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Chapter 1: What is the main topic discussed in this episode?
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That means it's not specific to you, your needs, goals, or objectives, so don't act on the information until you've spoken with your financial advisor. You'll find our full disclosure, disclaimer, and link to our financial services guide in the show notes. Okay, Kate, if you could, this is a question that's come in.
How would you use a million dollars if a magic wand was waved and it appeared in your bank account today?
I'll give you a boring answer and then I'll give you a fun answer. So my boring answer is I'd invest it potentially in something like the Vanguard High Yield ETF. I think that's the name, VHY. VHY. And because I've already got my investment plan, I've got my diversified portfolio, if I chuck it in VHY, I'm getting maybe $70,000 including franking credits of...
distributions each year, which I can use to supplement my lifestyle, go on holidays, give more generously, and just have a great life. And then that million dollars... Passive income. Yeah, passive income. That's the dream. You can replace your income. And yeah, I can just keep living my life because for a lot of people...
The million dollars doesn't end up changing their life like they thought it did, would, and then they just keep wanting more and more and more. So I think just putting that money aside, getting a bit of extra passive income and just adding that to your life and just maximizing your experiences is a good idea.
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Chapter 2: What would you do with a million dollars?
That's not all you need to do. You actually, like that might've worked for you. And there might've been a million other people that also visualized it, but it never came true. So it's important to understand, I guess, what is, like you said, able to be replicated and will work for most people. And of course, there's going to be those, like those tail that have extraordinary luck.
So Kate, let's talk about how long should we be thinking about, do you think, to become a millionaire?
Yeah. So I probably say at least having a 20-year timeframe, because if you've been listening for a while, you've probably got the fact that Owen and I always talk about long-term investing. We're not doing this for a couple of years.
When we talk about building our portfolio and investing in Australian and US ETFs and various other asset classes, we want to be investing in this thing for 10, 20, 30 plus years. which is also what we're doing with our superannuation. We're putting money in and investing it and locking it up for a long period of time so that compound interest has time to do its thing.
And we want to give our investments time to grow because the investment market is not going to give you stellar returns every year. There's going to be ups and downs and that's part of the whole thing. But if you look at really long-term returns...
If you look at some of the Vanguard asset class charts that you will put in the show notes, but you get the idea that over the long period of time, the world gets better and companies grow and your investments grow as well.
Yep, they do. And so a lot of people think when we talk about long-term investing, we're talking about three years. I think that's- No, we're talking a decade or more. And so if you actually think about that, like what could I invest in to grow that amount of wealth? First things first, what will still be worth investing in 10 years from today?
It's probably not going to be a speculative stock or the thing that you thought was really hot right now. It's probably going to be something that's boring. And first things first, doesn't lose you money. And the problem is with boring things is they take a long time to pay off.
So what we're trying to do is we're trying to say, Charlie Munger has this saying, he said, people would think about get rich quick. He said, just get rid of the quick.
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Chapter 3: How can passive income change your lifestyle?
And then that would drastically change the way you think about wealth creation. So just get rich. How do you get rich, so to speak, or get wealthy, to your point? So, Kate, what are the numbers? If we've got 20 years, how do we actually get to a million dollars in 20 years?
Yeah. So as simply as possible, if you've got $0 right now and you invest $1,800 a month into a diversified portfolio where you've got exposure to Australian and international shares, and so you're getting somewhere around an 8% average annual return for that time, you'll be hitting the millionaire mark in over 20 years. Now that is simplifying it
massively, but I'm just trying to illustrate that it is possible without crazy amounts of money. Because in our head, a million dollars seems so far out of reach that you don't kind of imagine that a small, not small, $1,800 is still a lot of money, but it's just putting that money aside every single month on a regular basis for a long period of time that you can get to that million dollar mark.
So there's three key ingredients you've got there. You've got the amount that you save, you've got the return that you get from your investments, and you've got the time. Now, for those people in the audience who are in the front row, yes, we're not talking about taxes here, and yes, we're not talking about inflation.
If you want, there'll be a link in the show notes to a spreadsheet that I put together which will show you inflation-adjusted results. So we're just keeping it simple. But your point remains. Of those three things, you can't really control the return. Over the long term, a balanced portfolio might return between 6% and 10%. And we'll explain what that means in just a second. How do you get that?
Between 6% and 10%. And the amount that you save is pretty much dictated by how much you earn, which we'll talk about in just a moment. and how much you keep. And the time is basically like, it's really up to you there. Like if it takes you 20 years, but you want it to take 10 years, you're going to have to change those first two variables to get to that.
