The secret to building wealth is not to spend your capital but to only spend the income you derive from that capital. It’s ok to buy luxuries such as flash cars, boats and holidays, but your passive income should pay for them. You should protect the “golden goose” i.e. your capital.
It’s one of the things that wealthy people grow up knowing instinctively, but that the rest of us have to learn if we’re to break out of working two jobs or working overtime to make ends meet. Most people do things in the wrong order.
If you have cash, you shouldn’t buy a car with it. You should put the money where it will grow, and let it supply you with an income. Then use that income to buy the car. In other words, don’t eat the chicken. Let the chicken supply you with eggs for years, and some of the eggs might become more chickens. It’s the same thing with growth assets such as real estate.
For example: say you had $50,000 saved or had some equity. Instead of rushing out and spending it on a boat or a car or a piece of jewelry, let’s imagine that you continued to save that money.
Or, better yet, you invested that money into an investment property. Historically, real estate in Australia has continued to increase in value, so there is little risk to your investment capital.
By renting your property, you’ll have a steady income from that original $50,000–money that you can use to pay off the loan and acquire additional properties that will generate even more monthly rental income. Before long, you could stop working those back-breaking, time-consuming jobs and be able to spend your time on things you enjoy, like spending time with your family, travelling or pursuing a hobby.
You don’t have to be a millionaire to start building a real estate portfolio. In fact, properties can be acquired using just your existing equity or with a small deposit.
As time goes on, the value of the properties compound exponentially and so does the rental income. This allows you to acquire even more growth assets such as property, shares and businesses. This process can lead to a significant passive never-ending income that you can retire on or use for whatever you like.
Owning growth assets such as real estate can put you in control of your life while you build wealth. The process begins the very day you acquire your first real estate investment property.
You can start earning rental income and earning significant tax rebates from day one. However, once people start and see how easy it is, they generally don’t stop at just one investment property, and they also branch into many other asset classes such as shares and businesses. Once they learn how simple it is to earn money “while you sleep,” it becomes a natural process to acquire additional growth assets and income sources.