Money Problems Don’t Evaporate, They Change Shape
When you’re younger and feel like money will solve your problems, it can be very easy to look at people who have the results you want and just assume that their money problems have evaporated.
The truth of the matter is that money problems certainly don’t evaporate – they simply change shape.
When you’re starting out in the workforce, your biggest concerns are around creating a surplus, meaning, “How can I create some leftover money so I can even think about investing?” and the sorts of considerations that you have when you’re in that season of spring: you’re just starting to get your head around this idea of investing. You’re just scrambling around for information and advice and you’re trying to be a sponge. You’re trying to make sure that you make the right decisions to get you out of the gates.
As you move up into summer, it becomes more about using leverage and getting traction, and then you start to move into this new phase where perhaps you have a reasonably good net worth and now you’re finessing around the edges and asking questions like, “How would I take a small percentage of my capital and really ramp up the returns?”
And from my perspective, that’s where alternative investments absolutely have their place.
Evolving Challenges & Concerns
In reference to this issue of money problems, I think it’s really important to recognise that as you move into these higher-order problems, you’re not necessarily floundering for money. Maybe there’s no pressure around putting food on the table, but the money problems or the challenges are real.
Concerns will evolve into things like the preservation of capital, meaning, “How do you make sure that your capital base at least keeps pace with inflation? How do you make sure that you don’t expose yourself unnecessarily to volatility in the economic climate?” Especially when you’re at that point on the runway where the distance between where you are and where you want to be in terms of the timeline is very short.
You absolutely need to make sure that you’ve reinforced your wealth and the investments that you hold so that you minimise the risk of being wrong-footed.
Structuring Your Wealth in a Tax Effective Way
When we’re starting out, we tend to worry less about whether we’re well structured. We don’t worry about things like taxes because we’re simply trying to build our net worth.
But as time passes, things like taxes can have a massive impact on your end result and how quickly you can get out of the rat race.
And I’ll give you an example of this. I’ll just pick round numbers for the sake of keeping it simple.
If you had an aspiration to get to $100,000 in passive income, but you’ve forgotten to account for the fact that you might be in the highest marginal tax rate, and let’s say a third of that just gets wiped out in one hit. Then suddenly that $100,000 isn’t going to quite cut it. Maybe you need $140,000 or $150,000 coming in as your gross income. So, taxes become super important later in the game.
I would hazard a guess that when you’re midstream on your journey, it’s particularly important to be thinking about future pacing and thinking, “Am I structured in the most tax-effective way? Are there certain investments that will lend themselves to better tax advantages?”
An example of a great strategy to be thinking about from a tax perspective is the investments where there are great depreciation benefits, for example, property syndications, or oil and gas investments where you can claw forward a lot of the write-offs and basically end up in a situation where it’s very tax advantageous.
Inflation
Many people hope that they are structured in a way that if inflation goes up, their asset base grows. But sometimes the rate of that growth isn’t on par with the inflation that’s happening in the environment, and we can certainly see that right now, that cost of construction and cost of materials has gone through the roof.
Has that been necessarily reflected in the price of assets? Sometimes yes, sometimes no.
I think inflation and making sure that part of your investment strategy takes into consideration a hedge against inflation is really, really important.
An example of a strategy that doesn’t necessarily lend itself to rising with inflation is lending. Lending opportunities where you’re the bank may or may not support that, whereas equity investments do, so it’s really important that you’re constantly looking at those sorts of splits.
Supporting Your Family & Legacy
One of the big considerations of higher net worth individuals comes around supporting family. How much should you support them? How should you structure your wealth?
If you’re thinking about legacy: how do you protect against your children making poor partner choices?
I’ve told stories before about people who’ve inherited massive fortunes from entrepreneurs who have had successful businesses over 50 years. And then within about 20 years, the fortune is gone because they’ve made up to 10 or 13 bad marriage decisions, which has cut their fortune in half at every step of the way.
I like to joke and say unless you’re someone like Elon Musk or Bill Gates, or someone who’s just got a truckload of money and you’re not really concerned about it ever running out like the rest of us, you have to take whatever resources you have and be very careful around how you structure them.
Good Deals are Hard to Come by
With all the money that’s floating around in the world right now from all the stimulus that’s going on, there’s a really high hunger for building wealth.
We’re living in an environment where good deals are not as easy to come by as they were, say, 20 years ago.
Yields and returns are becoming compressed, and the demand for good deals means that sellers can charge more. As buyers or investors of those assets, we’re being counselled to accept less.
There’s no question that we’re entering a decade of high turbulence, so there is a very strong threat of inflation.
Being a Smart Investor
Where I’m going with all of this is that money problems certainly do not disappear as you get wealthier, they just change shape.
You’re never completely immune from the economic and other pressures that exist in the world.
If you want to be a smart investor, it’s about developing an edge on the rest of the market. I certainly believe that if you do what everybody else does, you are very unlikely to not only create an edge but create velocity with your timeline to create the financial objectives that you have.
I also believe that the best opportunities these days are happening behind closed doors. Even in my local real estate market, I’m talking to real estate agents who tell me that the best property investment deals are happening off-market.
Being Clear on Threats & Challenges for Your Level of Wealth
I want to leave this with the idea that you need to be really clear on what the threats and challenges are for the level of wealth that you have.
If you’re a beginner investor, your quality of problems, the types of problems that you have, are going to be totally different to someone who’s maybe developed a portfolio of investments and is now looking to transition into the next phase, which could be structuring for annuities.
The tail end of problems is really to do with:
- how do you become the ultimate armchair investor?
- how you put yourself in a position where you have a high degree of control where you own the income streams that are flowing to you?
- how do you preserve your capital?
Make sure that you’re paying your fair share towards taxes, but not overpaying.
And be absolutely crystal clear on what it’s going to take to sustain and protect your wealth for future generations.
Inkosi Resources
There are a bunch of resources that we’ve recently added to our website. If you’re interested in understanding more about those challenges and what you can do with them, I really encourage you to go and have a look at the website.
There’s a tonne of really great things like past podcast episodes, calculators and a couple of playbooks as well.
So, jump over and have a look at www.inkosiwealth.com and just reach out if this topic is something that you’re super interested in and want to know more about. I definitely feel that what worked yesterday isn’t necessarily going to be what helps you overcome challenges tomorrow.
Final Thoughts
If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.
If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.
Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!
