How to build financial confidence investing

Healthy Lifestyle

Ben Nash

Investing is the key to not being forced to work forever. It’s also the key to building real confidence and eliminating money stress.  

A recent report from AMP found that over one million Australians are suffering from severe financial stress, and another two million are suffering through moderate financial stress.  

But it doesn’t have to be this way.  

When you’re making good progress investing, you feel like you’re moving forward. This makes you feel motivated. And this motivation drives you to do more and better.  

But if you’re like most people, the fear of making a mistake is holding you back from reaching your true investing potential.  

I wanted to start with an example showing how much you need to invest to replace the average salary in Australia ($92,029 as of May 2022). The rough rule of thumb to calculate how much you’d need in investments to replace this salary is that you multiply this amount by 20 (or divide by 5%). This gets us to $1,840,592. 

The reason we use 5%? This is based on the 30 year return of the Australian share market of 9.8%, assuming an allowance for fees and taxes of 2.3%, and then allowing an allowance for long term inflation of 2.5%, leaving you with a total return of 5% you can spend as an income.  

It gets a little technical, but basically because we’re allowing for taxes and fees as well as inflation, it means that if you had an investment portfolio of $1,840,592 today it would deliver you an income around $92,029 in the next 12 months, and then this income would be indexed to inflation so you’d receive the same income in real dollars every year forever without eating into your original capital. 

Please note this is an approximation only, but it does give a good starting point for thinking about investing. 

So going back to our example and how to build this level of wealth.  

If you were starting with $0 in your investment account today, at age 20 if you were to save and invest $10.10 daily, then reinvest all income (dividends on your shares) over time, by the time you reach age 60 you’d have built total investments of $1,840,592. 

If you start investing at age 30, you’d need to increase your daily investment to $27.72 to reach the same point. If you wait until age 40, your daily investment would need to increase to $81.11. And if you wait until age 50, you’d need to make a daily investment of a whopping $296.38 to reach the same end goal of $1,840,592. 

This shows the power of getting time, but it also shows the power of getting started.  

See here’s the thing. Most people think about investing, they know they should invest, but when it comes time to do the doing they stall. It’s easy to put this off for a tomorrow that never seems to come around.  

If you fall into the inaction trap, you’re missing out on the opportunity to start seriously building your money momentum. And you’ll just be forced to play catch up later on, saving and sacrificing more to get to the same result.  

My challenge to you is to get started today. I think investing is a skill, a behaviour, a habit, and a muscle that you build over time. The sooner you get started, the sooner you start flexing the muscle and building your knowledge and confidence around investing.  

I hear what you’re saying; things are tight right now and I just don’t have enough to spare. But thankfully through technology, you can use micro investing apps to get started with as little as a single cent. And I guarantee you that if you do, you’ll start building an interest around investing that will get you motivated to do more.  

Before you know it you’ll be upping your investments, and making more progress towards replacing your salary investing.  

You might also be in a position where you’re saving hard for something, it might be your first property, a wedding, or taking some time out of the workforce to start a family. You might want to build your cash savings to provide for this upcoming spending or investment, and that makes a lot of sense. But again, you can still do some level of investing. I’m not saying it has to be huge, it just has to be something.  

Build your investing game plan, and start with a small initial investment and set up a small regular investment plan with regular contributions. Your future self will thank you for it.  

And BOOM, you’re an investor. Don’t worry too much about trying to be an expert at the start, because as soon as you start investing you’ll start learning.  

You’ll see what’s going on in markets. You’ll start lining up what’s going on in the headlines to what’s going on with your investments. And you’ll start building your investing confidence.  

And most importantly, you’ll start building your money momentum.

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. 

Ben Nash

Please note: Ben's blog is general advice only. For further information on this topic, please consult your healthcare professional.

Add a Comment

  1. Enter your comments


Your details