It's a pity that I already have several online savings accounts and mututal fund investments, because the new offering from rabobank looks very attractive. They offer an online savings account with no fees or minimum balance with an interest rate of 6.6%, and from this account you can invest in wholesale mutual funds for a low entry fee of only 0.75% (compared with up to 5% entry for retail funds going direct or via a planner, or 0% for a retail fund investment via a discount broker). They are offering 0% entry fee, but only until the end of July. But the 0.75% fee is still good value as it gives access to wholesale funds (which usually charge lower management fees than their retail fund equivalents) with a minimum investment of only $250.

I'd try out this account and fund investment option if I didn't already have more accounts than I know what to do with. They do offer the account for use with a DIY Superannuation account (SMSF), but I'll have to check carefully how their costs and range of available funds compares with accessing mutual fund investments via e*Trade (I already have an e*Trade account setup for use with our SMSF). One benefit of making out SMSF mutual fund investments via e*Trade is that eSuperFund (which administers our SMSF) has access to transaction data from our e*Trade account. If we invested for our SMSF via Raboplus we'd have to send copies of all the relevant financial info to eSuperFund each year.

I was also thinking about opening a Raboplus account for DS1 and/or DS2, but unfortunately you can't open a raboplus account if you're under 12, so the kids will have to make do with their St George bank accounts and Commonwealth Bank 'dollarmite' savings accounts. It's funny how some banks and Superannuation funds have no problem with opening accounts for a minor (with an adult having authority to operate the account), while others either don't handle accounts for minors at all, or insist on the account being opened in the name of the adult trustee(s).

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After the recent announcement of a 5.3% rise in the NSW minimum wage to $531 a week a thought occurred to me - just how muxh would a person who worked for the minimum wage all their working life end up with in their retirement account? A few assumptions to start off with:
* the person is starting working full-time today at 18 yrs of age, and gets paid the adult minimum wage.
* the person never gets a pay rise or a promotion beyond the changes in the minimum wage
* the minimum wage from now on only rises in line with the CPI and not the average wage (this is very conservative, as the minimum wage generally rises at least as fast as the average wage in NSW)
* the person works fulltime until they retire at age 65
* the person manages to contribute $1000 pa ($2.74 a day) into their superannuation account from their take-home pay (in case this seems a big ask for someone on the minimum wage, bear in mind that you can earn an extra $100 a week just doing a paper round for 2 hours in the morning before work, 5 days a week).
* they get the 9% compulsory SGL contribution paid into their account by their employer each year. The current 15% contribution tax rate applies to this contribution.
* current rules apply, so they get the governments $1,500 co-contribution each year.
* their contribution and the co-contribution increase each year with the CPI
* their superannuation is invested in a high growth option that returns an average of 8% net over the 47 years they are working. Inflation averages 3% over this same period, so they get an average net real return of 5% pa
* There is no tax payable when they withdraw their superannuation balance when they retire at 65 (ie. the new Simpler Super rules still apply).

So, what amount of money (in today's dollars) would this person end up with when they reach 65?

$881,862 in today's dollars! ie. the equivalent of nearly 32 years wages.

If they withdrew this money as a tax-free pension at the rate of 5% of the balance each year (so if they kept the same investment mix during retirement the real value of the fund should be maintained indefinitely) they would receive a pension of $44,093 pa, or 160% of their pre-retirement wage (and tax free!)

Of course this scenario won't apply to most people starting work today - they can expect so time unemployed or working part-time. Some people starting work at 18 will die before reaching retirement age, or suffer permanent disability well before they reach 65. But the point is that the current superannuation system will "look after" the lowest paid workers very nicely, assuming they work full-time until 65 and also make their own $1000 pa contribution into their retirement fund rather than just rely on the employer's SGL contributions. (And assuming they don't select the "capital stable" or "conservative" investment options in the retirement account).

