Never mind how the other half lives, have you ever wondered exactly how the rich got rich to begin with, or even what figure classifies you as rich?
New statistics from the Australian Bureau of Statistics (ABS) have shown the average amount you need to be worth to earn your wealthy stripes in Australia: a cool $3.2 million.
The Survey of Income and Housing 2017/18 measured household wealth by combining all the assets owned by a household and then subtracting the value of debts owed, such as home loans. The population was then divided into five segments or quintiles. So, where do you fit in?
The wealthiest or fifth quintile have an average net worth of $3.2 million, with $2926 of weekly disposable income and a $270,000 debt on property.
The fourth quintile are wealthier than average with an average net worth of $1.04 million, $1538 of weekly disposable income and a $206,200 debt on property.
The third (average) quintile hold an average net worth of $564,500, $1383 in weekly disposable income and a $191,900 debt on property.
The second quintile are considered less wealthy with an average net worth of $231,100, $1526 of disposable weekly income and a $136,200 debt on property.
The first and least wealthy quintile have an average net worth of $35,200, $976 in disposable income weekly and a $20,000 debt on property, being the least likely to own property.
So, you’re not in the wealthiest quintile
The good news is it’s possible to move up the quintile ranks. If you look closely at the amount of disposable income most households have in the lower four quintiles, there isn’t much of a difference between the “less wealthy” and those who are “wealthier than average”. The secret to earning those stripes is less about how much money you’re earning and more about what you’re doing with it.
While the wealthiest quintile is earning more, they’re also making smarter choices with that money. The survey revealed much of it is invested: in owner-occupied homes, investment properties, shares, trusts and superannuation. Even if you don’t have your own share of properties and investments, there are still ways to accumulate wealth in the long-term.
It’s nobody’s idea of a good time but sitting down to work out a budget will help you to manage your personal cash flow. This could be as simple as cutting out those daily $4 coffees or involve eliminating larger private debt. An adviser can help you work through or consolidate your debt.
You don’t need to wait to completely eliminate your debt before you can start saving money. Make whatever money you can save work harder for you with compound interest. Treat compound interest like the double chocolate icing on an already delicious cake: it is paid on the initial sum of money invested or amount borrowed on a loan, as well as on the accumulated interested on the money you have invested or borrowed. While simple interest accrues at the same rate every year, compound interest grows every year because you’re earning interest on your interest.
Working your way into the top percentile of wealthy Australians won’t happen overnight. But taking control of your cash flow and making simple but strategic changes can help you accumulate your own personal wealth in the long-term.
Come and talk to us today for more information on how to achieve your financial goals.