Today is all about indulgence. Well, leaving aside the religious implications, it is.

More often the term “wealth building” is used in conjunction with words such as “denial” and “delay”.

And who wants to miss out while you wait – and save – to get what you want?

Therein lies the key: to get what you want. Want something badly enough, and you will be quite happy to wait.

It's a very rare person who can cut back to generate spare cash, with no clear idea of what they will ultimately do with it. But have clear goals in mind and the idea becomes a lot more palatable.

Perhaps you would like to go on a world trip in two years. Perhaps you want to buy a nice car in four years' time. Perhaps you really want to retire five years early.

Some things are well worth the effort it takes to achieve them.

The effort doesn't even have to be huge. Because of the effect of compounding, regularly putting aside just small amounts can make a really big difference to your future bottom line.

Say you can find $100 a month to put towards your goals by, for example, cutting out a cup of shop bought coffee a day. If you invest that money at 8 percent, you will have $7,402 in five years, $18,444 in 10 years and an incredible $96,142 in 25 years.

Putting that same $100 on a $250,000 mortgage (again assuming an 8 percent interest rate) also dramatically improves your financial plight. You will save more than $53,000 in interest, and cut three years and four months off your loan term.

Looking at this another way, for every extra dollar you put towards your mortgage (about $26,000 overall), you have saved just over $2 in interest.

That's a pretty fabulous return on your money – and a huge, though not too painful, step towards building your wealth.

Still lacking the motivation to try and keep some of what you earn? Then consider this – while we may earn income for, say, 45 years, this income could have to sustain us for 65 years or even longer.

So it's vital that we hold some back (remember, super alone is unlikely to be enough, and you can't access it until you are at least 55).

By all means, eat all your chocolate eggs today. But do your best to eke your income out over your lifetime.

AFR Investor
Editorial: Nicole Pederson-McKinnon
The Sun Herald

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