Why are only 5% of Aussies millionaires?

“One day I want to be a millionaire!”

I recall that being an often expressed goal around the traps twenty years ago.

Back then the median gross annual income was just $17,056* so the millionaire goal was quite a stretch. It was also before the explosion of free information on the internet.

Since then there’s been an endless stream of information published to show you how to wisely manage your money and become rich. Most of the information is dirt cheap or even free.

So despite all of this information why still do only 5% of Australians have net wealth in the millions? (Excluding the value in their principal residence.)*

That is the question I often ask participants in my seminars and courses.

The common reasons they suggest are:

  • It’s easier to spend now than save. We don’t have the discipline.
  • We make bad decisions.
  • We don’t know what is the right or wrong decisions so we don’t make a decision.
  • We get sucked into glamorous marketing and don’t know how to evaluate if the investments are any good.

All of those reasons are spot on. What do you think? Are there any other reasons you’d add?

Choice overload is a big problem

We’ve had an explosion of choice but our ability to make wise choices has not kept pace. So we hit information and choice overload.

In such circumstances often we either:

  • Throw our hands in the air in exasperation and do nothing.
  • Grab at something close that gets our attention and seems easy and do it whilst hoping for the best.

The problem with that is delay is the greatest cost in wealth creation. And bad choices can be just as costly.

This applies to all lifestyle goals

You may not have the goal to be a millionaire but I bet you have other lifestyle goals like a dream house, holiday, car, children’s education or retirement lifestyle.

Money is one of the resources that helps fund your important life experiences.

If you’ve ever said “I’d really love to do that but I just can’t afford it” then this probably applies to you. I bet the reasons you didn’t have the money for what you really wanted when you wanted it include those reasons listed above.

What to do about it

The elusive delayed gratification

Applying discipline is tough.

In the financial context I suggest you:

  • Get clear on what matters most to you in life
  • Save for the significant
  • Automate as much as possible

Last Thursday one of my cash flow coaching clients said to me:
“I’d rather have lunch in Venice than buy lunch at work every day.”

She was getting clear on what was more important to her and then changing her habits to ensure she achieved her dream of lunching in Venice with the love of her life.

What about you? What experiences matter most to you in life?

Once you know what you really want next I suggest you harness recent technological advances to do the heavy lifting and protect you from your impulsive self. In the old days they used envelopes or jars and manually topped them up. Now you can have multiple online high interest bank accounts and set up automatic transfers to coincide with your pay cycle.

Learn how to make smart choices

You don’t need to know everything. You just need to know what you need to know.

You can save yourself a lot time, indecision headaches and stress if you learn how to filter the information overload.

The big time saver comes from learning how to quickly filter out things are not appropriate to you right now.

The big financial kick comes from knowing how to choose actions that are right for you and will boost your net wealth. You can avoid procrastination and inaction and get on with doing.

To have enough money for what you really want when you really want it I strongly recommend you invest time in learning how to make smart choices.

Stop scouring the internet and media for tips on the best shares, suburbs and other investments to buy into.

Rather than learning more about all the possible investments out there instead learn decision making models and frameworks you can use to filter every new thing you hear.

The knowledge of how to choose stays with you for life and can be frequently reused. Learning how to choose therefore pays you dividends for life.

You gain clarity from knowing how to identify what are right and wrong decisions. Therefore you’re much less likely to get overwhelmed and either do nothing or follow the next hot tip you hear.

Here’s the plug

My observation is that there are plenty of books telling you what you can do but not many teaching you how to choose.

So I created a course DIY Wealth Creation for Busy People that teaches you how to make the right choices for you right now. In the course I share many decision making models you can apply for the rest of your life.

They’re decision making models I’ve created so you can only get them from me.

If you want to learn how to make smart choices I recommend you check out my course DIY Wealth Creation for Busy People.

Interested but can’t make it?

If you’re interested in the course but the time or location does not suit you please e-mail me and let me know (including interstate folk). That will help me make smart choices about other formats for effectively sharing the knowledge.

