S01_E11 - A 9-5 Job will never make you rich

01/10/24 • 10 min

Jellyman Investing - Personal Finance for Australians

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The traditional route to financial security has been through a stable 9-5 job. That's what our parents did and that's usually what they tell us. Climbing the corporate ladder has been ingrained in us since early childhood and schooling and was thought to be the pathway to wealth.

However, this path is no longer true in my opinion. While ascending in a career can lead to higher salaries, it also brings with higher taxes and greater responsibilities. This reality paints a sad picture: a regular job, while providing the illusion of stability, is unlikely to lead you to significant wealth.One of the reasons a 9-5 doesn't provide lasting wealth is rooted in how tax systems are structured. In many countries, the tax system is designed to incentivize certain behaviors and penalize others. Those who earn a salary are taxed on their income, often progressively, meaning the more you earn, the higher the percentage of tax you pay.

On the other hand, the tax system rewards those who invest, buy real estate, create jobs, create business and provide opportunities for others - i.e. producers. These individuals benefit from various tax breaks, deductions, and incentives. For example, owning a business can offer deductions for expenses, while investing in real estate might provide depreciation benefits and lower capital gains taxes.

At the heart of this disparity is the difference between being a consumer and a producer. The 9-5 job often falls into the consumer category. People in this bracket typically work, earn, and spend. Their financial growth is linear and limited by the amount they can earn and save after taxes and expenses. These are usually the people the Government has to support in old age.

Producers, however, approach wealth creation differently. They focus on creating value, be it through businesses, investments, or real estate. Their income is not just a function of time spent working but is tied to the value they create and the assets they build. This approach can lead to exponential wealth growth, especially when combined with the advantages of compound growth and smart investment strategies.

To move towards wealth, the key is to shift from a mindset of consumption to one of creation. This doesn't necessarily mean quitting your 9-5 job immediately. Instead, it's about gradually building assets that can generate income beyond your regular salary. This could be through side businesses, real estate investments, stock market investments, or any avenue that allows your money to work for you.

Not only will a 9-5 not make you rich, but it also creates a very serious bottle neck; a single point of failure if you will. If you only have your job as a source of income, then no doubt your entire lifestyle is linked to that job. Lose the job, lose the lifestyle. This can bring incredible amounts of stress for yourself and your family.
Ensuring you have investments and other sources of income, albeit small, is enough to provide you some buffer should the worst happen. My personal experience is that these extra streams of income, also make you a better performer at work because you're not scared to lose your job. You take more risk, you're bolder in your approach and you're willing to try things that could fail.

However, if you're scared to lose your job, you'll act conservatively, with caution and strive towards maintaining the status quo. Not exactly a recipe for a high performer.

So I advise you to stop blaming the Government. Stop blaming corporations. Start thinking about how you can create value because when you do, you'll be well on your way to enjoying the tax breaks and opportunities that the rich do.

However, if you're scared to lose your job, you'll act conservatively, with caution and strive towards maintaining the status quo. Not exactly a recipe for a high performer.

Previous Episode

S01_E10 - Building a Wealth Strategy - Debt, Housing, Investing, Economy

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When I think of buying a house I don't just think of the actual purchase event. I think about what happens if interest rates increase, I think about how I can capitalize if housing demand drops, I think about what happens if I suddenly lose my job, I think about unexpected expenses or changes to my life like having a kid. I want to set up my life so I have protection and you can too.

Building your 6-12 months (or more) of savings is absolutely crucial. What I see a lot of people do is jump from paying off debt to planning to buy a house.

Here's the way I found to work TOWARDS a house:

Set up your automation and accounts for everyday expenses.
Build your 6-12 months of emergency savings.
Begin investing in index funds.
Meet with a broker to assess your financial position relative to how much you'd like to borrow.
Readjust your borrowing power based on rising interest rates.
Build an additional buffer for post-home purchase (ensures you have enough left over just in case).
Buy a house.

As you can see, building the buffer is step 2. The buffer ensures that if unexpected expenses occur, we can cover them without becoming mentally derailed. It's hard when you have to move money back and forth between accounts because it feels like progress is being taken away from you.

The automation in step 1 will automatically push money towards your savings account. What some people do is create a whole new bank account with a different bank and have the money transferred there. This account has no associated card, which removes the temptation to spend it.

