Why are 94% of Australians retiring broke?
This is an interesting question considering the fact that how to create wealth in one’s life is actually no magical secret, hidden gem or just plain luck and that there are many books and seminars on the subject.
In fact, many thousands of Australians have already created wealth and are set to retire comfortably.
I believe a key to this is quite simple, it is contained in a basic misunderstanding of money and finance.
You see a vast majority of Australians have for most of their lives been educated that borrowing money and being in debt is bad. They have developed a fear that borrowing money from the banks will put them in financial danger and under stress.
Well, this might be true for purchasing assets that go down in value, such as a car, a stereo, a T.V or even a holiday. This type of loan has no real asset backing.
The challenge is that people are conditioned by this type of debt to believe all loans are bad.
Yet obtaining a loan for assets that go up in value can be the very thing that can change a family’s financial future and provide them with the lifestyle that has always seemed to elude them.
You see the Rich have learned to make the banks their best friend and they understand that borrowing money for income producing assets is one of the best ways of creating wealth and financial security for their family.
While the Poor are constantly trying to get out of debt, the Rich are trying to borrow more money, can you see the difference.
Look at your own thoughts about money, I can almost guarantee that If you are worried about borrowing money and trying desperately to stay out of debt, you are not as wealthy as you would like to be.
This is the trick, Rich borrow money for property that goes up in value, say they buy 2 investment properties valued at $500,000 each, that’s 1 million dollars in bank loans.
In roughly 10 years those properties may have doubled in value.
That’s now 2 million worth of property, take away 1 million in loans, that leaves 1 million in profit.
2 million in loans equals 2 million in profit in 10 years time.
Take out $0 loans, but don’t realise this will cause $0 profit in 10 years.
Starting to get the picture?
I have observed two main reasons why people don’t create wealth, struggle financially throughout their life and then retire broke.
They are too scared to act. The fear of borrowing money prevents them from becoming an Investor. Yet really they should fear a life of poverty more, ending with a non-sustainable pension.
Easier for them to do nothing, learning is a hassle for them, sadly they will work for far longer than they need to and retire broke. All of this could have been avoided in a few hours of education over a coffee to learn some smarter financial strategies.
Why is property so powerful in creating wealth?
The reason is very simple, over time property goes up in Value.
The average property prices in:
In Sydney 2015 was $960,000.
With the Tenant and Taxman contributing, most investors are paying very little out of their own pocket to purchase an investment property.
Let’s look at that again, you buy a $1million worth of property that’s almost self-funding, that will make $1million in profit over 10 years, can you see why the Rich want $10million from the bank?
So what if they lost their job and it all went wrong.
They would simply sell the property and pay back the bank.
Yes, there may be a $25,000 shortfall, but they would just add this to the existing mortgage.
Really a small risk compared to the potential upside of being financially independent.
Owning a number of properties can give you an opportunity to spoil your family with holidays, nice furnishing, a stress-free environment, new cars, and school fees paid and the list goes on.
If you want to create wealth then you will need to learn to master your fear of debt.
Make the banks your best friend in your goal to be financially free.