 

Article sources:

  • ABS 1301.0 – Year Book Australia, 1991
  • ABS 6554.0 – Household Wealth and Wealth Distribution, Australia, 2005-06 (latest release)

Residential property vs shares since 1926

The residential property versus shares debate is popular and can be as fiery as political and religious debates. So I’m often asked about comparisons of the long term returns.

Following is some commentary I came across from Dr Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital Investments. (Emphasis added by me.)

After allowing for costs, residential investment property and shares generate similar long-term returns. This can be seen in the next chart, which shows an estimate of the long-term return from housing, shares, bonds and cash.

Over the long term, the returns from housing and shares tend to cycle around each other at similar levels. In fact, both have returned an average of 11.5% p.a. over the last 80 years or so. While housing is less volatile than shares and seems safer for many, it offers a lower level of liquidity and diversifcation. The bottom line is, once the similar returns of housing and shares are allowed for, and these characteristics are traded off, there is a case for both in investors’ portfolios over the long term.

 

Source: Oliver’s Insights, Edition 37 – 25 November 2010, ‘Australian housing – is it a bubble? What’s the risk?’

Latest retirement cost statistics

For those thoroughly planning for their retirement you may be interested in the latest statistics of the actual amount spent by current retirees.

Previously I’ve written a more detailed article about retirement planning and this statistic – this article just advises you of the latest update.

The Westpac ASFA Retirement Standard for the September 2010 quarter shows that a couple wanting a comfortable lifestyle in retirement need to target to be able to afford to spend approximately $53,729 per year.

The Westpac-ASFA Retirement Standard reports that the detailed budgets for various households and living standards as at September Quarter 2010 are:

Modest lifestyle

– single

Modest lifestyle

– couple

Comfortable lifestyle

– single

Comfortable lifestyle

– couple

Housing – ongoing only $55.60 $53.39 $64.46 $74.72
Energy $30.36 $40.32 $30.81 $41.78
Food $71.20 $147.49 $101.71 $183.09
Clothing $17.97 $29.17 $38.89 $58.34
Household goods and services $26.18 $35.50 $73.65 $86.27
Health $33.51 $64.67 $66.48 $117.34
Transport $88.41 $90.92 $131.76 $134.26
Leisure $72.87 $108.56 $220.82 $302.61
Communications $9.15 $16.02 $25.15 $32.01
Total per week $405.26 $586.03 $753.73 $1,030.42
Total per year $21,132 $30,557 $39,302 $53,729

The Westpac ASFA Retirement Standard assumes the retirees own their own home. It defines a modest retirement lifestyle as “better than the Age Pension, but still only able to afford fairly basic activities.”

A comfortable retirement lifestyle is defined as: “enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”

If you want to be a millionaire don’t follow your mates

According to the latest World Wealth Report by Merrill Lynch and Capgemini, there are approximately 172,000 Australians who are millionaires. (The definition of millionaire is in US dollar terms and excludes your own home and other lifestyle assets.)

This is a very low figure given that most people, if asked, would say that they want to be millionaires. The figures is so low that it means that only 1.07% of adult Australians actually are at their goal. (Based on ABS population data at June 2007.)

So if you want to become a millionaire don’t benchmark your wealth creation activity based on what those around you are doing. Chances are that following them will lead you to a destination other than becoming a millionaire.

If you want to become a millionaire find some smarter friends to also hang around with – ones that expand your thinking and horizons. And if you have to (and you probably will), pay to hang around with smarter people who have achieved the goal; i.e. a mentor.

It’s time in the market that counts

“Fortune favours the brave.” Investing more aggressively is one of the key behaviours of money masters in creating long term wealth. But when the share market falls suddenly and significantly many people cannot contemplate such a behaviour.

To help you be comfortable to invest more aggressively you need to invest time educating yourself about the short term risk, the long term rewards and your available options. Education and awareness is one key.

