{"id":139872,"date":"2025-01-29T14:30:24","date_gmt":"2025-01-29T03:30:24","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=139872"},"modified":"2025-01-29T09:33:03","modified_gmt":"2025-01-28T22:33:03","slug":"where-do-you-sit-on-the-wealth-pyramid","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/where-do-you-sit-on-the-wealth-pyramid\/","title":{"rendered":"Where do you sit on the Wealth Pyramid?"},"content":{"rendered":"

Most people say wealth means a big salary with a lifestyle to match.<\/p>\n

Most people equate wealth to money, but that\u2019s not how wealth works.<\/p>\n

\"Wealth\"<\/p>\n

You need a lot more than money to be truly wealthy.<\/p>\n

You need your health, your friends and family to share it with, you need personal growth, spirituality (this means different things to different people) and contribution.<\/p>\n

As you can see, to me wealth is a product of the mind and no amount of money will make you wealthy.<\/p>\n

To be truly wealthy you have to be grateful for what you have in life and you have to be living a life where you know you are contributing or giving back.<\/p>\n

Financial independence is different to wealth<\/span><\/h2>\n

It means you never have to work again to live your life.<\/p>\n

That\u2019s what you\u2019re really investing for, isn\u2019t it?<\/p>\n

My suggestion is that you should be committed to being wealthy as well as financially independent.<\/p>\n

Just to make things clear\u2026 income by itself does not make you financially free. \r\n

<\/div><\/p>\n

In fact, income is one of the worst predictors of financial freedom.<\/p>\n

You spend some, maybe you save some, and taxation takes away a portion of it.<\/p>\n

Most people in Australia never become wealthy; they never develop real financial independence.<\/p>\n

For most people, the bills keep mounting up and despite working more and more hours they can\u2019t make ends meet.<\/p>\n

So it\u2019s not really income you are after<\/span><\/h2>\n

To secure your financial future you need to acquire assets<\/strong> that grow in value and bring in passive recurring income.<\/em><\/strong><\/p>\n

Having dealt with Australians from all walks of life I\u2019ve developed a number of models to explain the progression most investors take in their path to developing financial freedom.<\/p>\n

These models allow you to know exactly where you are heading financially, what stage you are at along the way, and what the key focus areas and leverage points are that you can use to fast-track your journey.<\/p>\n

Let\u2019s look at what I call\u2026<\/p>\n

The Wealth Pyramid<\/span><\/h2>\n

\"A1\"<\/p>\n

My financial model \u2014 the Wealth Pyramid \u2014 <\/em><\/strong>shows what level you are at on your way to financial independence and what the key focus areas and leverage points are along the way to speed you on your journey.<\/p>\n

Like all pyramids it has a wide base and tapers towards the top, in other words, most people are at the lower levels of the wealth spectrum and fewer reach the top.<\/p>\n

Hopefully, the knowledge and skills you\u2019ll learn from blogs like this, my books and my podcasts<\/a> will help you work your way up the pyramid, but the solutions you\u2019ll need to move from one level to the next will vary depending on where you are.<\/p>\n

Unfortunately, most people don\u2019t really have any wealth and therefore are at\u2026<\/p>\n

Wealth Level 0 \u2014 Financial Instability<\/span><\/h2>\n

Since most people live from pay cheque to pay cheque, they are what I call Financially Unstable<\/strong>.<\/p>\n

If they lose their job, or if they have an emergency (you know how these keep cropping up \u2014 an illness, the car breaks down, the refrigerator packs up), they have no financial reserves to cope.<\/p>\n

Since they have no spare financial capacity, the only way to cope with these burdens is for people at Level 0 to borrow more (and get further into debt) and this only creates more financial hardship.<\/p>\n

They live their lives with their heads buried in the sand, not really conscious about money and their spending habits.<\/p>\n

\"Tax<\/p>\n

If they have money they\u2019ll spend it, if they don\u2019t they\u2019ll borrow it because their favourite pastime is shopping and buying \u201cstuff\u201d they don\u2019t really need.<\/p>\n

This means much of what they own has debt attached to it.<\/p>\n

They keep doing this and fooling themselves that they\u2019ll just work harder and pay off their debt someday.\r\n

<\/div><\/p>\n

If you ask them what their problem is, they\u2019ll tell you they don\u2019t make enough money.<\/p>\n

They think more money will solve their problems. But that\u2019s not right.<\/p>\n

Their biggest problem is their money habits<\/a><\/em>, which have nothing to do with how much they earn.<\/p>\n

It\u2019s what they do with the money they earn.<\/p>\n

As they move on in their lives and earn more, they just spend more.<\/p>\n

Today, they can\u2019t survive on the type of income they would have only dreamed they could achieve five years ago.<\/p>\n

There are many high-income earners who fall into this category because they spend as much or more than they make.<\/p>\n

Sure some people at Level 0 Wealth can look rich \u2014 they may even have big homes or fancy cars, but they also have huge loans that they struggle to repay.<\/p>\n

Unfortunately, they often argue with their spouses about money, being in financial denial and justifying why they bought this or that.<\/p>\n

