The secret to wealth

For years I’ve talked about what I call “the guaranteed secret of wealth”, which in essence boils down to appreciating that everybody, irrespective of income, tends to pay their commitments, spend the balance and end up broke on pay day.

The easiest way to get ahead is to take on some sort of a commitment. It may be buying your own home and paying it off, committing to a regular savings plan or borrowing for investment. No matter which way you go, there’s still a commitment involved.

The way to wealth is to focus on accumulating assets, not accumulating more income. When your income increases, tax takes a larger and larger proportion of it and, human nature being what it is, you’ll tend to spend at least as much as the extra you earn.

However, when a major part of “the income” coming into your home is by way of capital growth, or reinvested income on your investment portfolio, you are not tempted to spend it, as it involves cashing in precious assets. Best of all, the sum gets larger and larger as time goes by, reinforcing your decision to continue to leave it alone.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and our readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au