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Are you wanting to build a higher level of Wealth, but feel you are being held back?
I know many people certainly feel that “if only” they were able to jump a pay grade and achieve a higher salary, it would be so much easier.
In my experience, people seem to think that the most important factor in building wealth is their Salary.
I can assure you that it is not!
It is probably a major factor in why a high number of investors prioritise ca$hflow.
They think additional income or a higher-paying job will automatically make it easier and would the key to making them wealthy.
Again, it will NOT!
Here are my thoughts;
Increasing your salary may result in more cash but it will also result in you paying more tax.
It is somewhat of a false economy, on one hand, you move one step forward, but you also need to take somewhat of a step back.
Sure, an extra $10,000 or $20,000 a year would be great but when you could lose up to 47% of it through tax, would it really change your life?
While there are legal ways to minimise your tax, it is clearly not a wealth creation strategy.
To live comfortably in retirement, most Australians will need to acquire an asset base in excess of $6million.
Ask yourself this question……
“If you were able to double your salary today, could you save more than $6million over the next 10-15 years? “
The answer would overwhelmingly be no.
You can’t save your way to wealth!
For one, you pay more tax, but you are also unable to use compounding to its highest and best use.
“Compound interest is the eighth wonder of the world” – Albert Einstein
In my experience, I have had clients earning $80,000 per annum, create wealth faster than others earning $200,000 per annum, despite the salary gap.
Granted, all things being equal and those two people following the same strategy, it would happen faster at the higher income, but the lower salary can still get there.
So, it highlights again that a person’s salary is not the biggest indicator of building wealth.
I believe the biggest requirement to building wealth is your ability to use compounding to full effect.
Here is a great case study;
In this exercise, it becomes as clear as night and day the effect compounding has when it can be used to its full effect.
In the first scenario, $2 is untaxed and compounding can be used to full effect.
It is a vastly different result in scenario two when tax is deducted each year.
As in the example, the difference in real life could be just as substantial.
The strategy you should therefore adopt must be one that minimises tax but maximises compounding.
This is why cash flow strategies like flipping, granny flats and AirBnb, fail to create any great level of wealth.
A healthy profit will be savaged by capital gains taxes, agents’ commissions, and other fees.
Therefore capital appreciation should be first and foremost at the forefront of your investment strategy.
A great vehicle for that is residential property as it attracts a much higher level of appreciation or capital growth.
But you need to understand the investment-grade fundamentals, as most properties will not perform at a higher enough level to build a greater level of wealth.
I know at Metropole, we only consider up to 2% -3% of the properties on the market at any one time to be investment grade.
Once you have found these properties hold them, add value to them but never or seldom sell.
Otherwise, you are back to paying taxes, fees and reducing the compounding effect.
In my eyes, a person’s Salary is a false indicator of a person’s wealth or ability to create wealth.
Most people think a boost in their salary or extra cash flow is the most important tool for building wealth.
I disagree and I have seen many cases, compounding wins out time and time again.
The most successful investors have used compounding to build their wealth.
Importantly they have focused their efforts on building their asset base while minimising taxes and other fees.
This also allows compounding to be used to its full effect and why I believe that compounding is the most important requirement for building wealth.
Therefore, a high salary is not a requirement for building Wealth.
Now is the time to take advantage of the opportunities the current property markets are offering.
Sure the markets are moving on, but not all properties are going to increase in value. Now, more than ever, correct property selection will be critical.
You can trust the team at Metropole to provide you with direction, guidance, and results.
Whether you’re a beginner or an experienced investor, at times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s exactly what you get from the multi award-winning team at Metropole.
We help our clients grow, protect and pass on their wealth through a range of services including:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $4Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney, and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment-grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management – Our stress-free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years, and our properties lease 10 days faster than the market average.
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