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?
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 it’s 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.
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 therefor 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.
Therefor 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 persons 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 action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- 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! This will give you direction, results and more certainty. Click here to learn more
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