Building Wealth Beyond the Payslip

Why earned income isn’t enough for a secure future

While a steady pay is vital for most people, relying solely on earned income can limit your future. Earned income typically means trading your time for money. This might work well early in your career, but time is a finite resource. Earning potential often plateaus with experience, and retirement can bring a significant income drop.

This also leaves a lot of ‘what if’ questions, leaving an uncertain financial future. What if you are still renting at 65? What if there is no government pension in the future? What if the retirement age extends and you still want to retire earlier, but your Kiwisaver savings is locked until the new retirement age? This is where building wealth through assets and passive income becomes crucial. Property investment offers a strategy to leverage your current income and secure a brighter financial future.

Understanding Income types:

Broadly, we can categorise income into three main types: earned income, passive income, and capital income. Each plays a role in building wealth, and property investment offers a unique way to leverage them all.

1. Earned Income: This is the income you receive directly for your time and effort. In most cases, a salary or wages from your job falls under this category.

2. Passive Income: Passive income refers to earnings that require minimal ongoing effort to maintain. Examples include rental income from properties, royalties from creative works, or dividends from stocks. The key here is that the income stream continues even when you’re not actively working on it.

3. Capital Income: This income stems from the increase in value of an asset you own. When you sell a property at a profit, the difference between the purchase price and selling price is your capital gain, a form of capital income.

Why Earned Income Alone Isn’t Enough:

Most careers follow a trajectory of increasing income with experience. However, there comes a point where salaries stabilise or even stagnate. Climbing the corporate ladder may not be an option for everyone, and additional income streams become essential for long-term financial goals. Relying solely on earned income ties your financial well-being directly to the hours you can work.

The Power of Passive Income and Property Investment:

Passive income, money earned with minimal ongoing effort, offers a powerful solution. Rental income from property investment is a prime example.  While you might invest upfront time, effort and investment, the property itself generates income through rent, freeing up your time and energy for other pursuits.

Property Investment: A Three-Pronged Approach to Wealth Creation

Real estate investment combines the power of passive income with the potential for capital appreciation in three key ways:

• Passive Income: Rental income from tenants provides a steady cash flow, contributing to your overall financial wellbeing and potentially covering mortgage payments.

• Capital Gains: Property values often rise over time. If/When you eventually sell, the difference between the purchase price and selling price translates to capital gains, further boosting your wealth.

• Leveraging Equity:  As your property value increases, your equity (ownership stake) grows. You can access this equity through home loans / mortgages. Since this is a loan against your existing asset, it’s not considered taxable income, potentially freeing up significant sums for investment, debt reduction or other wants and needs.

Leveraging Your Earned Income for Future Growth:

The Auckland property market offers a unique advantage when it comes to leveraging your earned income for future gains. Purchasing a property with a mortgage allows you to amplify your returns. The rental income helps service the mortgage, while any appreciation in value benefits you directly. 

Don’t let your financial future be limited by earned income alone. By strategically leveraging your current income to invest in property, you can unlock the power of passive income and capital gains. This approach can pave the way for financial independence and a more secure future, empowering you to live life on your own terms, with more time for the things that matter most.