Wealth Building Basics Part 2

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In the last article I spoke on some of the self management habits and ratios one should adopt in order to create an environment for effective wealth building. Here, I am going to expound on that by detailing ways of increasing your income. It has been said that nobody ever saved their way to wealth.

As Grant Cardone puts it, you can play defence all you want and not lose but if you want to win, at some point you have to go on the offensive. If you want to be financially free, you must increase your earnings

1) Save To Invest

2) Multiple Income Streams

3) Tax Efficiency

Save To Invest

I talked previously about paying yourself first. If you have been doing this, that 10%+ sacrifice you have been making for your future should have grown a little into a nice reserve. The question is, what next? Many people actually do the right thing by saving and being disciplined in their money management but then, they just allow the money to sit. Married to the defensive game, many such people achieve financial security but never go any higher. Money sitting in a bank account collecting 3% interest is dead money. 10K sitting in savings will make you £300 per year, a pittance. After 3 years, you’ll have £10,927. Investing in stock index’s which grow on average 10% per year will give you a return of £1000 in year one and after 3 years, you’ll have £13,310. Furthermore, here are property investments that can be done with less than 10K and will make £1500 profit in year one, and £18000 profit over the following two years, resulting in you having tripled your money. Alternatively, 10K invested into a side business that is well managed and run with expertise can scale even faster, especially if using a tried and tested system. The message is clear: If you have substantial amounts of cash sitting in a savings account, you are robbing yourself. The rich don’t save to save, they save to invest. Regard the money you’re saving as you pay yourself first as investment capital with which to build another stream of income

Multiple Streams of Income

The average millionaire has 7 streams of income. What does this mean? The average millionaire has 7 different sources of cash. In the pursuit of financial security and insulation from economic disaster, having multiple streams of income is an absolute necessity. The average person has one stream of income: their job. Taxation aside, this is a precarious position to occupy because if you lose your job, you have no money coming in. If you haven’t reached financial security (being able to sustain your lifestyle for a year without any additional money coming in) then losing your only stream of income can be an absolute catastrophe.

However, if you lost your job but you have a business on the side and a rental property, the situation is much more comfortable and manageable because you still have money coming in. Beyond that, it is far easier to create, grow and sustain a secondary means of income than to convince your boss to give you a raise every year. Picking up extra income streams will allow you to scale your income much more quickly, effectively and securely. The added bonus to added streams of income is that this is what positions people to effectively retire in their early 30’s. Some of your income streams should generate passive income. Passive income is any income you make without having to actively work to get it. If you own a property and rent it out, the profit you make from that is passive income because you don’t have to lift a finger to make the money. The goal is to have your passive income outweigh your bills and outgoings. At this point, you are retired: you don’t have to work a job if you don’t want to.

Grant Cardone – The Millionaire Handbook

Tax Efficiency

Tax is a huge drain on resources and the prime reason why income earned from a job is the weakest form of income. At your job, the more you earn, the more you get taxed. You can make 100K and before you even smell the money, the government have swiped 35. They take their cut up front, often taking an unfair portion. Rich people get that way by practicing tax efficiency. Depending on what you do for your added stream of income, there is a way to decrease the tax you pay or in many cases, avoid paying any tax at all for a certain time period. Someone on 100K total can afford to lose out and still get rich on only 65K per year but someone on 35K and getting capped at 27 is losing out significantly. Whatever side hustle you have, learn the tax laws around it and figure out how much you can save yourself in tax because even small tax breaks will inch you closer to the golden ratio of saving 50% of your income. Funnel earnings through a limited company(businesses get huge tax breaks that are unavailable to private citizens). Make your added income stream a tax efficient one. Write off everything you possibly can. If you don’t want to learn the tax laws, hire an accountant. Don’t see this as an expense but rather an investment: qualified financial advice can save you years in your path to financial freedom and a good accountant will pay for him/herself with the money they save you long term. Every little counts. Robert Kiyosaki – Cashflow Quadrant

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