Wealth is NOT created by increasing your paid/earned income...

If you have read my previous posts, you will know that it is your ideas and your work that create your income - at least initially. However, the more you draw as a salary, the more tax you pay, and to be honest, if you focus on earning your money by working, you are playing a losing game.

I am a studier of people. I like to delve into how things work. I like to know what makes some people successful and others not. I have watched the habits of the wealthy, the mediocre and of the poor. I have watched the behaviour of high income earners, and those that pretend to be wealthy.....

Here is the normal "high earner scenario" from my observations:

High income earners "appear" to be doing well.

High income earners enjoy the fact that other people think they are "wealthy", so these high income earners then begin to lead what they think is the "wealthy lifestyle".

They likely drive expensive cars (on borrowed money), they will likely have a fancy home (with a huge mortgage), they are likely to send their kids to expensive schools (on borrowed money), they often eat out at expensive restaurants, drink expensive wines and spirits, take expensive holidays (on borrowed money), throw lavish parties etc. They often lead a life that is "on show" for others to see because they enjoy the attention that it provides. They do all this to prove to others that they are doing well.

However, these people are often NOT wealthy. They are just high income earners, blowing their cash for a good time. The more they earn, the more expensive their "lifestyle". However, these people are NOT wealthy, because the moment their income ceases, the moment they lose their job, they can no longer pay for their cars, their holidays, their "lifestyle". They go broke. I have seen this happen more that I care to think, and to people I personally know as well.

So what is the definition of wealth?

For me, and other true wealthy individuals that UNDERSTAND what wealth is, we know that it is defined by how long you could survive if you stopped work today.

So ask yourself that question...."How long could I survive if I stopped working today?"

If you want to become truly wealthy, then you MUST focus on earning as much as possible while maintaining some balance in your life, and then taking the excess money you have earned and invest it somewhere where it can grow. Keep adding to it and keep growing your investments.

My investments were in property. I just kept working in my business, generating income and then investing in property. The property generated passive income, which was then used to pay down the mortgage while also helping build the deposit for the next property. When the existing investments were substantially cashflow positive, I went and bought another and did the same again.

Wealth was generated by staying focussed on

1. Earnings - from my employment/business gave me money to invest

2. Investing - my extra earings were ploughed into positive cashflow property investments (buy and hold)

The end result of doing this for 20 years was crating wealth beyond my expectations.

Our property prices basically doubled every 8-10 years or so. As such, the property that I purchased for $220,000 in 2009 (for example) is valued around $660,000 today (as at mid 2021).

Not only did I increase my wealth by over $400,000 in untaxed capital gains, but I have received around $300,000 in rent over this time as well.

Can you see that the initial purchase price of $220,000, is insignificant when compared to the $700,000 this property has generated in just 12 years?!

Staying focussed on my investment plan, I just repeated the process with property after property, buying one every few years and just focussing on earning the income to pay for these investments.

The thing is, that every positively cash flowed property that was purchased, just added more income, which in turn paid down the subsequent mortgages faster.

Those that believe a wealthy person is one that has a high paying job, really have no idea how wealth is actually created. They fail to understand that as soon as that person loses their job, their so-called "wealth" disappears - that is NOT wealth, that is simply a job that pays well.

The other issue with these high paying jobs is the high taxes - up to 47%. I cannot imagine myself working hard to earn a dollar to then have to give almost half of it to the tax man! Wow!

Remember:

The measure of wealth is how long you could survive if you stopped work today.

So ask yourself that question...."How long could I survive if I stopped working today?"

For me and my wife, we could survive indefinitely.

We are retired, and yet the longer we live, the wealthier we become.

TRUE wealth is NOT having to work and while still earning more than you can spend.

TRUE wealth is being able to make money while you sleep.

TRUE wealth is NEVER having to worry about running out of money.

TRUE wealth is NOT from earned income, but rather assets that increase in value over time and generate PASSIVE income.

Lessons:

• Focus on earning income in order to fund your investments.

• Have an investment plan that just works in the background that gives you capital gains and income generation

• Keep investing and use time to compound your returns

• Avoid "taxable events" such as selling your investments for capital gains (unless you need to of course!)