And one of those, as we said, is probably harder to control. So keep that in mind. So Kate, $1,800 out of touch for me. I'm listening to this. I can't save that amount of money. What are some other scenarios?
Yeah. So I think the great thing about this is once you've got this number in mind, and I think a lot of people work with the million dollar mark because it's a round number. It's just kind of like the I've made it number. And you can use the Money Smart Compound Interest Calculator or the calculator Omin's put together in the link we've got in the show notes. But
you can take this million dollar number and try lots of different scenarios. And you can go, okay, what if I cut it down to $1,000 a month or $500 a month or $200 a month? So if you invested $1,000 a month with a similar scenario we mentioned before, it would, in 20 years, you'd have about $550,000. And so it would take you nearly 30 years to get to that million dollar mark.
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Chapter 4: What are the key components of the investing equation?
A lot of the fire community do it. Aussie Firebug. Aussie Firebug. A lot of them are probably 10 years into their journey, so they're probably a little bit further ahead than most people. But you can see that over time and you can see...
the dividends growing over time and you can do that too just use the spreadsheet that's available in our um road trip courses it kind of combines everything kate i think that's that's a lot to go on i think we all want to be millionaires right
Yeah. And I think the big one is people go, well, what if I don't get there in 20 or 30 years? And the thing I like to remind people is that even if you don't hit millionaire status in 20 or 30 years, you're going to be in such a better financial position than you were if you had just made no decisions.
Absolutely.
You're going to have more money. You're going to have your emergency funds. You'll hopefully be out of debt. You'll have flexibility to spend time with friends and family. So I think that's the important thing to remember. I we've been to a few events and people go, oh, but what if you have kids? And what if this? And what if that?
All these things that might mean you don't hit these goalposts that you've set, but you're still going to be in a better financial position than if you hadn't done anything.
Yeah. I think it's enjoying the process as much as anything. We don't know what's going to happen next year. And that's the ultimate act of humility when you're saving. You don't know if Ukraine's going to be invaded by Russia or Taiwan's going to be invaded by China or who knows.
There's so many scary things in the headlines that affect the stock market, that affect property prices, interest rates, inflation. You don't know. There's some big things you don't understand. You will never be able to predict. Medical issues, kids, disability. So many things. Yeah. Making yourself resilient and taking financial steps to make yourself resilient.
Remember, all of 2021 for us was financial resilience. You're not going to fail by trying to be positive.
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Chapter 5: How long should you plan to invest to become a millionaire?
So what are the reasons you want to achieve it? Because sometimes it's going to be tough watching your portfolio swing. It's going to be tough going, why am I saving and investing $2,000 this month? I could be doing a million other things with this money. And you want to come back to this long-term goal and the why behind it and the reasons.
And then once you have this goal written down, you can work backwards from there. Because if you know the end point is a million dollars or a farm that might cost a million dollars, you can work backwards from there and you go, okay, I know the timeframe's 20 years or 30 years. how much do I need to put in on average each month?
And if after five years, I can increase that amount to $2,000 or $3,000, how will that change my plan? So once you've got that end point, you can work backwards. And of course, with money, it's all... very volatile and it all can change. You might be unemployed some months, you might get a bonus.
So the plan has to be flexible, but I think it's a really good place to start with because you've got that end point. You work out what are the steps to get to that end point? What are the things that could go right? What are the things that could go wrong? Is there ways you can automate that goal? What education do you need to do?
And how much time do you need to put aside to that to actually learn about investing and figure out all of the steps along the way?
I like it. Do we have a vision board as part of the road trip thing? It's like a little... No. Yeah, right. Okay. So, in the business course that is coming soon... He's been promising this for a long time. I'm 60% of the way through if you enroll in the business course on Rask Education.
The thing that I start with in the course is before you even start your business, let's just do a very simple vision board and there's like five questions there. Like... why the heck are you going to start a business? Like, what is it really? Because if you're just simply motivated by money, then you're probably very unhappy starting a business. So like starting at why am I doing this?
That's taken me so long to get around to this. And I'm so grateful that I've finally done it. And thanks to you for prompting me to do it. Start with why, and then work back from there. And hey, like you said, even if you don't reach that pie in the sky, what does Pitbull say? Reach the stars. If you don't grab it, at least you're on top of the world. So, Kate, a million dollars. Go now.
Think about why you want a million dollars, what you would do with it, how it brings you happiness. I think this is a great episode you can reflect on in time.
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