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The 5 levels of wealth | Michael Yardney [Podcast]

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Many Australians have chosen to invest in property to develop financial freedom and get themselves out of the rat race.

In a recent Real Estate Talk  property expert Michael Yardney discussed a wealth pyramid he developed to secure financial independence.

HERE’S A TRANSCRIPT OF THE INTERVIEW:

(Alternatively you can listen to the short podcast at the top)

Kevin:  Many Australian have chosen to invest in property, develop their financial freedom and get themselves out of the rat race. Michael Yardney

You’ve analysed the results people achieve and you’ve come up with these different levels.

Tell us about your findings

Michael:  I’ll start by discussing  my concept of a Wealth Pyramid first, and then and how to work your way up it.

It’s interesting for us to consider where are we sitting at this with regards to our level of wealth.

Level 0 (at the bottom) is Financial Instability.

Since most Australians still today live from paycheque to paycheque, they’re really are at this level.

They’re financially unstable.

They’re not poor, but if they lose their job, if they have an emergency, if they have an illness or their car breaks down, they have no money reserves, they have nothing to cope.

How can they handle these unexpected burdens that life dishes out?

Often, the only way they can is to borrow more, get further into debt, and this only creates more financial hardship.

So the bottom level is financial instability. Concept of money growing from coins

Interestingly, when they earn more, it doesn’t usually help them.

They end up spending more, and somehow or another, they make sure that the money just lasts out the month or, in general it actually cuts out a few days before the end of the month.

Kevin:  What’s the next level on your Wealth Pyramid?

Michael:  The next step is to go up this pyramid is Level 1 – Financial Stability.

To achieve this most basic level, you have accumulated enough liquid assets – it could be savings, it could be money in a line of credit, or something like that – to cover your current expenses for a minimum of six months, so you’re financially stable if things go wrong.

You would also have private health insurance and life insurance to protect you and your family’s lifestyle if something goes wrong.

You attain this financial stability and then you suddenly get a bit of a comfort.

You feel a little bit of the pressure off.

You’re not as much on the treadmill, knowing that if anything unexpected comes along, your family’s lifestyle won’t be unduly compromised.  

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You’re going to have adequate time to look for new sources of income to put you back on track again.

Kevin:  This is the foundation.

From here, do you start to build?

Michael:  Yes, the next stage is Level 2 – Financial Security.

People at this level have accumulated sufficient assets, maybe through a substantial property portfolio, to generate enough passive income to cover their most basic expenses.

This would be things like your mortgage and your tax payments, your car expenses, and your grocery bills.

When you reach this level of financial security, you could stop working and maintain a very simple, a very basic lifestyle.

But smart property investors want to go further than that.farm seed soil grow wealth money coin

Kevin:  What is the next level?

Michael:  Level 3 is Financial Freedom.

You’re financially free when you’ve accumulated sufficient assets to generate enough passive income not to only maintain your current lifestyle but to fund the lifestyle you desire – at this level you will be able to pay for all of your expenses without ever having to work again.

Often this is achieved by building a substantial asset base of properties and then lowering your loan-to-value ratio and owning a cash machine.

When you’re at this level you don’t have to work again, but interestingly, we find that a lot of people still do.

Kevin:  Because they enjoy what they’re doing.

Michael:  That is right.

The next and the last level is Level 4 Financial Abundance.

A small group of sophisticated property investors achieve financial abundance.

That’s when their portfolio works overtime.

They’re free of all of the financial pressures, and they have enough surplus income that it not only pays for their lifestyle and all their expenses but then they start contributing back to the community, often through charitable work, sometimes through donations.

But despite that, their asset base keeps growing.

It’s sort of working overtime compounding.  calculator coin money save debt

That’s the real cash machine.

Kevin:  How do you climb up to the top of this pyramid?

Michael:  There are four steps to it.

The first one is to decide to become wealthy.

That sounds basic, and most people say, “Yes, I’ve already decided,” but most Australians actually never make a firm commitment.

Life gets in the way, they’re busy, they’re having their children, they’re building their homes, they’re enjoying their life, they’re traveling, and so what they are not doing is putting a firm plan into place.

You have to truly commit to getting yourself financially independent to become wealthy, step one.

Then step two is invest in your financial education.

If you’re a beginning investor, you have to focus on increasing your financial education to fast track your success.

There are all these great resources like Real Estate Talk, going to seminars, watching DVDs, listening to podcasts.

If you’re a more experienced investor, your priority is to grow your asset base sufficiently to become financially free.  house-computer-search-property-news-media-web-300x212

But you have to keep learning even when you get to that level, so you learn more about finance and tax and asset protection.

The third step is don’t wait until you know it all to get started because if you do, you’re never going to take the first step.

One of the things I’ve learned early in the piece was the paradox of knowledge: the more you learn, the more you realise you don’t know.

Many people say, “If I knew it all, I’d be safe; once I get all this right and know exactly where the market is, I’ll start doing things.”

How do you know when to invest?

You have to have the courage and conviction to take action knowing that you’ll never know it all but you’re going to learn along the way, educating yourself as you move up the ladder.

The last of the four steps is surround yourself with like-minded people.

There is no such thing as a self-made millionaire.

Every financially independent investor has surrounded themselves with a smart team of advisors and professionals and like-minded individuals. rich

They get a mentor, they join other people who have similar journeys planned, and that way, they can get there a lot faster and safer, and it makes the journey much more pleasant.

Kevin:  The wonderful thing about money and wealth is that it doesn’t discriminate.

It doesn’t care who you are, who you think you are or even what your parents thought or did or even said to you.

It doesn’t discriminate at all, does it?

Michael:  No.

Each day starts with a clean slate, which means you have the same rights and the same opportunities as everyone else, so my suggestion is start making your way up that investment ladder to financial freedom today.

Kevin:  Great words, thank you.

Michael:  My pleasure.

Listen to the full show at RealEstateTalk.com.au and while you’re there subscribe and receive our weekly podcast (or the transcripts) where I interview Australia’s leading property experts. 



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Australia's leading independent property commentator, brings together leading authorities on the property market. Each week at Real Estate Talk we take a fresh look at the property market so you get all the facts to help you make the right choice.
Visit www.RealEstateTalk.com.au


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