Who’s richer: The lawyer or the truck driver?

High-income earners don’t always end up rich in retirement. It’s a myth that you must have a high income to be a good property investor.

Here at Opes Partners, I find the most successful investors are those on more modest incomes. They are more careful in managing and growing their money.

That’s where the story of the lawyer and the truck driver comes in. In this article, you’ll hear the story and the 5 lessons to take away.

The story of the lawyer and the truck driver

This is a tale of two people adapted from the book Property 101, by Matthew Gilligan.

The truck driver

Harry, the truck driver, earns a modest income. He understands the property market and is a forward thinker.

In 1994, he bought his first home for $125k in Otahuhu, Auckland. A short time later, that property increased in value to $195k. He then used that increase in wealth to buy his second property worth $160k.

The truck driver went on to buy 4 more properties.

By 2015, he had 6 houses valued at $2.8 million and owed $700k. So, he had $2.1 million in capital gains. He retired well.

The lawyer

Phillip is Harry’s lawyer and is on a very high income of $400k a year. He also bought his first home in 1994, but for $500k. That was a lot of money back then!

He’s been diligently paying the mortgage down. That’s what his parents taught him to do. For Phillip, this was his savings scheme … so he never saved.

He could pay for his kids to go to private school, and enjoyed new cars and lots of overseas holidays.

But when it came time to retire, he had to sell that house to buy a cheaper one, so he could live off the capital gains.

Now, Phillip earned 5x as much as Harry the truck driver.

He had a higher education and considered himself a smart man. But he realised he had a lot of clients like Harry, who ended up richer than him. They had more modest incomes, but they invested wisely.

There are 5 lessons to take away from this story.

Lesson #1 – Wealth isn’t about how much you earn

Income is what you earn from your job. Being rich is about the assets you own.

This is why there are lots of people like Phillip. They’re earning high incomes, but they’re not as rich as Harry (earning $80k, but investing more).

Yes, you can have a high income and be poor. And often this can work against you.

I’ve found that high-income earners are often complacent when planning for the future.

They’re often extremely busy working at their jobs, and assume they can sort it out later.

To be clear, this isn’t about who’s more hard-working. Both Phillip and Harry are driven individuals. It’s about what they do with that money.

But high-income earners may become complacent. That can stop them from setting aside time to invest for the future. Whereas lower-income earners know they need to invest, and know investing takes time.

READ MORE: High income doesn’t equal rich

Lesson #2 – Not all debt is bad debt

Many Kiwis think all debt is bad. This belief has been drilled into many of us from childhood.

But these traditional ideas can get stuck in our heads and stop us from getting ahead.

Good debt is when you borrow to grow your wealth (or income) faster. This can be property investment, but also things like a student loan that helps you earn a higher income.

Bad debt is when you borrow money to spend on yourself. It’s when you want to improve your lifestyle now rather than invest for the future (e.g. credit cards, afterpay).

The truck driver was willing to go into the bank and ask for more money.

This is considered good debt, because he used it to buy more investment properties.

The lawyer had a more conservative outlook. He thought mortgage debt was bad debt, and he didn’t want to take on more.

But some types of debt (if managed) can help grow your wealth and improve your finances.

READ MORE: Good debt vs bad debt

Lesson #3 – Buying your dream home can slow you down

Properties were much cheaper back in 1994.

The truck driver was willing to buy a more modest house of $125k.

The lawyer wanted a larger, more lavish home worth half a million. Of course, if that’s what you want to make you happy – fill your boots.

But taking on a big mortgage for your own home may hold you back financially.

A large personal mortgage can take up a lot of your income. This can stop you from investing in property.

Lesson #4 – You need assets outside your family home

Many Kiwis, like Phillip, think their home is a retirement strategy. It isn’t.

Why? You can’t eat your house.

When you stop working you need some other assets to generate you an income.

The truck driver did this. He owned his own home and 5 investment properties. He made $1.7 million in capital gains, which will fund his retirement.

He can choose to either sell them and live off the spare cash, or he may live off the rental income.

Phillip the lawyer was diligently paying off his mortgage. But … that’s it. He has no other assets.

In his mind, the family home is the retirement fund. He’ll need to sell it to fund his retirement and live somewhere cheaper.

Some Kiwis think they need to pay off their mortgage before they invest in property. From my experience working with investors, this often doesn’t work out in practice.

READ MORE: Pay down debt vs investing calculator 

Lesson #5 – Sacrifice today or sacrifice tomorrow (it’s your choice)

You always have a choice. You can spend your money and enjoy it today, or you can take some of it to invest and enjoy the benefit later on.

You have to make a choice.

If you invest more today, you’ll have to spend slightly less than you earn. Putting that money to work (investing) will mean you can live a better life in the future.

If you choose to spend all your money today, then you’ll be poorer in the future. That means you’ll have to live a worse lifestyle later on in life.

The choice is either to sacrifice today or sacrifice tomorrow.

That doesn’t mean you have to live like a Trappist monk today.

Time is your friend when it comes to property investment. Start thinking about it early so you’ve got as long as possible.

This is something the truck driver took advantage of well.

The lawyer chose to spend his income on more nice-to-haves now (e.g. new cars, private schools and holidays).

To be clear, these things are also important. It’s about finding a balance between a decent lifestyle now and investing for the future.

READ MORE: Personal vs investment spending

Does property investment still make sense today?

It’s easy to hear this story and think: “Back then you could buy a house for $125k”.

“Of course, the truck driver made a lot of money … house prices went up so much.”

But there is still money to be made in property:

• In 2024, ANZ thinks house prices are going to climb 8.5% higher in 2 years.
• The Reserve Bank thinks 16% in 3 years' time.
• Westpac reckons that by the end of 2030, prices will be 40% higher.

So, don’t let the fact that you didn’t buy in 1994 stop you from buying in 2024.