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Could you live on $532 a week? That’s what the Australian Government currently provides single aged pensioners, and from it, housing, living and other expenses must be paid. The ASFA Retirement Standard for the December 2022 quarter estimated that the cost of living a modest lifestyle was $600.05 per week. If you want a comfortable lifestyle then you’ll need $947.56 a week – almost double the current aged pension payment.

This somehow proves it is your responsibility, not the government’s to secure a comfortable lifestyle for yourself in retirement. So, how can you create a sustainable lifetime wealth?

It doesn't matter how much money you make, the more important question is how much of what you earn are you able to keep?

If all you did was spend less than you earn, you’d have no choice but to accumulate wealth.

It’s not sexy or fancy, and it doesn’t require a university degree to comprehend it. The secret to sustained wealth creation is to simply spend less than you earn, and invest what’s left over.

This important principle can be applied to all aspects of your financial life, including:

  • Your job: If you spend less than you earn from your employment you will have surplus funds to invest.

  • Your business: If you spend less than you earn from your business you will have higher profits to reinvest back into your business or else you will be able to pay bigger dividends back to yourself or shareholders.

  • Your shares: If the companies you own shares in spend less than they earn, they will appreciate in value.

  • Your property: If your investment properties have more income than expenses you will have surplus cashflow or lump-sum profits to reinvest.

Answer the following question: is the reason why you are not further advanced with your wealth creation in one or more areas of your life because you are spending more than you earn?

If so, then you may believe you have an earning problem and that if you could only get more money then all your problems would disappear. Not so. In all likelihood, if your pay increased, then your spending would increase by even more and you’d be in an even worse financial position.

Compare the salary you earn now with the salary you started on when you began work. It’s higher, right? But do you have more or fewer money hassles?

As a child, because no-one lent you money, you could only spend your allowance and had to save up for the fancy-pants item you really wanted. This was slow and boring. Then, once you became an adult you were introduced to a new world, where the kind folks in the credit department would let you buy whatever you wanted without needing the money upfront. Getting the reward before earning it is every child’s dream, and a world where this can happen is like a fairytale.

However, the fairytale soon becomes a nightmare once you realise that you’ve traded your freedom for trinkets and now have to work. It seems the only way out is to marry a millionaire, win lotto, or for a rich family member to pass away and leave you a substantial inheritance. If all these sound like long shots (and they are), a more useful guideline for getting out of debt is to:

  • Allocate 10% of your pre-tax salary to charity

  • Allocate 10% of your pre-tax salary to investing

  • Allocate 10% of your pre-tax salary to additional debt reduction

  • Spend the remaining 70% of your pre-tax salary guilt free

If you think you are going to invest your way out of debt then think again. Until you master the habit of spending less than you earn you will continue to be the weak link in your investing. Any profit you make might cover your debts for a while, but before long, you will be back to spending more than you earn and facing an even bigger debt burden.


Original Source & Author: Steve McKnight's "From 0 to 130 Properties in 3.5 years" 2nd Edition 2010

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