How to get rich, slowly
People often ask billionaire investors like Warren Buffet for investment advice.
He will ask them to forget about schemes to get rich quickly - his tips involve getting rich slowly.
Learning to save is one of the most important pieces of advice he offers. It sounds simple. The tricky part for many people is putting the advice into practice.
Here are some tips for getting rich slowly:
The sooner you start saving, the better. But investment advisers say it is never too late to start putting some money aside - every little bit helps. Thanks to compound interest even a small amount can grow into a large sum by the time you retire.
THE MIRACLE OF COMPOUND INTEREST
At first, saving $10 a week might not seem like much. You might think it is hardly worth bothering. But thanks to compound interest your efforts will start to add up in a surprisingly big way.
The Sorted website has a compound interest calculator. It is based on an interest rate of 2.5 percent after tax and allowing for inflation.
If you start saving $10 a week at the age of 20 that will turn into over $13,450 by the time you are 40.
AUTOMATE YOUR SAVINGS
If you are saving for the deposit for a mortgage or for another goal you can set up an automatic savings plan. This avoids the danger of spending the money.
One of the benefits of KiwiSaver is that you can make automatic monthly payments. But you can also make automatic contributions into other investment funds or into a savings account.
If the money comes straight out of your account each month it eliminates the temptation to spend it. This is often referred to as "paying yourself first."
MAXIMISE YOUR SAVINGS
If you are in KiwiSaver and are a salaried employee making regular contributions then you should also receive a matching contribution from your employer. This is capped at 3 percent of your salary.
It pays to check each financial year that the additional employer contributions have gone into your KiwiSaver account.
Even if you are not a salaried employee there are ways to maximise your contributions. Most KiwiSaver members aged 18 or older are also eligible for an annual tax credit. The maximum credit is $521.43, for which you have to have contributed $1,042.86 in each financial year.
ELIMINATE DUMB DEBT
Make sure you pay off your credit card every month. If you don't pay it off you will find the interest charges can be 20 percent or higher.
If you are having trouble with credit card and hire purchase loans it might pay to look at consolidating these in one loan with a lower interest rate. The repayment period is typically longer which should also help reduce the weekly or monthly payments.
LIVE WITHIN YOUR MEANS
Try to spend less every month than you earn. Save the rest. Among Warren Buffet's numerous famous quotes is this one: "Don't save what is left after spending; spend what is left after saving."
Ultimately, when it comes to a comfortable retirement it is not about how much you earn. It is about how much you save.