This was originally published as my contribution to Chapter 11 of Aussie FIRE, an eBook collaboration between 20 of Australia’s top FIRE experts. Get your copy for free over here at Pearler!

Considering that you’re reading this guide, I’m sure that you’ve either thought about or have already started investing. Without investing, FI is going to be very difficult to achieve for most people and whichever form of investing you pursue, it’s essential that you start as soon as possible.

In this chapter, I’m going to show you just how important it is to start investing ASAP! I’ll guide you through the following sections:

  • Making choices
  • Getting started early
  • The magic of compound interest
  • Making mistakes early
  • Mistakes to avoid

Making Choices

“Money can’t buy love, but it does buy power and choices. Money gives us choices about where to live and enables us to follow our dreams. Money can enable you to go and do what you want with confidence. You can control money; it doesn’t control you.”

Source: The Joyful Frugalista by Serina Bird

Over the past few years interviewing many people about personal finance-related topics, the most common advice I received from guests was to start as early as possible. Now they weren’t always talking about investing; it’s also essential to start learning about personal finance topics and investing yourself and your career early on.

Sometimes we can get so caught up before getting started, that we can delay actually doing anything for years. But here’s the thing, not doing anything is still a choice. By not making a choice, something or someone will make the choice for us. The risk of leaving your cash sitting in the bank account is huge, not only in the opportunity loss but primarily because of the silent killer of wealth, inflation.

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No one wakes up overnight knowing exactly what to do with their finances and it requires hard work, but you do have to make the decision to take the first step. I like to think about it as starting a lifelong personal finance journey, where you take one step at a time, and each thing you learn builds on the last as you grow. By recognising that you don’t need to have it all figured out to get started (most people don’t), you can make the choice to start at any age and take back control over the financial path you’re taking.

Getting Started Early

Winning a game of monopoly requires patience, skill, negotiation, cooperation, hard work and a handful of luck. You feel the elation of winning, the disappointment of being broke and the frustration of continuously paying rent and tax to someone else, all in one simple board game. Sometimes you move one step forward only to take two steps back, and it feels like you’re running in circles.

There are many similarities with playing monopoly and this game we call life. There are winners, losers and those who just get by. Some people make their wealth through chance, others through strategy and skill, and many just get there through making sound decisions over a long period of time. There’re proven paths that you can follow and rules that make the entire game that little bit more straightforward. The great thing is that with the availability of information nowadays, you can work out the rules of the game for yourself, and build wealth through investing.

Investing isn’t only for the wealthy and it’s not just for the brainiacs, and you’ll be surprised to know its something you can do with just $5. Despite what you may think, investing is accessible to everyone in Australia. The ability to purchase a share does not discriminate based on education, gender or the size of your bank balance. You can get a perfectly respectable return without too much thought at all — go check out the magic of ETFs! For most people investing isn’t about the charts, numbers and inside scoops, it’s about finding a simple, cost-effective and diversified solution that you can put in place and monitor, making the occasional adjustments.

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Your first investment doesn’t need to be the next big stock your roommate told you about or some insane leveraged product. Throw showing off out the window, because no one will care down the track that you found something more exciting than them to invest in, and your brokerage account will thank you. Now that’s not to say that once you’re confident with the basics you don’t step up your game and start incorporating different products or analysing your own stocks.

As my friend Owen from Rask Finance puts it, investing is about little bits, lots of times. And it works! Having a small starting balance, and committing to a regular contribution plan, is leaps and bounds beyond waiting years until you have what you believe is a big enough chunk of cash. Just look at the numbers if you don’t believe me — and I certainly encourage you to visit the ASIC MoneySmart Compound Interest Calculator to play around with these numbers for yourself!

I know how scary it can be when getting started with investing, you’re putting your hard-earned dollars into companies, properties, bonds and other investment products that have big warning labels on the side. “Past performance does not equal future performance”, “high risk”, “general information only”, “returns not guaranteed” and many more. However, we can look historically at how different asset classes globally have performed and see just how much of a difference investing just $10,000 has over someone’s lifetime. Vanguard has a fantastic tool to explore global asset classes over the last five decades.

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When you’re investing, you’re also hopefully optimistic about the future of Australia and our global economy. You’re putting your money in companies that will take us into the future and making the assumption that the world will be a better place in the next few decades. Many people in the finance industry will tell you that there’s nothing free when it comes to investing, except perhaps compound interest.

The Magic of Compound Interest

If you’ve ever wondered how people turn $1000 into enough to retire from, the secret weapon behind this is compound interest. Okay, so it’s not as magical as Rumpelstiltskin turning straw into gold, but I’d say it’s pretty close. The essence of compound interest, is that your money grows over time as the income and capital growth on your investments compound. It’s often depicted as a snowball, the longer you let it roll down the hill and the more snow you feed it, the bigger it gets. Investopedia has a great breakdown here.

