Introduction

Getting rich is easy.

You need to spend less than you earn, and invest the difference.

I could sign off there, but if it were that easy we'd all be rich already. Over the past couple of decades I've spent a lot of time thinking about money and how to get more of it without drastic lifestyle sacrifices. What I've learned is that the secret to real money success lies more in what holds people back than in what drives them forward.

While everyone's situation is unique, there are some common challenges that stop people from being financially successful.

The first is the information overload that is the result of too many options and too much information. If you've ever done any research into money or investing, you'll know that it's easy to be overwhelmed. It's like drinking from a fire hose. That there are so many mixed messages, conflicting opinions and hidden agendas makes it even harder. It's hard to know who to listen to, let alone who to trust.

The second big challenge is that people struggle to find the right balance between living well today and planning for the future. You want to make progress, but you also have needs today, and striking the right balance is hard.

The third barrier, which is potentially the biggest, is the fear of making a mistake. Any time you're considering making a new investment, implementing a new strategy or changing your approach, the fear of missing something that will come back to bite you is real. You don't want to do something dumb that you'll regret later, and that fear can be paralysing.

This can leave you stuck, repeating what you've been doing. You risk missing the opportunity to get more out of what you have today in order to get better results faster.

Through this book I'm going to help you overcome these challenges and position yourself to take confident action. This is crucial to your success in the short and the long term, as it's the one thing that will start building your money momentum and this, in turn, will make your next steps easier.

Your cash is going backwards

Most people don't realise it, but if you have your money in cash, it's going backwards.

This is true whether your money is in physical cash or an everyday bank account, or it's sitting in a high-interest savings account.

You might think I'm crazy for saying this, because when you look in your bank account the balance is probably increasing, or at least staying at the same level. But if you're looking at the balance alone, what you don't see is the real impact of taxes and inflation.

Interest income is taxable (I'll get into this in more detail later), and under the current tax rates and rules, if you earn above $45k per annum, your marginal tax rate plus Medicare levy is at least 32 per cent, meaning you lose at least a third of your interest income in tax.

You can calculate your after-tax interest rate by using the following formula. We've used the current highest interest rate savings account, which was 5.55 per cent in March 2024.

In this case:

But then you need to account for inflation.

With inflation, the cost of goods and services are increasing every year. Over the 12 months to December 2023, the rate of inflation was 4.1 per cent, meaning that on average costs increased by just over 4 per cent.

When looking at the ‘real’ return on any investment, you need to look at your after-tax return, then take away inflation:

Plugging in the number from our previous example:

This shows that in ‘real’ (after inflation and tax) terms, any money you have in savings today will be worth less in a year's time. Your savings balance may have increased but your money has actually gone backwards, so you're further behind. Over the long term, this is a total disaster that should be avoided at all costs.

So what can you do instead?

If you want your money to grow, you need to use investments with higher long-term returns. Table I.1 (overleaf) includes data from Vanguard and Canstar showing the 30-year long-term returns on various investments.

Table I.1 30-year returns on different investments

Source: Vanguard Australia and Canstar.

You can see from this table that all investments outside of cash and bonds have much higher long-term investment returns, so if you want your money actually to grow after taxes and inflation, you need to be investing.

The power of compounding

Time and money combined is a powerful thing. Consider this example:

Starting with $0 today, you save and invest $10 each day. Assuming the long-term return on Australian shares of 9.8 per cent, over 20 years this $10 a day will grow to $225 072. Over 20 years you will have saved a total of $73 000, with the rest of the work being done by compound interest, which delivers a total growth return of $152 072 on top of the money you've saved and invested.

In my opinion this is a pretty good result for the cost of a couple of cups of coffee a day. But it gets even better.

If you keep investing $10 daily for another ten years, your money will grow to $658 912. During this 10-year period you will have invested another $36 500, with compound interest adding an extra $397 340.

Keep going, and after another 10 years (40 years total) your investments will grow to $1 810 267. You invest the same $36 500 over this period, but compound interest delivers you over a million dollars ($1 114 855).

To hammer home this point, give it another 10 years and your money will grow to $4 865 816. With the same $36 500 invested, compounding over these 10 years will add $3 019 049 to your investment bottom line.

Saving and investing $10 a day isn't nothing, particularly in the current cost-of-living crisis. I get that a lot of people would find this challenging, but is it doable? I think the answer is yes. And further, there should be points throughout your life when you could invest a whole lot more than $10 a day.

As I said at the start of this chapter, success is simple. But if it's this easy, why doesn't everyone do it?

To start investing you need confidence, and to keep going you need motivation. The confidence to get started is crucial, because most people get stuck at the starting line, often for years (sometimes decades). The power of motivation is hugely underestimated when it comes to money, but how motivated you are to keep pushing forward is the single biggest results driver, once you get things moving.

Creating confidence

The fact you're reading this book tells me you know that doing something is important, and hopefully the $10-a-day example has helped to solidify this thinking. But knowing you need to do something isn't enough. If you want to get results and outcomes you will need to act. And confidence will be crucial.

Most people get stuck at the starting line, or at least take less action than what's needed, because they lack the confidence that comes from knowing the action they're about to take is the right one for them.

When you know that the action you're about to take is the best one and that it can't go wrong, you're going to crank it. As a result, you'll take maximum action and drive maximum results sooner.

In his book The Catalyst (2022), Jonah Berger talks through the huge amount of research that has proved that humans have an innate tendency to avoid uncertainty, even if it means paying a significant price.

One example he shares is an experiment in which people were offered the choice between being given a guaranteed $30, or having an 80 per cent chance of receiving $45. Most people chose the guaranteed $30, even though the expected payoff of the gamble was higher.

If you were to run this game 10 times, with the guaranteed $30 you'd receive 10 × $30 = $300, and the second option with an 80 per cent probability would give you 8 × $45 = $360. The first option is guaranteed to make you 20 per cent less, but it's the choice most people pick because it delivers a more certain outcome.

When it comes to money, there is uncertainty any time you make a change. As a Virgin Millionaire, you'll be making changes from a position of inexperience, which means the uncertainty levels will be even higher.

This uncertainty can be managed and reduced by leveraging the tools I'm going to cover in the chapters that follow. But if becoming wealthy is important to you, you should accept now that there will be times when things will get a little uncomfortable. This is a completely natural part of the journey.

When...