There are plenty of ways to build wealth. Which of these do you prefer
- The stock market
- A pension fund
- Retirement annuities
- A job
- A new business
- The Lotto
If wealth creation was so easy, why is it that less than 6% of South Africans retire comfortably? And if you believe this is only a third world country statistic, think again.
Financial freedom is the ability to sustain your chosen lifestyle without ever having to work again.
If you want to become financially free or rich, you cannot rely on:
- A high paying job
- Investing in managed funds
- Playing the stock market or forex trading
- Businesses that require your physical presence
The truth is that we are lead to believe that traditional products like pension funds and retirement annuities will land us on the easy street.
The facts tell us completely otherwise. I believe the recipe for building true wealth rests on 6 golden rules, which I’ve outlined in this blog.
Rule # 1: Use passive income to build time
Financial wealth means different things to different people. It’s simply a matter of personal perception. It may mean having the material things to fully enjoy life or having a stress-free lifestyle. What does it mean for you? Having a big house, a second home in the Swiss Alps, a fast car, flashy clothes or what about R1 million in your bank account? If you mentioned any of these material things then you haven’t fully grasped the concept just yet.
Wealth isn’t about money, it’s about time and realistically the only way to free up time is to increase your income and reduce the amount of hours you work. Would you rather work eight to ten hours for a boss each day or spend more time at home with your family? How about dedicating more time to your hobbies, travelling or starting a business? Sounds great, but some of you may view this as wishful thinking considering that there are debts to pay and mouths to feed.
The essence of any wealth creation strategy is to have money work for you.
Why work for money when you can have it slave away on your behalf for 24 hours a day, 365 days a year? Remember that overused cliché, ‘Work smarter, not harder’. The ‘secret’ is to generate income without having to work for it. This form of income is known as passive income and the wealthy use it to create more time to spend living their lives. As a result, they are able to work on relationships with their friends and family, take their children to soccer practice, travel the world, start charities and work on new businesses.
Middle class South Africans work eight to ten hours each day. They work for an income which functions on a no-work-no-pay basis. Income is linear in nature - the more you work, the more you get. Free time is limited and comes in the form of annual leave. Promotions mean more responsibility and more responsibility means higher stress levels. The bottom line is that the middle class work hard for little reward. So why invest time and effort in a lifestyle that forces you to get out of bed every morning?
Robert Kiyosaki, author of the New York Times international bestseller ‘Rich Dad Poor Dad’, offers the following definition of wealth:
‘The number of days you can survive, without physically working (or anyone living).
As the definition indicates, real wealth is measured in time, not currency.
For example, if your monthly expenses are R10,000 and you have R40,000 in the bank, your wealth is 4 months (R40,000 R10,000). In other words, you can use your savings to maintain your standard of living for four months without earning an active income. Have a look at these other examples
Jack’s annual income is R1 million and monthly expenses R20,000.
After following the advice of his financial planner he manages to save six months worth of living expenses (i.e. R120,000) in his Money Market Account. Jack’s wealth is about 6 months (R120,000 R20,000). Remember, the calculation ignores the fact that his job pays R1 million.
Susan earns an annual income of R150,000 and has monthly expenses of R5,500. She has R80,000 in her Fixed Deposit Account.
Susan’s wealth is approximately 14.5 months (R80,000 R5,500).
Compared to Jack, her wealth is almost two and a half times greater, however if you look at her standard of living, it’s a lot lower.
Active income: Income earned when you work for yourself or somebody else. When you stop working, your income stops.
Passive income: Income earned without actively working for it. Examples include interest on your bank account, rental income, dividends, royalties and business income.
Thabo is a qualified artisan. He earns a salary of R100,000 per year and has living expenses of R3,000 per month. Thabo also receives a passive income of R3,300 from a few small businesses that his siblings run. This may come as a surprise to you, but Thabo is significantly wealthier than Jack and Susan. Technically speaking, he is financially independent (more about this later). If he lost his job, his passive income will be enough to cover his monthly expenses. “For how long?” you ask? For as long as his Thabo has little financial room to increase his standard of living. But does this really matter? He may be very happy with his current lifestyle.
His passive income is also linked to inflation so his wealth is sustainable.
Consider Nandiswa. She is a 42 year old nursery school teacher and active property investor. Over the past 15 years she purchased 27 investment properties in Johannesburg CBD. Nandi’s annual salary is R120,000 and rental income R580,000 per year. Her monthly expenses add up to R10,000. How wealthy is Nandi? She is rich! If Nandi stopped teaching today, her rental income would be enough to cover her current living expenses, any unforeseen costs and life’s pleasures.
These examples highlight three important points:
1. Assets create wealth by generating passive income and time
The wealthier you are, the more passive income you have in relation to your expenses. That’s all good but how does one create passive income?
