Increase your income by $72,000 per year investing $6 per day

It could take as little as $6 per day to increase annual wealth by $72,000 a year – but there is a time limit on how effective this investment is.

If you’re young you probably don’t think too much about retirement, but new statistics show that in Australia the average retiree income is less than $20,000, around 21 per cent of the average income for Aussie workers.

Most people will have to drastically cut costs and make lifestyle sacrifices in their later years, a prospect that’s pretty terrifying. But this is all avoidable by making three small changes to your approach today.

The 5 per cent rule

When it comes to money and investing, the 5 per cent rule will help you figure out exactly how much money you need in the future to live your ideal lifestyle.

The 5 per cent rule says that you can generate an income of around 5 per cent from investments each year without eating into capital (reducing your balance). So for example, if you have $1 million invested you should be able to get an income of around $50,000 each year for the rest of your life.

This is based on the long term returns on investments which is 9.8 per cent, and after making an allowance for fees and inflation, you’re left with 5 per cent for income. The rule is a rough estimation and isn’t perfect, but it is pretty close – and close enough to help you set some solid money targets.

The 5 per cent rule says that you can generate an income of around 5 per cent from investments each year.

Setting targets will help you understand exactly where you want to get to, and to be clear on how big your “retirement gap” is. To use this rule to set your targets, think about what your ideal level of income is in the future.

I get that retirement seems like a long way away and it can be hard to figure out what the right number might be. If you get stuck here, your current income is a pretty good starting point.

Once you have your ideal income number, you simply divide the number by 5 per cent to get your investment target.

For example, in Australia the average income is $92,000 – so to target this level of income you can use the 5 per cent rule as follows:

$92,000 / 5 per cent = $1,840,000

To achieve an income in the future of $92,000 each year, you’d need to have around $1.84 million in investments – this becomes your target to work towards. Aiming at this number would give you an annual retirement income more than $72,000 above the average Aussie today.

Get started (now)

Once you know where you want to end up, you have to start making some progress to get there.

If you’re early on in your money journey, there’s probably a big gap between where you are today and where you want to get to, but don’t stress – most people underestimate the power of compound interest over time.

Using the example above, if your investment target is $1.84 million and you’re 20 years old today, you would only need to save and invest $6.14 each day to hit your target.

But the longer you leave it, the more work you need to do. Waiting until you’re 30, 40, or 50 would mean your saving and investment number increases to $16.64, $46.78, and a whopping $147.45 per day.

If you start early you can invest $6 a day to increase your retirement income.

You see that with a lot of time on your side, you don’t need to do much. $6 is probably about the cost of an extra shot hazelnut latte at your favourite cafe, so should be achievable for most people.

$16 per day is a bit more but probably also doable. But when you start creeping up to almost $50 per day, and then $150 per day it’s going to get pretty challenging.

The sooner you get started, the less you have to do to get there.

Choose good investments

You can see from the examples above that based only on the long term sharemarket return you can achieve some pretty epic results from small, regular investments over a long period of time. You don’t need to shoot the lights out when you invest, but you do need to avoid choosing bad investments.

Investments that fail are a momentum killer, sending you back to the starting point and creating a huge opportunity cost in lost time.

There are a lot of different ways to be right when it comes to investing, but the statistics show that passive index funds perform better more than 80 per cent of the time – so this is worth considering as a starting point.

The wrap

Most of the people I speak to about their money tell me how important it is for them to get ahead and live a good lifestyle today. But the statistics show us that we’re not getting the balance right. Most people aren’t putting away enough for the future, meaning they’re enjoying their today, but are going to be forced to make much bigger sacrifices in the future. This is a nightmare and something you want to avoid at all costs.

When you take the time to get clear on where you need to be to live the future you want, you have a crystal clear target to aim at. Then you need to take action to get started, building momentum and ticking off milestones along the way.

There’s a bit of work to be done to get there, but the results are worth it; confidence your money is heading to a place you’re excited for, more peace of mind along the way, and a more enjoyable future. Get this right and you’ll make sure your future lifestyle reflects the hard work you’re putting in today.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth www.pivotwealth.com.au. Ben is the creator of the Smart Money Accelerator program that helps people build a second income investing faster.

Ben is also the Author of the brand new book, ‘Replace your salary by Investing’ and the host of the Mo Money podcast,, 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.