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If you start investing just $250 per month and continue doing so over the next 50 years, your little snowball will grow into a life-changing amount. So, let’s break down some of the numbers.

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If you want to hop on the fast train to FI, then you’re going to need to invest much more money on a regular basis, as you’ll have a much shorter timeframe to let compound interest work its magic. Let’s have a look at some calculations.

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The fast route is certainly possible for some people, however, it’s important to make sure that your FI goals don’t stop you living a meaningful and fulfilling life. If you’re currently in a stage of life where you’re making a significant income, selling a business or inheriting money, take advantage of this by putting a large portion towards your FI goal. Otherwise, focus on a more sustainable route towards FI that you can stick to over the next few decades, while compounding works its magic on your investments.

Head over to the ASIC MoneySmart Compound Interest calculator to try out these calculations for yourself. Another place to plug in the numbers and see what might be possible for your own situation, is the Money School FI Supply Calculator.

The next thing to think about to ensure that you maximise your ability to compound your returns is automating your finances. One of my favourite personal finance writers who talks a lot about the importance of automating your finances is Ramit Sethi.

“By setting up a bulletproof personal finance system, you can start to dominate your finances by having your system passively do the right things for you. It will help you automatically manage your money, guilt-free, for years to come.”

Work out your plan and spend some time to implement it. You’ll be thanking yourself in years to come and make your financial life immensely less stressful.

Making Mistakes Early

Of course, it’s better to make mistakes early on in your life, but we don’t always have the luxury of starting our investing journeys straight away. The most important thing to remember is you need to make the mistakes yourself. You might choose to use a financial adviser and accountant to help you with everything, but you need to make sure that you’re fully involved in that process and taking ownership of your financial future.

No one is ever going to care about your finances and your future like you will. You can pay people that are incentivised by money, reputation and hopefully a desire to help you, but they will never have the same passion for building a life that you love that you do.

If you’re working towards your FI goal over the next few decades, the most effective approach to start with now is investing small amounts, lots of times. Don’t focus on investing everything at once, just work out a plan and start investing on a regular basis. At the beginning of your FI journey when you’re just getting started with saving and investing, it can seem like a lifetime before you reach your first $100k and like you’re never going to get to your FI number. However, that’s exactly why it’s so important to build an investment plan that’s sustainable for your life and ensures you can maximise enjoyment over the coming decades, while also achieving your goals.

If your FI goal is making you miserable, then it really needs to be re-evaluated and changed. There’s absolutely no point working your butt off to getting towards this goal and not actually enjoying your life in the meantime.

Mistakes to Avoid

When you enter the world of investing for the very first time, everything looks like a potential opportunity, and everyone online will be telling you something different. Look one direction, you’ll see someone promoting CFD trading, another way they’ll be spruiking stocks and turn around to find another IPO for the next big thing! I get it, I really do, everyone’s got something to sell or a point to get across, and maybe it really did work for them, but investing is already confusing enough without all these distractions.

But that’s what they are, distractions, and you don’t want to waste years of opportunity and your hard-earned money chasing the next big thing. Investing can actually be quite simple if you can look past all the distractions and get-rich-quick schemes. Remember all that glitters is not gold — sadly I didn’t come up with that one myself!

To save you some time, here are 10 ways you can lose money when investing. Obviously, this is not an exhaustive list, but it’s a few things to be mindful of when you are navigating the minefield that is Google.

  1. The Great Aussie BBQ Tip
  2. Online Forums & Stock Pumpers
  3. Not questioning a free lunch/seminar/portfolio review
  4. Trends (eg. lithium, drones, marijuana, crypto, silver)
  5. IPOs & Crowdfunding
  6. Your investments are in someone else’s name
  7. The returns promised are out of this world
  8. You send your money off to the Cayman Islands in efforts to evade tax
  9. Deciding you’re the next big day trader
  10. Having no idea what you just invested in

Whether it’s a stock, managed fund or property make sure you do your research before making an investment. Ensure you understand the costs, risks, management and read the appropriate documents before committing your hard-earned cash. Check out this ASIC MoneySmart Guide for more information on making informed investment decisions.

So, what are you waiting for? Investing is now accessible to anyone with an internet connection and a bank account. Continue making your way through the rest of this fantastic resource and remember to start investing ASAP.

Kate — HTM Editor & Host

kate-campbell-how-to-money

Kate Campbell is the founder of How To Money. Kate created HTM from a passion to help young Australians start talking about money, and share the resources she finds along her financial education journey. This led Kate to start her own journey to financial independence a few years back and she now works in the Australian financial services industry.

Want to learn more about money and personal finance? Check out our article archive, the How To Money Podcast and the Australian Finance Podcast. Catch us on Twitter @HowToMoneyAUS and Instagram on @HowToMoneyAUS.

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