Make the most of your Money

So you never have enough money? Looking for a way to get rich quick? Most New Zealanders end their working lives with a debt free home and not a lot else. That’s because they don’t know how to make the most of their money. The average New Zealander earns $35,000 a year and works for around 45 years. That means that in one working lifetime, he or she will earn around $1,500,000 in today’s money.

The problem is that for most people, this entire amount (and sometimes more!) is spent. It doesn’t need a mathematical genius to work out that simply saving 10% of your earnings every year will mean you can build up a fund of $150,000 – enough to provide for a comfortable standard of living in retirement. So where do we go wrong? Higher incomes don’t seem to solve the problem. Blame it on that fellow Murphy (we always need more than we have) or blame it on being human (we are just plain greedy).

Creating wealth is not about making more money, it is about using the money that you have wisely. It is entirely possible to become wealthy on an average wage if you follow a few simple rules.

Rule No 1. Be clear about what you want to achieve – set your goals! You can expect to earn $1,500,000 over your working lifetime on an average wage. Everybody has different priorities in life and only you can decide how you want to use this money. However, if you don’t set your goals it is unlikely you will achieve them.

Rule No 2. Don’t worry about your income, worry about how high your spending is compared to your income. Someone who earns $100,000 a year and spends $105,000 a year is in a much worse position than someone who earns $35,000 a year and spends $30,000 a year

Rule No 3. When you spend money, spend as little as possible on things that have no lasting value and as much as possible on things that increase in value. Someone who spends $10,000 on a car and invests $25,000 will be much better off after 5 years than someone who spends $35,000 on a car and invests nothing.

Rule No 4. Start saving sooner rather than later - time is of the essence! Saving is like going on a journey. If you want to travel 600kms and you have 10 hours to do it in, you can take a leisurely, safe trip at 60km/hr. If you have only 3 hours to spare, you will need to travel at a reckless 200km/hr to get there. It is no different with saving. To retire with $150,000, you can save at a slower rate and with less risk when you have 45 years to retirement than when you have only 10 years to go.