goal that requires a lot of commitment and discipline.
Almost no one can save $150,000 per year. In fact, the average Australian doesn’t even earn that much (the average wage is $92,000 and the average household income is $135,000). So, you’ve got to invest and, if you start doing that at 55 years of age, you have to do a lot in a relatively short period of time.
The younger you are, the more time you have, and therefore the easier it is to achieve the goal.
If you are 50 today, you have an extra 5 years up your sleeve to achieve the goal.v Instead of having to generate $150,000 per year in wealth, you only have to generate $100,000 per year in wealth.
If you’re 30 years old, only have to generate $43,000 per annum.
You get the message.
I’ve seen lots of people build a wealth of $1,500,000 in the space of 10 years. It’s not easy and takes a lot of discipline.
Above all else, time is our biggest opponent when it comes to building wealth. To build a wealth of $1,500,000 in 10 years, means generating $150,000 in wealth each year, or roughly $3,000 per week.
Every day and week therefore counts, especially as we get older.
