Building wealth is often about starting sooner rather than later. (Source: Getty)
This couple were in their early 30s, earning good money, and doing most things right. Their savings were growing, they had an investment account that was building up, and they were making some solid progress.
The next big step was to buy a home, but the Sydney prices kept pushing the dream just out of reach. Each month brought more research, more second guessing, and no action.
On the surface, nothing was broken – but underneath, opportunity was leaking. The fear of making a wrong move froze them in place, and that inaction came with a price.
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We started with a simple plan that didn’t mean drastic lifestyle sacrifices. First we cleaned up their bank account budgeting system so their money moved automatically, got their bills paid without thinking about them, and shifted their spending money to guilt free.
Next up, we separated the goals from preferences. When we got to talking, owning a family home was a priority, but really the most important thing for our couple was setting up real financial security for the future.
When we ran the numbers and explained negative gearing, they quickly saw that buying the home they wanted would put them into a much weaker position. They’d have to tie up more cash in their deposit so the mortgage wasn’t crippling, and overall spend a higher amount to get a place that would work for them. That meant having a bigger mortgage which would mean less money leftover each month for saving and investing.
Further, because their own home mortgage wouldn’t be tax deductible, they’d also be leaving five figures in tax savings on the table each year, money they could add straight to their investment account to accelerate their progress even further.
After seeing how much this impacted their financial position into the future, they were blown away – and quickly decided that while they definitely wanted to buy their own home, delaying this by a few years would give them a much better leg up for the years ahead.
Our couple chose to buy a quality investment property that worked for their current position, and one that would deliver solid progress for decades to come. This move and the mortgage savings and tax deductions that came with it allowed them to invest an additional $61,000 over 12 months into their investment account. The property and shares worked together, one building equity, and the other growing a second income stream.
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The choice to defer the home purchase and buy an investment property instead changed the shape of this couple’s next decade. Their deposit kept working because it went into a growth investment. Borrowing costs became deductible, and their banking system captured all the savings and pushed it to their investment account before it could be spent.
After setting the plan, our couple were stoked – they could see meaningful progress and feel their momentum building – and they were on track to end up in a strong position.
But the cost of waiting for this couple was significant. When I looked at the position they would have been in when they first started searching for properties around 18 months earlier, the difference by age 60 was $202.820. This wasn’t because of market timing, but simply because of the amount of time they had their investments compounding.
Financial advisor Ben Nash sees this situation all the time. (Source: Supplied)
Any money you invest earlier gives you more years for it to grow. If you delay investing or buying property for a year, you don’t just miss out on that year’s returns – you miss out on the growth on that growth in every future year to come – and when you look long term that cost gets expensive.
Making big decisions can be challenging and complicated, but pushing through will deliver you serious upside. Take the time to run your numbers, and if you get stuck consider getting a financial adviser to help you map things out.
Start with getting the baseline of where you’re at today, the assets you have and any debts, what income you have coming in, what’s going out, and your true surplus. This gives you a baseline you can then start layering decisions over the top of – whether to buy an investment property, your own home, invest in shares, pay down debt, or any combination.
This gives you clarity on your numbers, and you’ll likely see a clear winner. You can then consider your personal preferences alongside the numbers. How you feel is important, and the numbers are important, the best decision is one that gives you balance of both.
Money favours people who take action, and to get there you need to make good decisions. This couple weren’t looking for a silver bullet – they were grinding it out but hadn’t taken the time to look at the big picture.
When you do the same, you can get more out of the money you already have, and make faster progress towards the things that are actually important to you.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. You can learn more about how to be smart with your money through Ben’s book Replace your Salary by investing.
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.
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