The answer lies with assets
- The stock market
- A pension fund
- Retirement annuities
- A job
- A new business
- The Lotto
If wealth creation was so easy, why is it that less than 6% of South Africans retire comfortably? And if you believe this is only a third world country statistic, think again.
Financial freedom is the ability to sustain your chosen lifestyle without ever having to work again.
If you want to become financially free or rich, you cannot rely on:
- A high paying job
- Investing in managed funds
- Playing the stock market or forex trading
- Businesses that require your physical presence
The truth is that we are lead to believe that traditional products like pension funds and retirement annuities will land us on the easy street.
The facts tell us completely otherwise. I believe the recipe for building true wealth rests on 6 golden rules, which I’ve outlined in this blog.
Rule # 1: Use passive income to build time
Financial wealth means different things to different people. It’s simply a matter of personal perception. It may mean having the material things to fully enjoy life or having a stress-free lifestyle. What does it mean for you? Having a big house, a second home in the Swiss Alps, a fast car, flashy clothes or what about R1 million in your bank account? If you mentioned any of these material things then you haven’t fully grasped the concept just yet.
Wealth isn’t about money, it’s about time and realistically the only way to free up time is to increase your income and reduce the amount of hours you work. Would you rather work eight to ten hours for a boss each day or spend more time at home with your family? How about dedicating more time to your hobbies, travelling or starting a business? Sounds great, but some of you may view this as wishful thinking considering that there are debts to pay and mouths to feed.
The essence of any wealth creation strategy is to have money work for you.
Why work for money when you can have it slave away on your behalf for 24 hours a day, 365 days a year? Remember that overused cliché, ‘Work smarter, not harder’. The ‘secret’ is to generate income without having to work for it. This form of income is known as passive income and the wealthy use it to create more time to spend living their lives. As a result, they are able to work on relationships with their friends and family, take their children to soccer practice, travel the world, start charities and work on new businesses.
Middle class South Africans work eight to ten hours each day. They work for an income which functions on a no-work-no-pay basis. Income is linear in nature - the more you work, the more you get. Free time is limited and comes in the form of annual leave. Promotions mean more responsibility and more responsibility means higher stress levels. The bottom line is that the middle class work hard for little reward. So why invest time and effort in a lifestyle that forces you to get out of bed every morning?
Robert Kiyosaki, author of the New York Times international bestseller ‘Rich Dad Poor Dad’, offers the following definition of wealth:
‘The number of days you can survive, without physically working (or anyone living).
As the definition indicates, real wealth is measured in time, not currency.
For example, if your monthly expenses are R10,000 and you have R40,000 in the bank, your wealth is 4 months (R40,000 R10,000). In other words, you can use your savings to maintain your standard of living for four months without earning an active income. Have a look at these other examples
Jack’s annual income is R1 million and monthly expenses R20,000.
After following the advice of his financial planner he manages to save six months worth of living expenses (i.e. R120,000) in his Money Market Account. Jack’s wealth is about 6 months (R120,000 R20,000). Remember, the calculation ignores the fact that his job pays R1 million.
Susan earns an annual income of R150,000 and has monthly expenses of R5,500. She has R80,000 in her Fixed Deposit Account.
Susan’s wealth is approximately 14.5 months (R80,000 R5,500).
Compared to Jack, her wealth is almost two and a half times greater, however if you look at her standard of living, it’s a lot lower.
Active income: Income earned when you work for yourself or somebody else. When you stop working, your income stops.
Passive income: Income earned without actively working for it. Examples include interest on your bank account, rental income, dividends, royalties and business income.
Thabo is a qualified artisan. He earns a salary of R100,000 per year and has living expenses of R3,000 per month. Thabo also receives a passive income of R3,300 from a few small businesses that his siblings run. This may come as a surprise to you, but Thabo is significantly wealthier than Jack and Susan. Technically speaking, he is financially independent (more about this later). If he lost his job, his passive income will be enough to cover his monthly expenses. “For how long?” you ask? For as long as his Thabo has little financial room to increase his standard of living. But does this really matter? He may be very happy with his current lifestyle.
His passive income is also linked to inflation so his wealth is sustainable.
Consider Nandiswa. She is a 42 year old nursery school teacher and active property investor. Over the past 15 years she purchased 27 investment properties in Johannesburg CBD. Nandi’s annual salary is R120,000 and rental income R580,000 per year. Her monthly expenses add up to R10,000. How wealthy is Nandi? She is rich! If Nandi stopped teaching today, her rental income would be enough to cover her current living expenses, any unforeseen costs and life’s pleasures.
These examples highlight three important points:
1. Assets create wealth by generating passive income and time
The wealthier you are, the more passive income you have in relation to your expenses. That’s all good but how does one create passive income?
The answer lies with assets
