In the top 5% of wealthy individuals? Then you probably walk alone and think contrary to the masses.

Making it to the top 10% of wealthy individuals in Australia is an great achievement.

The top 5% "club" is much more difficult, and taking much more than twice the effort

Getting from the top 5% to the top 2% is exponentially harder, and making it into the top 2% is a whole different level altogether!

Every 0.25% improvement from that 2% level requires an exponential effort over and above the previous level.

The thing I have notoced is that there is a chasm of difference between someone in the top 10% to those in the top 2%, and the chasm is a hundred-fold different when jumping from the 2% "club" to the 0.5% "club".

I was chatting with my wife this morning, discussing what is happening in the economies around the world, the increased inflation, increasing interest rates, decreasing house prices, bear stock markets etc. The vast majority of people we know will be affected by all of the above in a compounding fashion.

You see, what we have come to realise is that the average person,

1. Goes to their job every day.

2. Gets paid to do the same sort of thing, every day.

3. Does not really need to think or apply themselves in the job because unless there is a written procedure, no inititaive is really allowed.

4. They come home every day at about the same time, have dinner, watch TV, go to bed.

5. Their employer puts money away for them in a retirement fund.

6. They do not try to educate themselves financially, and if they do, it my last a few weeks or maybe even months. It is not the continuous learning regime required for true financial education.

7. They (wrongly) believe that to become wealthy, they need to get paid more money by their employer.

8. They fail to consider tax implications - which will be their highest expense during their lifetime.

9. They fail to consistently save and invest outside of what their employer contributes to their retirement fund.

10. They never "think outside the box".

11. They repeat the above for 45-50 years until they retire

This is how 95% of the population live.

This is why 95% of the population mainly live paypacket to paypacket most of their working lives, with some hoping to achieve mediocrity at best.

The "masses" have little financial awareness or knowledge.

The "masses" believe what they are told about their superannuation/retirement funds, and how it will last them until the end.

The "masses" fail to understand that their retirement funds are generally invested in the stock markets, and that these markets have cycles - both bull and bear, and that depending on when you retire and what money you need, those cycles can go against you - as is happening right now.

These "masses" fail to understand that, though their retirement income may be adequate today, it is losing it's purchasing power every year due to inflation - currently around 9%+. Forget CPI (or whatever the "official" government inflation rate is), just look at your power bills, healthcare, food costs, fuel costs, council rates - don't tell me they only increase at CPI - that is the stuff of fairytales! Do the numbers yourself!

The "masses" think that a $50,000 annual retirement income will be adequate to see them through the next 20 or more years. However, we know that if inflation is an average 7%, and using the Rule of 72, today's $50,000 will have the buying power of only $25,000 in 10 years time, and only $12,500 in 20 years time. However, the "masses" fail to understand this because they do not think this way.

Sometimes, a few of the people in the general "masses" may "have a go" at (say) buying an investment property, thinking that this will get them "ahead of the masses". However, they soon find out that they were unable to support the costs of the "investment" because

1. It is negatively geared (losing money),

2. They failed to take into account costs such as council rates, fees, rental arrears, management costs, etc.

So they sell at a loss citing that "investment properties are a bad idea" or "simply don't work".

When friends were borrowing money to buy a car, go on a holiday, renovate their home in order to modernise it etc, we were borrowing money to purchase income producing assets. 10 years later, our friends cars were tired and worth 10% what they paid, the holiday was long gone, and their house was starting to look "tired" in other areas. Over the same 10 years our asset had more than doubled in value by appreciating at around 8% p.a as well as providing a cash positive supplemental income.

Over the years, to become wealthy, all we did was borrow money, just like the "masses", however, rather than spending the money on liabilities like cars, holidays etc (as the "masses" do), we instead purchased income producing assets that appreciated in value and generated supplemental income for us.

What we did was run our own race, we did the opposite of the masses.

What we did was not "rocket science" - it was simple, consistent, diligent investing, year after year - no matter what.

QUESTION:

If 95% of the population is either

• broke

• living paypacket to paypacket

• just making ends meet in retirement

• would be unable to survive for 3 months if they lost their job

Then, doesn't it stand to reason that then 95% of the population are doing it wrong?

If what they were doing was right, then they would be wealthy - but they are not.

LESSONS:

• In order to be wealthy, you NEED to avoid what the masses do. Be a contrarian.

• In order to be wealthy, you NEED to walk your own path - usually it will be alone, as the crowd is too busy doing nothing or going the wrong way. Do NOT follow the crowd! It is better to walk alone and slowly in the right direction, than to run with the masses in the wrong direction.

• In order to be wealthy, you MUST get financially educated. You MUST invest continously, and you MUST keep up your financial education.

• In order to be wealthy, you MUST emulate the habits of the top 5%, or better still, the top 0.5% of the population.

• In order to create wealth, you MUST set goals, make a plan, and stick to it year after year after year. Yes, you may need to adjust your plan, tweak it to take into account changing factors. However, you can NEVER give up.