The path to wealth may feel like a journey fraught with peril. Often it seems that no matter how hard you try to improve your lot in life there are obstacles at every turn. There are tons of books and courses that will ’teach’ you a sure-fire way to get rich. There are get-rich schemes that ‘everybody’ succeeds in, except you. It’s difficult to sort out the truth from the garbage.
Your parents taught you the golden rule; buy a house and live in it for thirty years until it’s paid off. Meanwhile, keep your spare cash in the bank. That’s the way they got ahead. Really? How rich are they now? Is that the modest level of wealth you are aspiring to?
Then there’s good old Uncle Bob who will spout knowledge on getting rich at the drop of a hat. But why is he driving a beat-up old car and living in a little, cheap rented unit? Don’t take advice on building wealth from someone who isn’t rich.
In order to actually succeed in building wealth, you need to stop getting advice from your broke uncle or your struggling neighbor, after all what do they know? In fact, there are a lot of timeworn ‘rules’ on getting rich that you need to break or totally disregard.
Have you ever considered investing in the stock market? Now there’s a good place to turn a large fortune into a small fortune if you follow the traditional rules. Go with the herd, buy when an asset is rising, like everybody else, they say.
Was it Martha Stewart who proposed that the path to wealth was to stop running with the masses, go against the tide? The essence of this advice was that you buy promising stocks when they are going down to rock-bottom, when nobody wants them, and wait for them to rise. That is when the herd will jump on board. Too late. They won’t make the biggest gains, like the rebel who bought when the stocks weren’t worth anything.
There are good rules that help people manage their money better. Eliminate or pay down bad debt, which typically is consumer debt. Better still, avoid consumer debt like credit cards and pay-later lines of credit. The only debt that can lead to wealth is borrowings for assets that increase in value beyond the costs of holding them. Like real estate that appreciates. In this way, you can leverage ‘good debt’ to build wealth.
Say good-bye to your parents’ rule of living in your house for thirty years until it’s paid off. Develop a plan to pay down your home loan twice as fast, which is quite achievable on a regular salary. It just requires good planning and discipline. Then you can upgrade to a nicer home in a more desirable neighborhood, rinse and repeat.
Better still, buy three solid properties in good growth areas and rent them all out. You can live anywhere else, maybe travel around, or even live at your parents’ place while your tenants and the tax advantages pay down your investment mortgages.
But with investment properties, be sure to break the golden rule of ‘negative gearing’. Don’t do it!
Inexperienced or uneducated people who expect to get rich with investment properties can be drawn into a trap when they ‘negatively gear’ their properties. Everyone will tell you that it is the golden path to wealth, including your accountant. He stands to earn plenty from preparing your portfolio tax returns every year.
As well as your accountant, the real estate salesman gets richer, the financial lender earns interest and fees and your property manager makes a nice sum. But you earn nothing, you are operating at a loss. You will find yourself spending more and more every year just to keep the properties. You need to meet the difference between what rent comes in and what the actual mortgage payments are, pay the insurance and property management, repairs and maintenance, city rates and possible land tax. There could be a token tax refund for your costs but a tax refund only occurs if your costs can reduce some of the tax you have already paid.
Remember, nobody ever accrued wealth by making a loss.
Then there is another rule you might have heard from your parents. Keep your savings in the bank, as they did. There are many better ways you can make your money work harder for you. You need to do your research, attend a few seminars and put it to work earning bigger returns than a bank savings account will ever provide.