Something really exciting happened at work yesterday.
I walked into the Danger Zone, (our little area in our staff room), and came slap bang in the middle of a conversation that Beth, Emily and Laura were having. Beth is well along the path to FI. We’ve had many a conversation about investing and she’s going great guns.
Laura is much younger than us. She’s already looking towards the future, having bought a couple of apartments as investments. I guess it helps to be a Maths teacher when it comes to understanding the whole ‘numeral’ thing.
Apparently they’d started talking about passive investments and Beth shared how much she earned over the last 12 months from the interest on her investments and her super. This blew Laura’s mind and got her attention. Then I walked in.
“Talk to Frogdancer,” said Beth. “I’d still be spinning my wheels if it wasn’t for her. She got me started with this whole thing.”
“Beth said that she made ($Xnumber)* last year, all from doing nothing!” said Laura. “How is that possible? It’s blowing my mind.”
I grabbed my laptop. “I have a net worth chart,” I said. “I check it at the end of every month.” I pulled it up and showed her.”See? Once your investments hit a certain mass, they take on a life of their own.”
Laura’s eyes popped. “OMG, why isn’t my net worth going up like that?”
Beth and I both said, “You’re young! You haven’t had time to build it up yet.”
Laura and Emily both jumped onto their banks’ websites and pulled up their own net worths. Both have mortgages and Melbourne is a really expensive place to buy real estate. Both of them are over half a million in the hole.
“That’s totally age-appropriate,” said Beth. I nodded. “You’re just starting out.”
Laura looked at me. “Beth and my parents say that I should be salary sacrificing into my super,” she said. “I don’t know – shouldn’t I be paying down my mortgages first, though?”
“It depends what you want,” I said, pulling up a chair. “Mathematically, it probably makes more sense to start making some outside investments while interest rates are so low. But if you have a paid-off mortgage then you have security. No one can kick you out or make you sell it if you can’t make the payments.”
“I made the deliberate decision to pay off the house first because I had the kids,” I continued, “and security was the most important thing for me. I was always terrified that if I messed up, I’d lose the house and the kids would have nowhere to go. Three weeks after I paid off that house, I was starting to learn about investments.”
“How old were you then?” Emily asked. She’s another young Maths teacher. “What was your net worth?”
I laughed. “I paid off the house when I logged onto my banking and saw that I had $10 more in my savings account than I had on the mortgage. I was 50. So I guess my net worth was $10 just after I turned 50!”
“How old are you now?” she asked.
“56,” I said.
Her eyes widened. “In six years you’re worth **($myFInumber)???? You should write a book!”
“She already writes a blog!” said Beth.
“When I was your age, I pulled my super out, all 30K of it, to put a deposit on a block of land,” I said. “When we sold the block a couple of years later, we sold it for 30K less than we paid for it, so effectively my super was lost to the wind. A couple of years ago I calculated what that 30K would have been worth today if I’d left it alone. It would have been 200K.”
Laura and Emily’s eyes widened. They gasped.
“Learn from my mistakes!” I said. “Money put in for retirement when you’re young is worth a hellava lot more than money put in when you’re my age. It’s the second-biggest mistake I’ve made.”
“So how much do you need to retire?” said Laura.
“Don’t you need a million?” asked Emily.
“Close enough,” I said. I wasn’t going to dive into the 4% Rule just then!
“Right!” said Laura, turning back to her laptop. “I’m going to salary sacrifice into Super. How much should I be putting in?”
“You can put in 25K a year,” I said. “That includes all of the super that the Education Department pays. But you’re paying those mortgages and you probably don’t want to tie up every dollar into an investment that you can’t touch till you’re 60. If I were you, I’d start off with $100/pay. You won’t miss it and you’ll get used to putting extra aside. You can always increase it if you want.”
While Laura was out of the Danger Zone, talking to HR I pulled up a compound interest calculator and put in her basic figures, starting with the $100 depososit and then kicking in $100 fortnightly.
When she came back into the room she said, “I’ve done it! I’m now salary sacrificing!!” We all cheered and then I gave her a hug.
When I showed her the calculator she loved it, changing it to plug in her current superannuation amount, then taking a screenshot to send to her Mum, saying, “She’s going to be rapt I’ve finally started this.”
Conversations like this are so rewarding.
It might sound a bit corny, but it makes me think that all my struggles have been worthwhile if someone else can benefit from my experience and avoid making similar mistakes. Laura and Emily are young women who are full of plans and are going places, but as I said to them, this one little tweak to their finances will give them so many more options later in life.
“When you’re as old as I am”, I said, “you’re going to be really glad that you started doing this. You’ll have a lot more choices available to you than if you didn’t have this money stashed away.”
Yep, yesterday was definitely a good day at work!
- *and ** I’m not sharing anyone’s numbers on the blog. But we definitely shared them in the conversation we had.