If the same person didn't put in the extra $2.74 per day that entitled them to the maximum $1500 government co-contribution they'd end up with "only" $407,099 at retirement, and at 5% withdrawal rate would receive a tax-free pension equivalent to 73.7% of the minimum wage (plus by entitled to receive the old age pension, assuming it is still available in 47 years time.

I don't know where the expression comes from originally, but I'm sure most people have heard that "the first million is the hardest". The funny thing is that when you're starting out on the road to accumulating wealth, it somehow seems to be a bit of a put down - you think it's just a throw-away line of the mega-rich, along the lines of "Let them eat cake!" Of course, it's easier to save once you have a million dollars and are living on easy street!

However, once you get closer to having $1m net worth you realise that this truism, like so many in personal finance, does actually encapsulate some fundamental truths.

Some reasons why it really is true that "the first million is the hardest":
* When you start out, your income is generally at the lowest point of your working life. So even saving 25% of your gross income will only build up your net worth very slowly. For example, I started full time work on a salary of under $20K, so saving 25% of my gross salary only added $5,000 to my net worth over one year.
* When you start out you generally know very little about investing. Even if you study some economics and financial analysis subjects in High School or University, you often won't gain a practical knowledge until you've been "hands on" investing for several years. When I started saving I was focused on bank savings accounts, and slowly progressed through government savings bonds, term deposits, and later into shares and property investment.
* When you're starting out you have smaller amounts to invest. This makes many avenues of investing unavailable or uneconomic. Although things are much better these days than when I started out - the advent of the internet and discount brokers has made many more types of investment accessible to beginners.
* Once you have a substantial investment portfolio built up, the "passive income" flowing from your investments becomes a large component of your "savings" in relation to your salary income. However, this only holds true if you stick to "reinvesting" your investment income, rather than using it to supplement your lifestyle spending.
* Some aspects of financial planning such as asset diversification and efficient asset allocation ("efficient frontier") only become applicable when you have larger amounts to invest.
* Any "emergency" that causes you to dig into you savings will have a much larger impact on your net worth when you are starting out. Conversely it is much more important to pay for various types of insurance when you are starting out - for example, starting a family it is important to have life insurance in case the main bread winner dies unexpectedly. Later on, the expensive of life insurance may be avoidable if you have paid off the mortgage, the kids have left home, and you have built up an investment portfolio.

Looking back to when I started out saving it was incredibly hard for very little result. For example, in High School I would work 9 hours at a market garden weeding or sorting and rebagging potatoes (ie. removing the stinking rotten ones, washing off the others and rebagging the remainder for sale). I earned around $10 for the whole days work, and spend $1 on lunch and $1.20 on busfares to and from work. In the end a whole day of my life resulted in adding less than $8 to my net worth. However, that initially stage of developing my finances provided a basic understanding of the value of money, and provided the "seed capital" required to start saving and investing. If you try to take a shortcut from McDonalds worker to property tycoon you are liable to end up another Casey Serin.

When I started out in my first full-time job out of uni, I was saving around 25% of my gross salary, of about $10K pa in today's money. This obviously had a huge impact on how fast my net worth increased - in the second year my savings alone boosted my net worth by around 100%, and the relative impact of how much you save is massive when you first start out.

These days I save around 35% of my gross salary - as my salary has increased I've tended to spend roughly the same amount on "needs" and not increased my consumption of "wants", so I'm able to save a bigger slice of my salary. However, now that my net worth is around $1.15m this years "savings" will only add 2.6% to my net worth. It's still worth saving, as it helps boost my overall rate of increase in net worth from what can be achieved from my investment income and capital gains, but it's not hugely significant any more.

My contributions into my superannuation account are similar. The 9% employer contribution and my 13% salary sacrifice add around 4.5% to my retirement account balance - nice, but these days my asset mix and investment returns are getting to be much more significant that saving a few more percent of my salary.