Wealth level 0 can really be divided into two subgroups<\/strong><\/p>\n

    \n
  1. Casualties<\/strong> \u2014 I call those at the lowest level this because they\u2019re casualties of the money game. Each month they seem to find themselves in a worse place than they were the month before \u2014 getting themselves deeper and deeper in debt, usually through credit card debt.<\/li>\n<\/ol>\n

    They\u2019re paying high-interest rates today to use tomorrow\u2019s money now.<\/p>\n

    Of course, they blame others for their problems \u2014 it\u2019s never their \u201cfault\u201d.<\/p>\n

    They\u2019ve often read books about budgeting or been told the trick of cutting up credit cards, but that just doesn\u2019t work.<\/p>\n

    They don\u2019t know how to \u201cdo\u201d money. Then half a level up the pyramid are the\u2026<\/p>\n

      \n
    1. Survivors \u2014 <\/strong>these are employees, self-employed or even business people who seem to make just enough money each month to have nothing.<\/li>\n<\/ol>\n

      And if by accident they end up with some money in the bank they spend it or take a holiday. They are just surviving.<\/p>\n

      While the fact is that at Level 0 people simply live beyond their means, the real cause of their problems is in denial of this.<\/p>\n

      Unless they are prepared to change, their financial future is bleak.<\/p>\n

      The fundamental key to getting out of this level is mindset, education and taking financial responsibility.<\/p>\n

      So first be honest with your personal cash flow position.<\/p>\n

      Then stop the bleeding by changing your financial habits and at the same time get a financial mentor.<\/p>\n

      \"Financial<\/p>\n

      The fact is when you\u2019re at Level 0 you can\u2019t get out of your problems on your own.<\/p>\n

      You need someone to mentor you and you need to be part of a group \u2014 just like getting fit or losing weight \u2014 it\u2019s just too hard to do on your own.<\/p>\n

      How many people sit on the couch watching diet videos while eating ice cream?
      \nThe next rung up is\u2026<\/p>\n

      Wealth Level 1 \u2014 Financial Stability<\/span><\/h2>\n

      This is the most basic level of wealth and gives you some level of financial security.<\/p>\n

      You have achieved Financial Stability<\/strong> when:<\/p>\n

        \n
      1. You have accumulated sufficient liquid assets (such as money in an offset account, line of credit or savings) to cover your current living expenses for a minimum of 6 months.<\/li>\n
      2. You have private medical insurance and some life insurance<\/a> to protect you and your family\u2019s lifestyle should you become permanently ill, disabled, unable to work or, if worse comes to worst, you suddenly die.<\/li>\n<\/ol>\n

        I know that\u2019s an unpleasant thought, but in the last year, two of our acquaintances died leaving their families in financial trouble.<\/p>\n

        At this level, you will have the peace of mind that should any unexpected challenges come your way, such as retrenchment, a business failure, illness or disability, you and your family\u2019s lifestyle will not be unduly compromised.<\/p>\n

        You will have adequate time to look for new sources of income to put you back on track.<\/p>\n

        The problem at this level is that your cash flow is being controlled by others \u2014 your boss who pays your salary or your clients who pay for your services.<\/p>\n

        This means you\u2019re still on a treadmill and you don\u2019t have the ability to increase your cash flow without working more, and that has its limits.<\/p>\n

        Sure you\u2019ve got a bit of a financial buffer, but if you stop working for a while you slip back to Level 0.<\/p>\n

        \"Living<\/p>\n

        If you\u2019re at Level 1 your goal should be to move more of your cash flow into assets and build that Cash Machine so your income does not depend on you putting in more effort.<\/p>\n

        At this level, your biggest leverage comes from investing in yourself and becoming financially savvy building a solid base of financial and investment skills upon which you can grow your financial future, as well as beginning to build a network of peers you can make your journey with.<\/p>\n

        You\u2019ll also have to choose the first wealth vehicle you are committed to master and become a devoted student learning all you can about this niche wealth vehicle.<\/p>\n

        In my opinion, the best place for most people to start is residential real estate investing<\/a>.<\/p>\n

        In making the decision on which wealth vehicle to go after, you must cultivate the discipline to say no to the pull of other \"great opportunities\" and vehicles.<\/p>\n

        I\u2019ve made more money by saying no<\/em> to second-rate investment opportunities than I\u2019ve made by saying yes to them.<\/p>\n

        Then carefully choose who you\u2019ll study with.<\/p>\n

        Contrary to popular belief, the most expensive education isn't \"graduate school\" like an MBA.<\/p>\n

        The most expensive education is one based on a flawed model and incorrect information.<\/p>\n

        The hardest form of learning is UN-learning all the wrong, mistaken, and flawed things you \"learned\" from unqualified teachers.<\/p>\n

        So choose to learn from the best.<\/p>\n

        It will save you years of frustration following defective models.
        \nYour aim should be to move up to\u2026<\/p>\n

        Wealth Level 2 \u2014 Financial Security<\/span><\/h2>\n

        You achieve Financial Security<\/strong> when you have accumulated sufficient assets to generate enough passive income to cover your most basic expenses.<\/p>\n

        These would include not more than the following;\r\n

        <\/div><\/p>\n