Are you looking to build a level of wealth or financial security like the majority of Australians?
It is the most common answer I get when I ask clients what they would like to get out of their investments.
……“Financial Freedom”
It is the Holy Grail of Investing and one that few people ever get to achieve.
Statistics suggest only 2-3% of people that invest in property actually create a level of financial independence.
When starting out though, for me, there was three main ways that I could choose to build wealth, here are my thoughts:
Saving
This is often the first thing people think about creating wealth, as we are often encouraged from an early age to save our pennies!
The truth is that even if you were able to double your income today, it would almost be impossible to save enough to achieve long-term wealth.
One reason is the Tax Man!
For every dollar you earn, a large portion is lost to tax.
Also, with savings rates being in the low 1% to 2% at best, the ability to compound is virtually negligible.
So – You cannot save your way to Wealth
Passive income
The next way is to look at building cash flow or passive income.
I believe that this is the way the vast majority of Australians go about building wealth.
I also believe that it is the reason the vast majority of Australians are not wealthy.
I know the appeal, with property, goes something like…
Buy 5 properties in 5 years that are all $20,000 cash flow positive and you will be able to live on $100,000 and retire in year 6!
Sounds so simple doesn’t it?
However, when you break it down further and look into the detail, it begins to fall apart.
Remember though, it is just more cash flow, so along with that comes more tax!
And not if, but when interest rates rise again, the profit gets smaller and smaller and you are left with a property that does not grow in value and provides very little cash flow.
At least not enough to achieve your financial goals.
I believe this is the reason that around 92% of property investors only own 1 or 2 investment properties – they chase cash flow and get stuck as their properties fail to grow in value.
They will never achieve the level of financial freedom they set out to achieve.
I have warned previously about passive income.
Building your asset base
The last way is the proven way and the way that successful investors build long-term, sustainable wealth.
They focus on building their asset base with high capital growth assets.
They understand the importance of capital growth as opposed to cash flow and savings and adopt strategies that focus on long-term wealth.
Interestingly also, is the fact that their strategies also include tax minimisation strategies, as opposed to these other two ways that include paying tax.
Sure, they may pay tax eventually or if they sell, but in the accumulation process, they are often using the equity that is tax-free.
This can then be combined with significantly higher levels of compounding and growth.
These are the keys to building wealth.
To summarise
Many Australians set their sights on investing in property with the hope of achieving financial freedom.
They understand that it is impossible to build wealth by silly saving your money and putting it in the bank.
Most focus on building cash flow and fail to understand that a mixture of low growth and high taxes prevent them from achieving their financial goals.
The wealthy do it differently.
They focus on building their asset base with high capital growth assets and use strategies to minimise their tax and maximise the effect of compounding.
The focus is on the longer term and once they have a big enough asset base, they can transition into building a cash flow machine and realise their financial goals.
This is what the team at Metropole does.
We assist our clients to grow their asset base faster with the right asset selection and with the added dimension of adding value to grow your portfolio faster.
There are many perceived ways to wealth, but only one has stood the test of time!
