Common $70 investing mistake costing Aussies $185,000

Too many Aussies are missing out on getting wealthy by making one very costly $70 mistake.

Recent stats from the ATO show that Aussies today retire with an average of $361,549 in their superannuation fund. This is enough to give you an income of around $20,000 per annum, which is around 20 per cent of the current Australian average income of $98,217. But it doesn’t have to be this way …

When you get started investing, in the early days you won’t get earth-shattering results. Momentum builds slowly at first, and accelerates over time with the power of compounding.

Consider this example.

I had a client recently that had just bought her first property and was keen to make some more moves to get ahead. She knew she should start investing, and had even opened an investment account. But because she’d stretched herself to buy a property, and with sky-high interest rates, there wasn’t a heap of money left over. She worked out she had enough to start investing around $70 a week.

But when it came time to ACTUALLY do the investing, something kept getting in the way. An unexpected bill, a tough week at work that required some retail therapy, something that was ‘needed’ for her house, the list went on …

She figured that not investing wasn’t that big of a deal, because investing $70 a week wasn’t going to turn into a huge amount in the year ahead. Based on the long-term sharemarket return of 9.8 per cent, investing $70 weekly should only grow to $3808 in her investments in 12 months time.

Her thinking was that given the numbers were fairly low, she could just play a bit of catch-up later to get things back on track. This is a common mistake, and when we started working together we showed her the real cost.

Compounding is powerful when it comes to investing. Picture: iStock

If you don’t invest today, you’re not just missing out on the amount of money you won’t have in a year’s time – the real cost is how much this money would grow in the years ahead. In this case, if you had $3808 in investments bubbling away with compounding over the next 40 years, the money would grow to a whopping $188,894.

So the true cost of not investing just $70 per week was really over $185k.

The power of compounding

Time and money combined is a powerful thing. Consider this longer term example:

Starting with $0 today, you save and invest $10 each day ($70 per week). Assuming the long same long term sharemarket return (9.8 per cent), over 20 years this $10 per day would grow to be worth $225,072. Over this 20 year period you would have saved a total of $73,000, with the rest of the work being done by compound interest, which delivers a total growth return of $152,072 on top of the money you’ve saved and invested.

For the cost of a couple of cups of coffee a day, in my opinion this is a pretty good result. But it gets even better.

It makes sense to start investing now rather than later. Picture: iStock

If you keep investing $10 daily for another ten years, your money would grow to be worth $658,912. During only this ten year period you would have invested another $36,500, with compound interest adding an extra $397,340.

Keep going, and after another ten years (40 years total) your investments would grow to $1,810,267. You invest the same $36,500 over this period, but compound interest delivers you over a million dollars ($1,114,855).

To hammer home this point, give it another ten years and your money would grow to $4,865,816. With the same $36,500 invested, compounding over these ten years would add an extra $3,019,049 to your investment bottom line.

Now saving and investing $10 daily isn’t nothing, and particularly in the current cost of living crisis, I get there are a lot of people that would find this challenging. But is it doable? I think the answer is yes for most people. And further, there should be a lot of points throughout your life where you could invest a whole lot more than just $10 per day.

Money success is simple. But if it’s this easy, why doesn’t everyone do it?

To get started investing, you need confidence. And to keep going, you need motivation. The confidence to get started is crucial, because most people get stuck on the starting line, often for years (sometimes decades). The power of motivation is hugely underestimated when it comes to money, but how motivated you are to keep pushing forward is the single biggest results driver once you get things moving.

The wrap

Investing is the key to money success, but in the early days it’s slow going. Most people going down this path don’t fully recognise the importance of the early work they’re putting in. But when you fall into this thinking trap, it’s easy to get distracted and off track. But when this happens, you take yourself further away from the pay-off that’s coming your way.

A small amount of work done over a long period of time will deliver serious results. But it won’t just happen on its own, you have to make it happen. If you’re thinking about investing, or if you’re investing already, take the time to understand the results you’re really creating, not just in the short term but also in the years to come.

Ben Nash is a personal finance and investing expert commentator, financial adviser and founder of Pivot Wealth | Instagram | Facebook | Podcast

Ben is also the Author of ‘Replace your salary by Investing’ and Get Unstuck, and runs regular free online money education events, you can check out all the details and book your place 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.