Headwinds and tailwinds: Every dollar is easier than the next

Every dollar is easier than the next.png

The chart above shows a 30 year period. It shows the trajectory of a diligent young couple contributing $25,000 per year towards building wealth (which includes repaying debt), with a return on investment (and cost of debt) of 10% per year.

They start with debt of $150,000 (student loans the like) and end with close to $1.5 million.

Let me be the first to say that this chart massively oversimplifies how people go through life. Nobody saves a constant amount per year. And a constant, sustained return of 10% is out of the question.

But stay with me. These are lies that tell the truth.

The point of this chart is to illustrate something important that's easy to overlook.

It takes 10 years for our diligent young couple to finally get to a net worth of more than $0. It's worth celebrating. Because they've achieved this against massive headwinds.

Within 5 years, they've built their net worth to $150,000. In other words, it has taken them half the time to accumulate the second $150,000 as it took to accumulate the first. 

In another year, their net worth is over $200,000. It took them 16 years to get to that point.

It takes 4 years to get to $400,000 and another 3 years to get to $600,000. In 2 more years, they're at $800,000. 

Are you noticing something? 

Instead of facing headwinds, they now have the wind at their back. The speed at which they're building wealth is accelerating.

It takes 17 years to get to a point where their returns are contributing more to building wealth than their $25,000 contributions. But before you know it, those returns are hitting the stratosphere. In the final few years, they're still putting $25,000 towards building wealth, but their returns are generating more than $100,000 per year. 

If you're young, you're facing headwinds

For young people, one of the key things to appreciate is that you're facing headwinds.

When you're facing headwinds, it's easy to think you're getting nowhere and to feel discouraged.

But you can't get to the point where the wind is at your back without all of the hard work at the start.

This chart tells a story. It's the story of a couple who realise how important it is to save, with discipline and diligence, even if it may not seem like they're making progress. 

Because it happens. It will happen. Those people at year 1 are the same people at year 30. They're just at different points on their journey.

Enjoy the journey. Keep being disciplined, and the rewards will come.

You'll start off facing headwinds. But before you know it, the wind will be at your back.

Never forget!


Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.