Do you dream of the day your property portfolio will allow you to escape the financial demands that currently keep you firmly trapped in a ‘rat race’ lifestyle?
I hate to be the bearer of bad news but it’s highly likely your current habits are adding to the problem, rather than helping.
Unfortunately, our school system does very little to help prepare us for wealth creation. We tend to leave school with the belief that our aim as adults is to get a great job and focus on maximising our income.
As a result, most adults spend their working years focused on ‘income’, not ‘wealth’.
More income doesn’t guarantee wealth
The skills required to earn a better income are very different to the skills you need to build wealth. This results in most adults finding themselves stuck on a debt treadmill, believing that if they can just earn more money, they will somehow end up wealthy.
In reality, most adults only add further to the problem when their income increases. A healthy pay rise often results in the purchase of an expensive new car, or an upgrade to the family home. I suspect these purchases are often made in an effort to justify a ‘rat race’ lifestyle to family and friends.
All too often the pain of a time-poor lifestyle and the pressure of servicing these additional personal expenses really hits home. Relationships suffer, health deteriorates and marriages crumble due to the combination of financial stress and long working hours. An exit from the rat race now seems almost impossible.
I’m not going to suggest that I’m not guilty of over-working, at times. I’m sure my wife would say that I’m a bit of a workaholic. The difference is that my work ethic has never affected my choice of what I do with my income; always choosing to carry as little personal debt (bad debt) as possible, whilst adding as much investment debt (good debt) as is practical.
Reduce your ‘bad debt’
When I was in my 20s I read a book that changed my views on every purchase I have made since. The book was Rich Dad, Poor Dad by Robert Kiyosaki. A key takeaway for me was learning about the difference between ‘good debt’ and ‘bad debt’.
Obviously, debt such as credit card debt and personal loans that attracted high interest rates were highlighted as the worst of this ‘bad debt’ category. But the biggest eye- opener was when Robert touched on why he felt even your family home was a ‘bad debt’.
Robert put all purchases into one of two categories. He described these categories as ‘Assets’ or ‘Liabilities’ and added layers of explanation around why your family home is, in fact, a liability until the day you sell it. This made me view all personal debt in a new way, including my family homes.
I now understand that, due to Australian tax laws, our family home will always be the hardest property we ever pay for. This is due to the fact that all expenses and interest repayments must be serviced from your ‘after-tax income’.
The same rules apply for every debt. If the interest on that debt is not tax deductible, you must consider it a ‘bad debt’. The more bad debt you accumulate, the more you will remain trapped in the rat race.
Awareness is the first step towards new habits. New habits will soon lead to a new lifestyle. And this new lifestyle will pave the way to even more choices around how you spend your time, and who you spend it with.
A great finance strategist can help you implement simple strategies to replace your ‘bad debt’ with ‘good debt’. This can include clever ways to pay off your family home much quicker, without putting any additional stress on your pocket. These strategies can save you tens of thousands in interest payments and shave years off your loan term.
You could find yourself escaping the rat race much sooner than you can imagine.