21 Jul 2017
Friday Tidbit: Savings versus investing
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
The attached model was created by the Director of Research at Pension Parnters LLC and we have adapted it for Australian income.
The model ignores inflation, ignores tax on returns and assumes a 30 year average lifetime income of $49,300 after tax which is equivalent to gross income of $63,000 per annum in Australia.
The question it asks is what is more important- the rate of return or the rate of savings?
The outcome of saving 1% per annum of your after tax income and earning 10% per annum on your saving is $81,096 after 30 years.
However if you save 5.5% per annum of your after tax income and earn just 1% per annum on your savings the outcome is $94,319 after 30 years.
The answer to the question is that both are important but the rate of savings is more important that the rate of return.
It all gets really exciting if you can both save 5.5% per annum of your after tax income and earn 10% per annum on your savings which would deliver $446,026 after 30 years.
We want to share this simple message and reminder because it is a fundamental fact that all the wealth that you accumulate had to begin by first saving with the only exceptions being inheritances, gifts and or winnings.
Sometimes you can get lucky but saving is always reliable.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.