To assist you, Vanguard have published a chart of the volatility of the Australian share market index over the past 30 years. It shows that there have been 7 times since 1978 that the index has fallen more than 10%, for an average fall of 21.2%. The chart also shows the time length of the downturn and the subsequent recovery.

View the chart on the Vanguard website.

Remember: wealth creation is a long term game. What happens in the short term is mostly irrelevant – it’s just a blip on the radar.

Property index changes name

Standard & Poor’s and the Australian Securities Exchange (ASX) recently changed the name of the S&P/ASX 200 Property Trusts Index to the S&P/ASX 200 A-REIT Index. The name change follows the ASX and Property Council of Australia’s renaming of Australian listed property trusts as Australian Real Estate Investment Trusts (A-REITs) to align with global practice.

REIT is the most commonly used and understood term used for listed property trusts in international markets. Australian REITs currently comprise around 12 per cent of the world’s listed real estate assets and are one of the largest sectors on the ASX.

Source: Vanguard Investments Australia, Smart Investing newsletter.

I recommend that all investors benchmark their portfolio returns once per year. The above name change is important to know because I recommend you use the market indices as one of your benchmarks.

Chronology of superannuation and retirement income in Australia

Do you have a massive orientation towards details and would love to learn more about superannuation in Australia? If so, you are in luck as the Parliamentary Library of Australia has just published a Chronology of superannuation and retirement income in Australia.

It is a wonderful resource for financial advisory geeks like me, but you may find the later years interesting too.

Many people grizzle that superannuation is constantly changing and that it is always bad. It is usual for any new idea to be continually tweaked as experience demonstrates the weaknesses and the strengths.  And I suggest that most of the changes to superannuation in the last decade have been beneficial to improving the long term wealth creation of Australians.

You can decide for yourself – make a cuppa and peruse the chronology… 🙂

Trust pros for financial advice over friends and family, survey suggests

About one in six Brits has received bad financial advice from their friends and family and have suffered financially and emotionally as a result, according to new research from the specialist mortgage provider (Birmingham Midshires)Almost one in five (17%) wasted a lot of time in the process. Just over one in 10 (12%) admitted that their relationship with the person who gave the advice had deteriorated. A minority of those questioned (4%) lost an asset such as a house, a car or another belonging of value.(Read the full article by Lorna Bourke here on CityWire .)

The results of this study reinforces the message of the “Dazza” commercials run by the Financial Planning Association of Australia in 2005. (View all three videos here.)

Following advice from unqualified people, no matter how well meaning, is high likely to be inappropriate for you specifically.

Here are some reasons why:

  • The unqualified person may have much broader knowledge than you but it is probably not broad enough. They have probably only researched strategies and products that broadly fit their needs and goals.
  • On the surface of what you each publicly share there may appear to be similarities between your situations. But it is in the depths that the subtle nuances appear. In truth your needs are probably vastly different to theirs.
  • Human nature results in us generally crowing about the upside and the benefits while glossing over the potential downside and risks. You need to have a full picture and make an informed decision.

Do yourself a favour – save time, emotional energy and money by seeking good advice from a fully qualified and licenced financial adviser.

Almost $12 billion in lost superannuation

As at 30th June 2007 there is $11.9 billion in lost superannuation, according to the Australian Commissioner of Taxation’s Annual Report for the financial year 2006-07.  This staggeringly large amount of money is spread across 6.1 million accounts. That’s an average of $1,950 of lost superannuation per account.

Could some of this lost superannuation be yours? It may well be, even if you think you have rolled all of your funds together.

The amount in lost superannuation is so large that it is worth taking the few minutes to conduct an online search. (A few months ago I found some lost superannuation for a client who had thought they had identified all of their superannuation.) You can do this now for free using the ATO’s online Super Seeker tool. All you need is your tax file number, date of birth and name.

You wouldn’t just take $1,950 out of your bank account, throw it on the ground and ignore it, would you? So take the few minutes now to find your lost superannuation and get it working hard for you.