I’ve just finished reading Scott Pape’s Barefoot Investor and it has motivated me to get my finances together.
I might only be 22 but the message I took away from reading the ‘money guide’ was that it’s never too early to get saving or start investing.
According to the ABS, the average Australian works a nine-to-five job, earning $78832 a year, or $81947 if overtime and bonuses are factored in.
Many of us attempt to save our hard-earned pennies and invest them into one of the four big banks.
All we get in return is a disappointing two or three per cent interest.
Others spend beyond their means, which means their wage is quickly gobbled up with little of it ever making it into their savings account.
Spending is easy and gives instant gratification — whether the splurge is on a new outfit, a vacation to some exotic spot or dinner in a fancy restaurant.
The age-old recommendation of ‘‘living within your means’’ seems to be forgotten, and we are now living in the ‘‘smashed avo and latte’’ age.
All of these are wonderful and make life more enjoyable, but investing requires prioritising our financial futures ahead of our present desires.
Last week, I ventured into Shepparton to have a discussion with a financial adviser.
We sat down and spoke about how much I earn, where I see myself in two or three years and what my long-term financial goals were.
I was tossing up between taking out a mortgage, or buying an investment property and finding renters to help me make my repayments.
But because of my age and the fact that I could be living on the other side of the world in five years, we agreed locking myself into a mortgage wasn’t for me.
I walked out with it confirmed in my mind I wouldn’t let these pesky banks do next to zip with my money.
Instead, I’d give the stock market a crack.
Many people look at the stock market as a tool for building wealth but disregard it as an option, presumably thinking it’s only for the wealthy.
Others look at it as a form of gambling, but what differentiates the stock market from gambling is that it takes time. It is not a get-rich-quick scheme.
Legendary investor Warren Buffett defines investing as ‘‘... the process of laying out money now to receive more money in the future’’.
I’m only just beginning to learn about the stock market, franking credits, the ASX and dividend reinvestment plans, but there is advice I regularly keep stumbling across.
Namely, diversify your portfolio, ignore short-term volatility and enjoy the benefits of compound interest.
I think people should investigate and explore the stock market because the average rate of return on investment is about 10 per cent a year.
It’s a hell of a lot more than two or three per cent which you might get in a savings deposit.
However, be warned — it’s extremely addictive and early on you may find yourself, like me, checking your shares daily.
I’m embarrassed to say that I’ve given myself the nickname of ‘‘investor of the century’’ in The News office, even though, since May 25, I’m -1.95 per cent down.
I’ll keep plugging away but regularly have to remind myself to think more long-term.
Hayden Thomson is a News journalist.