To minimize effort, individual taking short cut approaches by following through speculation blindly, ending up regretting when lack behind from investment goal.
As investment fund compounded over time, it weight as compare to annual salary income become increasingly significant. To certain extend, if investment fund is managed well, return from investment can overtake annual salary income, a key step towards financial freedom.
Let’s illustrate the situation above with an example. Assume 4 individuals with condition below:
☺ Current income at $30,000 annually with 7% annual increment for next 30 years
☺ Tax and other statutory contribution = 20% of income
☺ Basis spending = 30% of income
☺ Major spending
☻ Individual A , B and C = 30%
☻ Individual D = 20%
☺ Annual investment contribution as percentage of annual salary income
☻ Individual A , B and C = 20%
☻ Individual D = 30%
☺ Expected rate of return, compounded annually
☻ Individual A = 10.33%
☻ Individual B = 15%
☻ Individual C and D = 20%
Individual A will represents worst case scenario with lowest annual investment contribution of 20% from salary income and lowest expected rate of return of 10.33%
Individual D will represents best case scenario with highest annual investment contribution of 30% from salary income and highest expected rate of return of 20%
Condition and investment grow for each individual is summarizing in table below:
Included in the table above is period required to equalize annual salary income with investment return. We can observed that individual A , with lowest contribution and rate of return , takes 30 years to complete the task whereas individual A with highest contribution and rate of return , takes only 10 years to achieve the goal.
Chart below (in partial and full scale) illustrate detail comparison from year 1 to year 30.
We can observed that individual D annual investment return achieve $3,404,043 by year 30 , as compare to $228,587 from salary income , a significant difference by 14.9 times
Chart below (in partial and full scale) illustrate detail comparison from year 1 to year 30.
We can observed that individual D annual investment return achieve $3,404,043 by year 30 , as compare to $228,587 from salary income , a significant difference by 14.9 times
In summary, capability to master financial and investment knowhow, get into investment action to make our money work harder and grow faster, will be an essential step towards wealth creation in our life.
