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Elizabeth Kerr outlines her ideas on how you can create a money machine that spits out exactly what you need each year

Personal Finance
Elizabeth Kerr outlines her ideas on how you can create a money machine that spits out exactly what you need each year

By Elizabeth Kerr

Imagine the day when you go to work, diligently begin your day filling orders and crossing off tasks on your to do list, attending meetings and avoiding that one colleague with bad breath who always like to chat to you about their train collection... then out of no where your boss calls you into their office.

You sit down nervously and they begin to question a report you turned in.

It's nothing major.  You try to mention that you worked all weekend because finance was late with getting the monthly accounts to you.

He isn't buying it this morning; he seems to be ranting as if you're not even there in front of him. You fantasise about stabbing him with his scissors or throwing the hole punch at his head.

And then out of nowhere you get the cue you've been working towards. You are done!

You know you have prepared your money machine and you have been diligently keeping your expenses low and now have the freedom to work, or not work, as you see fit.

You get to your legs, stare at your boss who is looking at you like you've gone mad and say ... "Shove It Where The Sun Don’t Shine, Sir"!! And you walk out leaving your now ex-boss silently gaping like a gold fish.

Of course you don't have to do it in such a high impact way. You might just let this special day pass by and continue working because you want to.

But like an extra hundy in your back pocket, you strut around with more confidence than the debt ridden wage slave in the cubicle next to you.

If you want to work out when your Shove it Where the Sun Don’t Shine day is then lets get down to business. You need a money machine.

You know money doesn’t grow on trees but you can create a machine that spits out exactly what you need to meet your expenses each year.

It’s not complicated, but you can get caught up in making it such if you over think it and pay too much attention to the latest doomsday reports or investment spruikers/speculators.

Here we go ... money machine 101

As a reward for saving money you are entitled to interest. This is banking at its very basic level.

You put $20k in an ordinary bank savings account at an interest rate of say 4%, and at the end of that year you will be rewarded with $816.17 for doing absolutely nothing but leaving it there.

In our family that would quite comfortably take care of Christmas presents and a decent feast with all the trimmings.  Fancy that – never having to go to work pay for that ever again because every year my money machine would pay it out for me…nice!

Now of course there are other expenses to pay for so let’s increase the amount of savings to $300,000 and the interest rate to 7%. Now we’re talking ... now my machine punches out $21,750.00 each year.   Are you still with me? Remember we are keeping it nice and simple here today folks.

So you can see the two determinants for your money machine is how much you can save and how much interest you are rewarded for your savings.

If you want to punch up the interest rate you can look at other types of investments, even mix things up a bit as well by spreading across a few different types all with different rates and risk. But for today we are just going to focus on the simple idea that you can have a money machine.

Now for the magic. Remember as you are saving you are gaining compound interest. Money is given to you as a reward for saving from the moment you start – not just when you are milking the money machine at the end.

Interest on top of interest on top of interest has a snow ball effect and helps you get a bigger base and get to your magic day sooner.  

Here is a basic example:

$100 put in an envelope every month for 5 years = $6,000

But put that money into a savings account for the same 5 years which pays 5% and you will have = $6828.00 – an extra $828.00 as a reward.

Broken down it looks something like this:

Amount saved per year

Interest rewarded

Total Saved

Total Interest rewarded



























If you stopped saving at year 5 then every year your money machine would punch out $828.94 for the rest of time (provided the interest rate didn’t change).  That could be enough for a return ticket to the Gold Coast … you get the idea now?

So how do you know how long it is going to take to get your money machine paying enough for your expenses?

That depends on your savings rate.   This was covered in – Your Golden Watch but below is a basic table and the formula.

Your savings rate is calculated as ...

     Annual Income less Annual Expenses = Savings

     Savings / annual income x 100 = Savings percentage %

Savings %

Years until money machine achieved




















 financially independent

It is assumed in this example that your savings attract 5% interest and that you withdraw just 4% to live on.

'Why can't I withdraw all of the dividends'? you ask.

The thing is you want your money machine to last as long as you do.   What happens to it after you pass is entirely up to you, but until then you want to know that it can be relied on until that time.

