You can’t work your way to wealth
Despite the social mantra, you can’t work your way to wealth.
As long as you trade time for money, you’re part of a losing strategy and here is why.
Imagine starting your working life at the age of 20, and your first wage is worth $65,000.
- You Can’t work your way to wealth
- Budgeting & saving don’t work
- Investing, Assets and Cash Flow
- This is just one example
Now assuming a constant employment through to the age of 67 with a 1.5% pay increase each year, you would earn a total of $4,521,000 during the course of your professional lifetime.
What’s more is that when factoring in 9.5% super contribution, your super fund would only see a total of $429,600 in contributions. This does not factor in growth for the fund.
The point here is this.
With such a small wage growth rate of 1.5%, even when working consistently for a period of 47 years, the total income earned can hardly represent the definition of wealth.
It’s a gloomy reality.
Budgeting & saving don’t work
Right or wrong nearly every financial journey starts with a money for time trade, commonly known as a J.O.B. (Just over Broke). So when it comes to setting yourself up for financial security and independence, there aren’t that many options available, particularly in the early days, where the pay check is so important to day to day survival.
Enter the budget.
In principle budgets are good things that establish a framework to help manage your money that you currently have and also the money that you will have in future.
However well budgets can help you make sure that you set money aside for the future, there are always emergencies that come up. The Car needs fixing or even replacing, is a big one. As you age family and health are other emergencies that will also need attention. Credit card bills and interest are another major money sucker.
Pouring money into a savings account in a bank at current record low interest rates also is not a long term strategy that will pay off, even though it’s an only option for younger punters.
Socially the relationship with money is an emotional one, but achieving cash flow as soon as possible is the key to financial success. Pretty obvious when you say it like that!
But … in the event that a budget is something that you can make work, there is some hope even while supporting a job. If you can set aside as little as 10% of your income from the above example for eight  years, then you’ll have about $55,000 in your savings account; neglecting interest!
We’ll look at what this amount can achieve soon!
Related: Why cash flow is king
Investing, Assets and Cash Flow
More often than not when it comes to self-appraisal of one’s wealth, cash is evaluated separately rather than being seen as an asset and technically this can be correct, but invested cash is far more powerful.
Remembering that it can take up to 8 years to save $55,000 the next question becomes what to do with it. Keeping in mind that assets appreciate in value, making big investments is something that requires excess cash and requires you to chase a moving target.
So why is $55,000 so powerful?
This amount won’t really get you started in property, but it is enough to purchase your first asset class in the stock market. Taking the starting scenario above, if $55,000 can be invested into the stock market at the age of 28 with annual returns of 15% then this $55,000 can grow to a massive $12,700,000 by the age of 67.
There are 2 massive take points to note here!
Firstly, 4 decades of investing will yield nearly 3 times what a lifetime in a job can provide!
Secondly, you can continue to invest past the age of mandatory retirement so you can continue to support your quality of life long after you cease working.
This is just one example
As we can see, you cannot work your way to wealth, but you can achieve wealth through strategic investments.
Ultimately this above is a simplistic example, but even this linear simple example proves that investing is a must for everyone, while also proving that cash flow is king. Investing—not working is what will put a roof over yours and your families head in future.
‘Active Cash flow’ is exactly what allows you to have the buying power to gain assets. Assets are anything that have long term value that can generate ‘Passive Cash flow’, and the biggest are property & stocks while high density living is making other items such as cars assets for Uber drivers.
Active cash flow is where everything starts, and the ability to work less, earn more to secure your future in the most efficient way possible is the key to your financial success.