Let's add time to the equation. What tends to happen when you've automated your accounts is that it just happens in the background. Before you know it, you've built up enough savings. You might think that the next step is to buy a house. But I actually think people should invest in stocks first.

Now, before you start telling me it's risky, hear me out. Index funds, which are a basket of stocks that allow you to become automatically diversified, are relatively low risk and have good returns, even in bad economic times. You can even buy index funds specifically tied to property.

Because it now takes much longer to save for a house, while you wait for the best time to strike, the value of your stocks goes up. In fact, in my personal situation, after I had my 6-12 months saved up, I began buying stocks each month. But it took a few years before the timing was right to get a house. In those few years, I ended up accruing an additional $15k in stock value, which I could sell to buy my house.

Luckily for me, during the time I was buying stock, I was still diverting some of my funds towards saving for a house. After meeting with a broker, he told me I actually had enough in my savings to buy a house, which meant I could leave the stocks to keep growing and still buy a house.

This is a win-win situation and gives me a number of options. If I suddenly need cash, I can always liquidate some of my stocks (which I've never had to do). By leaving my stock, it can just grow. Another win for me.

Now, I have mentioned a few times that having equity sounds good on paper, but it's not real money until you sell the asset. That is true. But the way I like to think about finances is to try and have a win scenario for every situation.

If the stock market crashes tomorrow, I have cash on standby to purchase stocks at a discount. If the market instead jumps, I already have stocks to ride the wave. If housing prices go down, it's fine because I already have a home to live in. If they go up, my equity increases. If I lose my job, I have several other income streams.

Next Episode

S01_E12 - Retirement Planning - Superannuation as a Back Up

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Right after COVID-19 broke out, the stock markets crashed. Not unexpected. Superannuation funds are tied to the stock market. When you provide money to these organizations, they invest that money for you as conservatively or aggressively as you'd like. But even they are susceptible to market crashes. If you happen to retire at COVID's worst, you may have lost a third if not more of your retirement fund. That's hundreds of thousands of dollars. There's a better way.

Introduction

We've all heard about superannuation, that nest egg we're counting on for our golden years. But let's stir things up a bit - should we be relying entirely on superannuation for retirement? With the market's ups and downs, I've got some intriguing points to discuss. So, settle in, and let's get into the nitty-gritty.

Remembering the Global Financial Crisis

Before we jump in, let's take a quick trip down memory lane to the Global Financial Crisis (GFC) of 2007-2008. That was a real game-changer for many people's retirement plans. Superannuation funds took a massive hit, and it was a stark reminder that financial markets can be unpredictable and even unforgiving. If you were planning to retire around that time, your superannuation balance might have seen some dark days. This historical example is precisely why putting all your retirement eggs in the superannuation basket might not be the best strategy.

The COVID-19 Wake-Up Call - A Deeper Dive

Fast forward to the more recent COVID-19 pandemic, and we saw a similar story. The market took a nosedive, and superannuation balances suffered. It just goes to show how external factors, beyond our control, can significantly impact our retirement plans. Life is unpredictable, and so are the markets.

Exploring Index Funds - Your Financial Sidekick

With all this unpredictability, what can we do? Well, one smart move is getting friendly with index funds. Think of them as a cool, easy-going buddy for your investment portfolio. They're kind of like a cross-section of the market, giving you a slice of everything without the hassle of picking individual stocks. What's great about index funds is their simplicity and cost-effectiveness. They often come with lower fees than actively managed funds and are a great way to diversify your investments.

Superannuation: A Closer Look

Now, back to superannuation. Remember, these funds are managed by companies, and like all companies, they can have their ups and downs. They also charge fees for managing your money, which can add up over time. Plus, the performance of these funds can vary. It's kind of like a rollercoaster ride – exciting but not always fun.

Broadening the Horizon - More Investment Avenues

But it's not all about stocks and bonds. Consider real estate for potential rental income and value appreciation. Exchange-traded funds (ETFs) are another option, trading like stocks but diversified like index funds. And don't forget international investments, which can expose you to different economies and growth opportunities.

Crafting Your Unique Retirement Playlist

So, how do we mix all these elements for a great retirement plan? Start with superannuation as your base track. Then, layer in different investment styles - index funds for broad market exposure, bonds for stability, real estate for income, and maybe some international investments for a bit of adventure. The goal is to create a diversified portfolio that matches your financial goals and risk tolerance. And just like any good playlist, your investment mix needs regular reviews and updates.