So there are two rules you have to follow to ensure that this happens.

  1. Don’t spend more than you get in returns each year
  2. Leave some behind for adding to your base to keep up with inflation.

You don’t want to eat into the savings base of your machine otherwise your interest dividends each year will be reduced as well.   If you promise to withdraw a certain amount of your interest dividends (i.e. just 4%) leaving enough behind to add to your base, therefore keeping up with inflation, then you will never have to worry about loosing the lifestyle that you have become accustomed to.

If you would like to play around with this calculator and figure out how long it will take you to host your own money machine then click on the following link:…

There must be a catch?

... and there is – Tax.

It would be wrong of me not to mention it here, but I’m assuming that if you are new to this game that this is way down your list of things to think about. Just be mindful the money that your money machine produces each year is essentially your new income so it is going to be taxed. You will need to take this into account when designing how much your money machine will produce.

The amount that this will be is dependent on where your money is invested and how much you might still be earning from your day job. You can find out more on the IRD website but for now I’d just park this for another day when you are at least pointing in the right direction.

How do I know where to put my money machine in order to get the best interest rates?  

That is a very good question too and every man and their dog have a perspective on this.  I personally liken it to going to a buffet lunch.   I like to put together a nice balanced meal – some meat, pasta, vege and maybe a few cheeses and chutneys as an accompaniment.

Investments are a bit like a buffet lunch too.  Some investments are meat – average returns and low risk, things you can rely upon to pay out year after year without too much fuss.   Then we have the pasta and vege type investment – they come with more risk and the amount they pay out fluctuates depending on what is going on in the world, but give you a slightly higher return as a result.   And then there are the accompaniments – the chutneys of the investing world.  These are the investments that give great returns and can really make the meal – but they can also fail dismally so it’s a good idea not to fill your plate with just the chutneys and accompaniments’.  (yuck!).   Similarly if you filled your plate with sausages, chicken wings and meatloaf you might have a decent feed, aka a low risk return, but it’s not very balanced so you wont be able to enjoy it as much aka earn as much as you would if you had a little bit of everything.

Just a wee mention that I am not a financial advisor so I won't be telling you what funds to invest in.   There are plenty of smart and well meaning folks out there who can take you to the next level as long as you are clear to them about your money machine intentions.

But I’m quite sure that if you are inspired to have your own money machine and have spent the time saving then you are hardly going to throw it away on the next peer to peer lending idea without seeking formal advice.

Use common sense people!  Keep it simple !

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Save untill you have a depoit. The tax free capital gains and tax offsets on debt mean every doller you "invest" on property debt after that point will masively out perform money in the bank earning interest. Hence the property/tax ponzi we discuss daily.



What if you could use your parents' equity in their house to fund the 100% purchase of another property buyer? That would be far more profitable. You can collect the interest just like a bank would. And based on the magic of property cycles, completely risk free. Worse-case scenario the purchaser cannot make repayments and you get to take over the title. 


Good to see a bit of 101 Kate.   I think our speculative economy has trained the participants out of any sort of investment thinking.   And there is a shortage of basic ability to do 'sums'.

Which is why we are a poor country and send vast amounts of cash overseas every year.


Thanks KH.  :)


Haha. The food analogy is rather unique!

Financial discipline is fairly rare. Keeping up with the Joneses is a rather more popular approach.

I suspect that you should have put tax in your sums right from the start.

However, its good stuff. School children should be given this sort of advice. How about you going around a few schools there in TGA and doing that? Probably wouldn't be paid. Maybe that's a good task for some retired person to volunteer to do that. Although would school children respect the advice of an unknown old dude? Maybe not.


Hi Uninterested.   Yes agree re keeping up with the Joneses.  This weeks column about Buying Up touches on this as well.   I agree with you re the tax and i hummed and harred about it but in the end decided that i wanted people to be inspired by the possibility of the outcome before getting down to the details.  I take your point and might add it in from here on though - thanks.

As for visiting schools..... I often think I would have made different money decisions had i had someone talk to me in the same no nonsense way i write today.  The first 5 years out of highschool can make or break the following 10 in my opinion.   I wouldnt discount the opportunity to speak to high school students.