Is capital growth the key to financial freedom?

The first question I asked myself when I wanted to build wealth was:"How much is enough?"

Here’s how I found the answer.

When I was 23, I scored a job that more than doubled my salary from $40,000 to $100,000. As a young man, I felt this was heaps of money. But after a whole year on my ‘huge’ salary, I realised I hadn’t saved an extra cent.

This is so common, I think it’s the Aussie way of life. However much we earn, we fund lifestyles rather than save. And that’s no way to build wealth.

Getting real

Once I realised I wasn’t saving enough to become wealthy, I started looking at ways to achieve financial freedom. Back then, I just wanted to supplement my $100,000 income. So I narrowed my options to:

• Saving
• Cash-flow-positive property
• Growth property

No saving me

The previous year had proven I couldn’t save my way to financial freedom, so the saving option was out.

I knew property was a good option for achieving financial freedom. But when I looked at cash-flow-positive property (where returns exceed expenses), I realised my poor saving record would also shoot me in the foot.

You see, even if I got a property to earn me $400/month clear, I knew I’d just blow it on a bigger lifestyle. I was never going to save it, duplicate my portfolio and substitute my $100,000 income.

And so, unless that property also experienced growth, I’d just be spinning my (ever more exotic) wheels. So cash-flow-positive property was out.

I realised then that growth property was the best option for me to achieve that $100,000.

Growing up

Let’s look at that in today’s figures, assuming an average $500,000 growth property price and a (conservative) annual price growth of eight per cent.

Remember, I earn $100,000 and want $100,000 per year coming in to replace that.

3 x $500,000 properties = $1,500,000 value.

8 per cent growth x $1,500,000 = $120,000 per year.

By buying three growth properties, I make $120,000 on average once growth occurs. That’s $20,000 more than my goal. But that money isn’t for me to spend on cars or lifestyle. That money is growing my equity base that I can use to duplicate my portfolio and get more and more growth on it.

Unlike the savings and cash-flow-positive property options, the growth property option gives me cake to eat. Great. So when do I eat?!

Well, once I exercise the patience to duplicate my growth property portfolio several times, I become wealthy enough to buy the cake factory. And have as much as I damn well want. That’s why growth property is the way to true wealth.

Once you get going with growth property, the sky isn’t the limit – the limit is up to you. And so, the answer to the great question: how much is enough?

As much as you want!

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• Expert advice

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