They followed the conventional wisdom and did what ‘smart people’ are told to do, they kept saving harder trying to get there. This was a major mistake that ended up costing them over $202,000.
The problem for Mike and Maya was a subtle one. They were pushing hard to crank their savings, but weeks became months, and months became years. In that time, markets moved – but their money didn’t move at the same pace.
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They felt stuck and more than a bit embarrassed because they were doing all the ‘right things’ and still falling behind.
Delaying decisions didn’t keep Maya and Mike safe. Instead, it kept them out of the investing game while inflation, tax, and rising prices pushed the goalposts further away.
Their momentum died, confidence dropped – and with each month that passed they felt further away than they did the month before.
The key to pushing through inaction is to push a firm decision date for your next move. This way open loops become closed, and you keep things moving forward.
Financial pragmatism should win the day – and the sooner the better. (Source: Getty/Supplied)
Owning a home mattered to Maya and Mike. But when they really dug into what was important to them, they realised building their investments and wealth mattered more, particularly when they looked beyond the short term.
Once they opened their eyes to other possibilities, they realised they could buy a quality investment property much sooner than their own home, use tax benefits to reduce their holding costs, and start a share portfolio with their excess cash to crank their momentum even further.
We used financial modelling to map out four pathways forward; saving in cash, cranking a share portfolio, buying a home, and buying an investment property. After seeing the numbers that sit behind these ideas, the smartest path forward for Maya and Mike became clear.
The investment property won on leverage, tax savings, cash flow/savings capacity, and compounding over time. Seeing how these strategies play out over 20 years helped Maya and Mike turn vague ideas into a clear choice.
Action step: rank outcomes, not just tactics. There are likely a number of different paths that can take you from where you are today to where you want to be with your money, choose the path that delivers the best results overall, not just in one area.
A home Maya and Mike would want to live in demanded a bigger budget and delayed entry. An investment didn’t need the same lifestyle features, or the same budget. Instead the investment property needed quality growth potential, rental income, and downside protection.
With interest, running costs, and depreciation generally deductible, the after tax holding cost was lower. This left room to invest into shares at the same time, which sped up compounding.
Action step: Any time you’re considering buying property, map out the true financial impact of buying that property as a home vs investment at an identical price point, so you can make an informed choice on the best path for you.
For most residents, their dream home in Sydney won’t be viable in the near or medium term. (Source: Getty) ·Bloomberg via Getty Images
Once the strategy was clear, the plan became simple. Maya and Mike set a target price range and short listed suburbs, then got a pre approval. They bought a quality property in less than two months.
From there, they automated transfers of the excess cash they were saving into an investment account and invested an extra $3k each month into shares.
This allowed them to start building another income stream that could eventually replace their salary with investment income, and also helped them feel more confident in the progress they were making.
This wasn’t a roll of the dice, it was a considered plan with risk management front-and-centre. The plan was stress tested against downside risks like rental vacancy, interest rates, and impacts to their income.
They set a system to review progress so they didn’t end up in drift. Good risk management doesn’t create a return, but it does protect the return you’re aiming for.
Maya and Mike were stoked with their progress, but looking backwards they realised they’d made a mistake. It was a full year between the time they first started exploring their options and the time they finally locked in a plan. In that time, they kept saving in cash while prices were creeping up.
After the dust settled, we ran the numbers on the cost of that delay. Based on conservative estimates around growth over time, waiting just 12 months would cost Maya and Mike $202,820 by the time they reached age 65.
With the same strategy, but executed one year later meant one less year of compounding and tax efficiency, spending more on the same property, and missed upside. Maya and Mike ended up on a solid path, but it could have been so much better.
Getting ahead isn’t about picking the next hot stock or getting your timing perfect.
It’s about having a clear plan, solid structure, a buffer, and the discipline to take action. Maya and Mike bought an investment first, invested alongside it, and then let compounding take over.
Their only regret was waiting a year to get started. If you’re feeling stuck, borrow their process and you can start cranking similar results. The cost of doing nothing is quiet at first, but it gets louder the longer you wait.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. Ben’s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon | Audiobook.
If you want some help with your money and investing, Ben has created a free seven-day challenge you can use to get more out of your money you can join here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
