Officially, the average Australian wage is close to $80,000 a year. However, some claim the realistic middle income for taxpayers is more like $60,000. Whatever your income, once you’ve paid tax and covered your living expenses, investment may feel beyond your means. But do you have hidden wealth?
The adage, A penny saved is a penny earned, is so overused it’s become cliché. But there’s a fundamental truth in this ancient piece of wisdom: Income – Output = Wealth.
In other words, there are two ways to increase your net Wealth. One: increase your Income. Two: reduce your Output.
Remember when the world got excited about saving hundreds of dollars, one coffee at a time? The theory was that saving $20 a work-week on barista coffee (reducing your Output) would compound and save you a fortune. The numbers seemed sound, and the internet has burned with debate ever since.
But what if we said you are saving money like this all the time? Whenever a liability ends, you save money. For instance, perhaps you took a loan to buy your first car. When you made the last repayment, your weekly Output reduced, leaving you higher net Wealth.
What if you are saving money like this all the time?
That doesn’t just happen when you pay off a debt or stop drinking coffee. If you have young children, you are probably spending more than a thousand dollars a year on nappies and associated paraphernalia. Toilet training brings $1000 a year back into the Wealth equation. The same again when your children finish childcare and later when they leave home.
If you get a job closer to home, you may save on travel. If you see a physiotherapist for an injury, that’s money back in your pocket once the problem is fixed.
Recognising Hidden Wealth
The key is to train yourself to recognise decreases in Output the same way you see increases in Income. Then, treat your net Wealth intentionally, wherever you find it, and you will soon be in a better financial situation and better able to invest in your financial future.
Investment may seem just a dream, but the possibilities could surprise you. Wherever you sit on the Income—Output—Wealth spectrum, drop us a line. We’re here to help you plan your financial future.