I am reading Creating Real Wealth by Michael Kemp and there was a little section on compound interest with an example of saving $5 a day over 30 years @ 8% ROI = $200,000. It got me thinking, how much have my wife and I saved per day on our journey to $1,000,000 net worth.
As luck would have it we have maintained a balance sheet every three months since 2001 and it has taken us 6,599 days to accumulate $1 million, which works out to $147 a day.
If I remember correctly Steve McKnight suggested in one of his books that investors should determine the annual income they want to achieve and then work out how many properties it would take to achieve that goal and then go about building a portfolio to match the goal.
Using a similar process it may be helpful for investors to determine a net worth $ goal and a date of achievement and then work out how much per day need to be invested/saved to achieve the goal, and then set about building a portfolio of assets to get there.
I didn’t follow that process myself but I kinda wish I had, it would have kept me focused along the way.
Tom
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Hi Tom,
Using a similar process it may be helpful for investors to determine a net worth $ goal and a date of achievement and then work out how much per day need to be invested/saved to achieve the goal, and then set about building a portfolio of assets to get there.
That is a great thought – I think it needs a little tweaking though as it is easier to get a small snowball rolling and picking up size than to be doing it starting with a large chunk.
In other words, finding $147 a day may well be too hard – to do, or to even comprehend, in the early days. The $147 is the final outcome worked back, for sure – but probably NOT how you achieved it. It would have been more like $30 a day in earlier days, then, with assets returning extra assets, it might be that you were stumping up $300 a day in the last weeks of your journey. KWIM?
Steve talks about a goal setting thing – I may not have it right, but it goes something like “Look to achieve 1/3 of your goal within HALF the allotted time for its completion”. This gives the nod to the fact that the early bit is harder to achieve while you are “building up a head of steam” in your asset building.
And, using your example from Michael Kemp, I did up an Excel spreadsheet that showed me that “$5 a day, and earning 8% Interest on your savings” would have indeed produced over $200,000 – but the first half of the journey would have produced just 1/4 of the final outcome ($55,000 of a $220k outcome).
I add all this just so others following aren’t put off by their “low figures in the earlier days” – that is just the way it all works. See, in essence, it is the interest that is compounding things – the total cash amount from 30 years of $5/day is actually less than $55,000. The interest paid provides the rest ($165,000).
In your case Tom, it will have been your good buys combined with rental incomes that is increasing your wealth over time (i.e. some savings, but perhaps a bunch more equity growth and rental income above expenses). Could you have realistically SAVED $147 a day (over $1000 a week)? Maybe in later days, but not in those earlier ones I’m picking. But anyway, well done you – and a great talking point you have put up there for us. I hope others share their thoughts too…..
Benny
PS another interesting post re “compounding” is this one (it looks at the expense side of things and the MASSIVE effect they have):-
https://www.propertyinvesting.com/topic/5034678-that-surely-cant-be-right-or-is-it/More food for thought – re keeping expenses as low as possible.
Indeed Benny I didn’t start accumulating at $147 a day. From my spreadsheet our progress over time tracked as follows:
$102 per day – first 5 months (July 2001 – Nov 2001) – note: we had a few quick wins, downsizing our car and selling some other items to build up capital
$65.35 per day – 5 years (2001 – 2006) – note: this includes travelling and working around Australia for 4.5 years and having large periods of no work – 6 – 9 months at a time)
$146.51 per day – 10 years (2001 – 2011)
$142.66 per day – 15 years (2001 – 2016) – note: we had 2 x kids and both started working part-time during from 2010)
$147 per day – 18 years (2001 – 2019) – note: kids are now at school and I returned to full time workA couple of other points on my situation:
– This has been a team effort between myself and my wife
– We have been double income since we started, saving 100% of one wage since July 2001
– We haven’t got divorced!
– We were both committed to the goal and both made sacrifices together
– We both earn above the average wages (having both earned degrees and I have a trade too)
– We don’t compare ourselves to others, so we don’t try to keep up with the Jones’Keeping up with Jones’ (not!)
Further on this point, here are few points:
– We have 1 mobile between us, on a $5 a month plan
– Our cars are 1 x Ford Falcon wagon (2006) and 1 x Honda Jazz (2012)
– We home butcher our own meat, have a milking cow and have aquaponics and chickens etc, so we grow approx 70% of our own food
– We don’t have any subscriptions, no spotify, no netflix, no disney+ etc
– Our kids attend a public school (as we did)The luxuries
Having said that it’s not all penny pinching:
– We have 4 x real estate investments
– We own our house outright
– We have at least 2 x holidays a year (skiing in NZ, visiting Fiji (Bula!) driving to VIC’s Great Ocean Road etc)
– We have a large share share portfilio
– I commence part-time work again in 2020 (3 days a week) and my wife will work 2 days a weekTom
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Hi Tom,
Wow – you certainly found a way to make it work for you and yours. More power to both of you for that great example.What does Steve say often – “Success comes from doing things differently” and you seem to have that nailed. :)
Benny
I think this story is a deception and all the examples described in this book are the authors fantasy!
I think this story is a deception and all the examples described in this book are the authors fantasy!
Wow – way to make an entrance, JulianJohn !! But for now the floor is yours so, let’s hear it – do you have a way to “make it” that we all need to know about? Some way that is not “deception”?
Why not share – that’s what we are all here for….
Benny
Hey Julian, if you are referring to the book “Creating Real Wealth by Michael Kemp” you may be right, I don’t know the author.
My personal story is factual, and as an update 2020/2021 has been an interesting journey.
I manage my share investments based on the theories of Austin Donnelly (https://www.bookdepository.com/Sensible-Share-Investing-Austin-Donnelly/9781875857159).
Mr Donnelly passed away in 2007, but his work in the area of share market analysis is simply amazing.
Based on his writings I had 90% of my share portfolio in cash at the end of 2019, and in March 2020 the COVID crash occurred. Again following Mr Donnelly’s zone methodology I switched to 90% shares in April, not at the bottom of the crash, but well below the peak.
In the twelve months since my net worth has increased $135K, an average of $369 per day (note I invest the majority of my share portfolio in managed funds/super, so my gains are not due to a ‘hot tip’ or ‘one off investment’).
My advice:
– read widely and take what works for you from each resource
– focus on the advice which helps you achieve your goals
– don’t focus on the information which seems unlikely or unreal
– it all comes down to goal setting
– set your goals and then learn what you need to learn to achieve them.
Tom
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I think this story is a deception and all the examples described in this book are the authors fantasy!
Indeed, there are various strategies that help save a certain amount of money, but it will be difficult to count every $ 5. In order to increase my capital, I use various sources of income and calculate the average net worth targets. I hope that when I retire I will have enough money to ensure a full life for myself. Now my income is 40 thousand a year and I save about 30 percent.
Hey Julian, saving 30% of your income is an awesome achievement, keep that up and you will have a portfolio that will sustain you in retirement for many years.
Tom
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