Investing with a low income!

Hey,
I am a first time user - currently in my final year of university and have cash savings (interest rate ~ 4.5%) of about 20K.
I know for a fact that my future profession isn't very high paying and that I will eventually reach a maximum of about 80K p.a. in 5+ years.
My question is, does anyone think that it is possible to successfully invest and build wealth with a relatively low income (about 45-50K p.a.). What is the best way to successfully build wealth with a relatively low income?
Thanks in advance

I am very new to investing but want to make a start. For my first time investment, does this sound reasonable:
- 10K in a term deposit for 8 months (paying 6.3% with commonwealth bank)
- 5K in a Colonial First State Geared Australian Shares Fund
- 5K in a Colonial First State Balanced Fund

If you can spend less than you earn and reinvest your returns back into what you're doing then it should just be a matter of time.
Of course it sounds easy when you say it like that.

Can you get a loan to increase the amount you have to invest?
Look into the pros and cons of leverage first of course.

Thanks for your reply.

I am seriously considering property investment in the next 2 years. I have been reading quite a lot about property investment lately. I am just not sure if you can be a successful property investor with a relatively low income (<50K pa).

When it comes to building wealth it's not how much you earn that matters, it's how much you can save that dictated how much you can afford to invest.

Like most people I have friends that earn heaps, but spend every cent and more, and then I have friends with only modestly paying jobs but have managed to build share portfolios and savings accounts that make the rest of us blush.

So of course it is posible.

As for what's the best way for you to build wealth - well I'd say that it has a lot more to do with what you are interested in. You can make good money in property, shares, commodities, trading, business, anything, but you will always perform better at things that you know a fair bit about or are highly interested in and happy to learn a lot about.

id just like to say 80k wow i wish i could earn that, if you want to build wealth you need to work smart it doesnt matter if you are on 100k or 30k yr i am on 35kyr and in 2005 i went bankrupt because of my bills. i cannot buy a house i met my now wife who is on $35kyr as well and since then we have purchased a block of land for $40.000 and a house for $200.000 in her name the house is rented and the land has a bilboard which is rented and we are looking at buying another atm we are also renting for $400wk in 2yrs im eligable to have my credit rating back so we can buy our house mind you we live on the sunshinecoast which is the most expensive places in qld. since my bankruptcy i have learnt so much im glad in a way i did as it taught me how we let debt rule our lives. the only reason we go to work is to pay our bills? now im so much smarter about money and once im clear nothing can stop us once you relise this you will see that you dont need a million dollars to make money or invest, hope this helps and would like to hear peoples comments and if anyone wants to know im 28 and my wife is 22 so you can never start too early

Hey, well done for thinking about your future at such an early age- I recon over the years you'll do well!

I started at a fairly young age- I'm a nurse, so have never earned a fantastic wage & bought my house in 1993. Paid it off in 5 years (that was the hard bit- worked 2 jobs but managed to have a basic social life). Then I started investing, using my capital- that then became easy (I'm a property investor)- &, with my (now ex) husband, we bought 7 houses. Since my divorce, I have bought another 2 (1 is my PPOR, nearly paid off) & am looking to invest in other opportunities (managed funds, shares, fixed interest etc. etc.)

The message I guess I am sending is probably one that will be constantly repeated on any investment forum- as long as you are CONSISTENTLY spending less than you earn (even if it's only $10/wk at first- trust me, it can become a habit once you see the savings grow), over time, you can amass a lot of money that you can then either gear up or just let compound interest do it's thing- it's all up to you how you manage it.

I wish you all the best with your investments.

Thanks for everyones advice. I will definately try to save up money! I am currently trying to put aside at least $100 a week (I know its not very much but I am still a uni student and dont have a full time job!)

Cheekymonkey - congratulations on building an impressive investment portfolio. If you dont mind me asking, where abouts are your investment properties located? ..I am sure I will have enough money to invest by the end of next year, but one of the things that makes me most nervous, is trying to find a good location!! I am anticipating that I will only be able to afford a $350K investment property ..and it is very difficult to find something at this price in a major city.

Hi Mark

Congrats on making a start and geting your head around investing early. Educating yourself on the key investment rules is very important: asset classes & diversification, risk management & exit strategy, investement timeframe, cashflow, etc.

Property is a very powerful investment, that you can see by reading these pages, has made a lot of people successful investors. If you're starting from scratch (or even $20k cash) you need to consider how you plan to manage your investment, and how you can guarantee cashflow will be sustainable. Just because you get a loan for a property doesn't mean you'll be able to cover the shortfalls between repayments and rent, time your property is empty, property management fees, maintenance, council rates, water rates, strata fees, etc.

If you're borrowing money, consider an interest only (IO) loan if the property is going to be an investment (IP) rather than your own home (PPOR). This will give you maximum spare cash and allow you to maintain maximum tax deductability down the track.

Back to your original post... putting some cash into a term deposit and half into some funds is a great idea - provided it suits your goals. The key is what you plan to do in the future, that is when do you plan to get your money out and do something else. Do you expect to get your cash out of these funds in two years for an IP, or are you planning to let the managed fund investments continue and use additional savings to support the IP?

The CFS geared fund is a pretty wild ride and looks golden in a rising market, but it took a smashing in the GFC sharemarket collapse (which way is the market going next? 50:50, half the market says north, half says south... that's kinda how we end up with the price of the sharemarket today).

All I'm trying to say is that putting half your cash into one or two MFs is a very sensible idea... provided you're not banking on a positive return in two years. If you are certain you want to get into property in two years, then the term deposit is the lower risk option.

So keep reading and educating yourself (do the rounds of the local libraries!), define your goals (and timeframes), and work out how you are going to get there. Set yourself targets to achieve along the way, and check that you're keeping on or ahead of schedule. You'll gain knowledge and confidence as you go.

I started a long time ago- bought 4 investment houses in Perth (way before the boom- house prices were pretty static at the time). My PPOR was on a duplex block, so when house prices started to go through the roof, we bowled it over (after living there for 7 years) & built 2 new houses on the block. We were then lucky enough to buy another duplex block fairly cheaply after a friend got cold feet & dipped out of the sale. Built another 2 on that block & moved to Cairns, where since my divorce, I have bought a 3x2 unit in the city & my PPOR.

Once my PPOR is paid off, I'll start investing in other areas, as my accountant keeps banging on about the old 'all your eggs in one basket' lecture,(although I think I'll buy just ONE more before I do that!!!!)

My strategy works for me, but you need to work out what will work for you. There are lots of ways of investing & you need to find out what you are most comfortable with- that is the one which will work best for you. As long as you have a savings mentality, you'll do well over time- I wish you all the best.

Mark,
This site will give some good information on a range of topics.
My view is that wealth creation is a finance strategy, using other peoples money to invest in capital growth assets that are income producing. You need to have both and the mix or weighting depends on your own needs at the time.

Property enables you to obtain the highest gearing compared with shares without the margin call risk. With a low deposit available, I would consider purchasing a PPOR and use the FHOG. With the NSW stamp duty exemption for FHO combined with the FHOG, you may only need own funds of perhaps $30k to buy a $400k property. Live in it for 6 months and then turn it into an IP if you can and are able to live elsewhere. It gets you into the market.

I have a number of clients with incomes around $40-$50k with 2 or more IP's. It is possible and it is about how lenders calculate servicing, which lenders to use in what order, keeping other debt including credit card limits low and critically, save or invest some of your income.
Good luck.
Greg