Property Investment

9 min read

High income ≠ rich

Many people think that if you earn a lot of money you’re going to be rich. Not true. From my experience, as a financial adviser, I’ll often sit in front of a couple who earn a lot of money, but who are poor...


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Many people think that if you earn a lot of money you’re going to be rich.

Not true. From my experience, as a financial adviser, I’ll often sit in front of a couple who earn a lot of money … but who are poor.

To be clear, being rich is about the assets you own, and your income is simply what you earn from your job.

This means that for some couples yes, you can have a high income … but you’re also poor.

On the flip side, there are also couples who earn a low income, but are rich and own a lot of assets.

How does this happen? In this article, you’ll hear case studies of high-income but poor investors and also those with low incomes who are rich. And you’ll also read the lessons you can learn from these couples so you don’t make the same mistakes.

Do you have a question or comment about this article? Feel free to leave your thoughts in the comment section at the end of the page.

Property investment

Case study #1: high income, but poor

Jim and Jane earn a combined income of $350k. Jim is a lawyer, and Jane is an accountant. That is a reasonably high household income. They earn a lot of money.

Together they own their own home and are paying off their $900,000 mortgage.

But … that’s it. They have no other assets.

In their mind, their home is the retirement fund.

This is not a good plan. Because you can’t eat your house, and you can’t use it to live. The only way for Jim and Jane to use this in their retirement is to sell, and then buy a substantially cheaper property to live in.

And while this can be an attractive idea in theory, from my experience working with investors this often doesn’t work out in practice.

To be clear, Jim and Jane are a real couple (with changed names for privacy). I sat down with them to discuss how they could invest in properties outside their main home to fund their retirement.

But, the pair just couldn’t get their heads around it. In their minds How could we not be sorted with retirement … we earn so much money? We’re going to be fine.”

I never heard from them again.

The way Jim and Jane think about their financial future is vastly different from the way our next couple do.

Case study #2: low income, but rich

Teachers Len and Lisa earn $110k as a combined household salary. About $55k each.

This is at the lower end of what a couple would need to invest, and clearly substantially lower than our first couple.

But, they’re good with money and only have about $320k left on their home mortgage.

From the get-go Len and Lisa (again, real couple with changed names) were energised to invest.

The pair are avid listeners of the Property Academy Podcast, which they came across as part of their quest to improve their financial situation.

And when I first met them – like Jim and Jane – they only had their own home. No other assets.

But, these guys decided to purchase an investment property … they ended up purchasing a $550k 2-bedroom townhouse in Christchurch and are looking to buy more when they can.

And after using our My Wealth Plan software this couple calculated they just need to invest in one more property to build a $100k-a-year passive income.

High income

Who’s going to be richer?

In 15 years time, who do you think is going to be richer? The high income earners clearing over $300k, or the teachers on $55k each a year.

It’s the teachers, every time.

Because they are the ones who will have assets (outside their home) that they can use to fund their lifestyle once they stop working.

When it comes to the high income earners, what happens when they stop working? The money stops coming in.

For the low income earners? They’ll have two investment properties they can either sell and then live off the proceeds or they can live off the rental income.

There are several lessons to learn from these two stories.

Lesson #1 you don’t need 10 properties to succeed

A lot of investors think you need 10 properties to retire well … you don’t.

For Len and Lisa, they only need to invest in 2 properties to retire well.

And for many other investors we work with, 3-5 properties will be enough to sort them out.

Exactly how many properties you need depends on the size of your goals, and how many assets you already have.

We use our internal My Wealth Plan software to calculate all of these numbers.

Lesson #2: high income earners are often complacent. Lower income earners take action

The high income earners I’ve met are often complacent when it comes to planning for the future.

They’re often short of time, and assume they’ll be sorted later on.

Because of that they may not allocate enough time to sort themselves out and think about their financial future.

Compare that to lower-income earners. They are under no illusion that they need to plan for retirement. They know they’re not going to be sorted … and they know that investing is going to take time.

There’s no chance they’ll be saving to make themselves rich, so they need to invest.


Lesson #3: your job is not a retirement strategy

High incomes don’t last forever.

You may earn a high income now but once you retire (stop working) that income will stop.

And so higher income earners need to think about what they’ll do once that happens.

On top of that, all incomes can stop in a heartbeat – literally.

I’ve seen couples lose half their income due to poor health, or a tragic accident. So you may not always have the luxury of time.

Lesson #4: high-income earners over-analyse and will talk themselves out of taking action

High-income earners are often highly skilled and highly analytical.

This makes it very easy for some really intelligent people, like engineers, to over-analyse every investment.

I was recently working with an investor who was an engineer by trade. And every time we looked at an investment property he would dig into so many details, analysing the property from every angle.

I showed him an investment property in a location that had historically high capital growth, and good yields … but for him the property wasn’t a go-er because it didn’t face north.

The next time I showed him a property that was in a location that had historically high capital growth, had a good yield, and also faced north … he didn’t go for it because he couldn’t find data about the crime rate in the local area.

Let me be clear, doing research is important. But, not making any decisions because you keep researching … and then talking yourself out of an investment, will make you poorer.

And this is a trap higher income earners often fall into.

How do I not make these same mistakes?

High-income earners often need to act. They need to invest.

They often don’t have as much time as they think … and won’t be as sorted for retirement as they’d like to be.

But, many people reading his article should also listen. Because, if you buy strategically, and make a good investment decision, you don’t need to be earning 6 figures to be rich.

If you invest you can be better off than someone who earns significantly more, but doesn’t do anything with that income (other than spend it and pay down the mortgage).

Write your questions or thoughts in the comments section below.

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Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

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