‘Key differences’: Simple money secrets only wealthy people know about

A money expert has revealed the relatively “simple” secrets the wealthy know about that get them to the top – and then keep them there.

In Australia, there’s a huge gap between the wealth levels of the richest households and the average Aussie.

In fact, data from Canstar shows Australia’s rich have more than 66 per cent more wealth than the average person, and more than 172 per cent more wealth than those in the lowest 20 per cent of the population.

But what are the secrets the wealthy know about that get them to the top, and then keep them there?

Having spoken with a lot of people in both groups, I’ve noticed there are some key differences in their approaches to investing and wealth building, and one big thing the rich do differently.

Most people think that rich people make all their money from super-exclusive investing and ultra-complex tax strategies. But that’s not entirely true, and while these elements may be a little more common with wealthy people than the average Aussie, the real secret is a lot simpler.

Investing just $200 a week could generate millions. Picture: iStock

Ultimately, wealthy people recognise that they need to make the right money moves at the right time. There is a simple process for building wealth; set your foundations, start investing and build from there – wealthy people understand this and follow the process.

Now, simple doesn’t necessarily mean easy – but knowing how to go about things will make your job easier.

Wealth building stages

If you want to build true wealth, you need to set your foundations first. Setting a solid financial foundation gives you the platform to build from, and ultimately is what allows you to accelerate your progress over time.

Consider this example.

If you were to invest $200 per week based on the long term Australian sharemarket return of 9.8 per cent, this money would grow to be worth around $5.15 million in 40 years.

If you were to instead start later and invest for half the time (20 years), by investing double the amount (so the same total amount invested), you’d only end up with $1.28 million.

The secrets of rich Aussies have been revealed. Picture: iStock

That’s $3.87 million less money from saving and investing exactly the same amount of money.

If you invest for longer, you need to save and invest way less. On the flip side, if you start late and play catch up, you have to push a lot harder to end up in the same position.

To reach the same level of wealth ($5.15 million) saving and investing over 20 years instead of 40, you’d need to invest a whopping $1595 per week.

Wealthy people use time to their advantage.

They start sooner and then invest consistently, letting the power of time and money work for them. They make this happen by getting their financial foundation sorted early, and then building from this foundation over time.

Three key building blocks of your financial foundation

●Saving: The first stage is all about your savings and day-to-day money management. Here you want to set up your money so you’re able to spend the money you want on your lifestyle today and save at a rate that will get you to where you want to be.

Being good at your money management, saving and spending is something crucial to all later stages of your money, and is what creates the ability to invest sooner and more consistently. Nailing this step sooner will accelerate your progress.

●Investing: Sometimes people skip this step or don’t get around to it until their later years, but getting good at investing is something that’s crucial to your long term money success. Particularly in Australia, where we have compulsory superannuation, most people are already investing, but they do it without much knowledge or thought, letting their employer or super fund dictate the results they get over time.

Investing through shares (or more likely managed funds, ETFs or micro investing) is something that will help you build serious wealth over time, and small changes made earlier have a massive impact in the future.

●Property and leverage: Property is the most effective way to grow your wealth, because you’re not just using your own money to invest.

'Property is the most effective way to grow your wealth, because you’re not just using your own money to invest.' Picture: iStock

When you borrow and then invest, so long as you choose a good investment and have a solid plan, you’ll accelerate your progress far beyond what’s possible using your savings alone.

But property and debt comes with some significant risks that are important to manage and manage well. This means that when it comes time for you to go down this path, you’ll want to have the other elements of your money sorted so you don’t get caught out.

The wrap

The “secrets” of money success are simple, but simple doesn’t mean easy.

You need to set a solid foundation to create the money to invest, and then make it happen. You then start building momentum that makes your next steps easier.

The first step is always the hardest, but the results are worth it.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth, the creator of the Smart Money Accelerator, author of Replace Your Salary by Investing and host of the Mo Money podcast. He runs regular free online money education event which you can book 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.

Originally published as ‘Key differences’: Simple money secrets only wealthy people know about