Are you trying to build enough cashflow so one day you can exit the Rat Race?
Spruikers everywhere are using this to lure in many unsuspecting victims, we see it all around us from Facebook to Instagram and beyond.
In reality, there is only usually one person who achieves this cashflow dream and that is the spruikers themselves.
I have written previously how chasing cashflow only really ends up taking you further away from your end goal.
…now I can clearly show you, with the help of Ken Raiss director of Metropole Wealth Advisory.
Just look at the following…
What an incredible difference from the same initial investment of $2.
Some valuable lessons…
I would argue that the vast majority of us do not need more cash flow.
If you found an extra $20,000 or $30,000 each year, ask yourself, would it change your life?
I think you will find the answer is NO.
Sure, you may be able to buy a new car or go on a nice holiday, but it is certainly not enough for you to become wealthy.
Or quit your day job.
It will likely just push you up into a higher tax bracket and at the end of the day, as the graphic highlights, you will lose half of it to tax.
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You should know by now that you cannot save your way to wealth and building cash flow is more a case of taking two steps forward and one step backward (thanks to tax).
As the great Albert Einstein said, Compound Interest is the 8th Wonder of the World.
The wealthy understand this and use it to their advantage.
They also understand that having more to compound will result in greater gains and this is the key to wealth.
While others build cash flow, taking two steps forward and then one back, the wealthy build their asset base by using as much capital as possible.
Rather than selling, they can then refinance and use their equity to increase their asset base.
They don’t lose momentum by selling to pay tax, fees and commissions, this way they maximise their outcomes and can build wealth significantly faster.
At some stage in the future, they know that a large enough asset base will give them options to achieve the cash flow others have set out to achieve, to begin with, but failed.
The above graphic should make it as clear as night and day!
Now you can actually see why building cash flow will not make you wealthy.
Even with the magic ingredient of compounding, the capital is depleted significantly by tax, and the full effect is lost, it will take too long.
Yes, cash flow can be beneficial, but it will not change your life in the long term.
The wealthy understand this and build their wealth by investing in high-growth assets and using the equity to leverage into other high-growth assets rather than selling.
This allows them to use compounding to its full effect and to achieve a level of wealth others only dream of.