I intend to boost my savings into my retirement account via salary sacrifice for the next couple of years, but that is in order to arrange my income and investments in the most tax efficient manner rather than a need to boost my savings rate in order to meet a retirement target.

In a few more years the impact of my savings will be negligible on my net worth, but I still intend to save the same amount. Why? Several reasons:
1. I intend to live of the same amount during retirement as I currently spend, so any increase in spending now will have a large impact on how much I need put aside to fund my retirement years.
2. I enjoy my current lifestyle and don't actually enjoy "wasting" money. I used to spend more on books, hobbies etc. but I now have more than enough "toys" to last the rest of my life.
3. One of my more nebulous goals is to leave create the basis of a "family fortune" - although it will take more than one generation to accumulate significant wealth based on modest living and sensible investing rather than a establishing family business empire.

So the answer for me is "never", but I suspect that this isn't the answer for most people.

After posting about the large bill the plumber had sent for some recent work ($850+), I received a number of comments prompting me to negotiate the amount with the plumber. Although I'm normally reticent about arguing about charges (I hate haggling), I thought I had nothing to loose in at least discussing my concern with the plumber. It took a while for the plumber to finally call back after I had left a message querying the bill, but, in the end, he called to say that he could see me point of view (although they had spent the amount of money charged in finally getting the work completed) and I should just send in a cheque for whatever amount I thought was reasonable. This was a good move on his part, as we have had work done on both our home and rental property so he wouldn't want to loose our business. Also, when left up to me I didn't want to be unreasonable about the bill, so I ended up just knocking $100 off the orginal invoice amount. So, thanks to all those who commented - you saved me $100!

Another easy $120 came in the form of gift vouchers I earned for scanning the barcodes of snack food items in my grocery shopping for a survey company during the past year or so. The scanning didn't really take any extra time or effort while packing away the shopping at home, so it was easy money. Unfortunately the survey company has now terminated the home scanning program.

It's a bit hard to work out exactly what my savings rate is. Apart from my salary I also get dividend income from my stock portfolio, but the dividends are mostly used on paying interest on my margin loans. To simplify things I did a calculation of my direct savings as a percentage of my gross salary:
Saving stream % of salary
Employer Superannuation contribution 8.25 % (The 9% SGL as a % of total salary including the SGL)
My Superannuation contribution 11.62 % (as a pre-tax "salary sacrifice")
Other savings/investments 9.72 %
TOTAL Savings Rate 29.60 % of gross salary
I've included principal repayments off my portion of our home loan as part of my "savings" but haven't included the interest payments on our home and investment property loans.

I also did a rough calculation of what taxes I'm paying:
Federal - Income tax & Medicare levy 13.81 %
State taxes - Land tax & GST* 3.72 %
Local taxes - council rates 1.28 %
TOTAL Tax Rate 18.81 % of gross salary
or 31.17 % of taxable income
* although the GST rate is 10%, unprocessed food is GST-free, so the average GST on my grocery bills is only 1.86%

The federal tax is based on the tax rate applicable to net "taxable income". It's a bit misleading to quote it as a percentage of gross income, as it includes tax paid on dividend income. State and Local taxes are a function of consumption (GST) and real estate assets (land tax and council rates). As a percentage of my Net Worth my annual tax bill is a much more modest 1.51%. But this figure doesn't include taxes paid on superannuation fund earnings (@ 15%), superannuation pre-tax contributions tax (@ 15%) or any Capital Gains Tax (@ half my marginal tax rate, say 15%) on realised gains. However, if I move assets into my superannuation fund and only realise gains when it is "pension" mode (after age 60), there would be much less capital gains tax due.

We have no gift tax or death duties in Australia, which helps with intergenerational transfer of wealth.

Overall, it appears that income from all sources (salary, investment income, capital gains) ends up being taxed at around 15% on average, with little "double taxation" occurring (due to franking credits and no gift tax or death duties). And the new "simple super" offers good opportunities to greater reduce tax on capital gains by realising such gains during retirement.