It comes down to 4 fool proof steps…
In 10 years of working in finance I can confirm a household income of $300,000 can lead to significantly less wealth than a household income of just $100,000. Indeed, a higher income can sometimes make it more difficult to become wealthy.
Intelligence in the traditional sense of the word is also no predictor of a secure financial future.
Wealth creation is a very specific art. It’s not taught in our schools. This means our best and brightest students are sent out into the big wide world armed with the knowledge to attract a good salary but poorly developed skills when it comes to controlling and retaining those funds.
And like any form of power, if it’s only partly mastered, it can wreak havoc.
You see, having a high earning capacity can be a lot like owning a Porsche. A Porsche is a beautiful machine with a shiny, smooth exterior, firm snug leather racing seats and an engine with a deep powerful rumble. And, if you know how to drive your Porsche and you watch your speed it can create pure joy. However, if you don’t know how to drive so well, you can easily stall at the starting line or take an easy bend way too quickly.
The reality is, the more intelligent you are, the more likely you are to earn a good income from day one in the workforce. If you’re lucky your parents will have taught you how to handle your cash flow. However for many of us the higher our initial income, the more likely we are to get trapped into the rich lifestyle cycle – that’s the expensive lifestyle that makes you feel rich – the life with the latest in fashion, cool gadgets, classy accessories and a steady diet of good food and fine wines. The irony is, the rich lifestyle is the very thing that keeps you poor. In essence, you earn a great income but most of it’s spent before it hits your bank account.
So, how do you know if you’re caught in the rich lifestyle cycle?
Very simply, you may be caught in the cycle if:
What you OWN minus What you OWE is less than 4 times Your Annual Income.
6 times is the ideal minimum
And, your personal effects, clothes, house hold items etc. should NOT be included in “What you OWN”
Did you notice that the above equation has no specific income figure? That’s because wealth is not based on your whole pay packet. Your wealth is only the part of your pay that you keep and invest. If you earn $50,000 and you have more than $200,000 to your name then you’re a better driver than someone who earns $300,000 and has just $500,000 to show for it (granted they might be in a nicer car but you are the better driver!)
Now, if you’re on track. Great. If you’re not quite there it’s not all doom and gloom (especially, if you’re driving a very fast car!)
So, what is the most fool proof way to get on the path to real wealth?
Step 1 – Have 10% of your income diverted to a high interest bearing savings account
Step 2 – Don’t touch it, not for any reason
Step 3 – Repeat for Steps 1 & 2 for 6 months
You’ll have noticed, you don’t need a big pay packet before getting started and you don’t need a high level of intelligence to understand and implement the first 3 steps.
If you can’t start at 10% then start at 5% or even 1%. You just need to get started.*
Once you’re doing the above you’re then ready for the real key to wealth.
Step 4 – Invest the funds accumulated in shares, property or managed funds
If you’re not sure where to invest, talk to your friends, colleagues or those in your network (make sure you’re only taking recommendations from those you know to be wealthy – not those who are trapped in the rich lifestyle cycle).
Of course this is not a get rich quick scheme. It is however the way most Australian millionaires have made their wealth – so the steps have a very successful track record.