The Alternative Investing Podcast

#132 How Society Fools Us Into Working Longer

December 12, 2022 Salena Kulkarni Season 1 Episode 132
The Alternative Investing Podcast
#132 How Society Fools Us Into Working Longer
Show Notes Transcript Chapter Markers

Welcome to the 132nd episode of the Alternative Investing Podcast!

In today's episode, we'll talk about how society trapped us into working longer than we wanted to and discuss how to escape it using the alternative framework.

We cover: 

  • How Society Fools All Of Us
  • Are Banks' and Groups' Financial Products Worth It?
  • The Alternative Framework
  • Building Capital by Investing in Good Quality Assets
  • Diverting Capital into Income-Producing Alternative Investments
  • The Fear of Hard Work in Investing
  • The Point Where You Can Start Playing the Life Game You Want

If you're an investor who wants to break free from societal norms and carve out the life you want sooner than most people, then make sure to listen to this episode! 



Today, let's discuss the longstanding system that has been in place for decades - a system that keeps us working longer hours to benefit the wealth industry. 

This system keeps us trapped in our work and businesses, allowing the wealth industry to continue making huge profits. And the sad reality is that it doesn’t matter how much you earn or how smart you are. You’ll always be stuck with an active income if you don’t know how to build wealth effectively.

When I talk to people, I’m always surprised by how many high-income earners out there feel that they can’t leave or step out of their work or business. 

How Society Fools All Of Us

Now, if we’re going to look at how society fools us, we'll see that from the time we start working, the system is designed to make us think about retirement right away.

I remember when I graduated from Deloitte and went to see a financial planner.

The planner I spoke to told me to invest a certain amount of money in a NAB product every month, saying that if I did, I would have enough for retirement in 45-50 years. 

But if I didn't, I would be in big trouble, and that's commonplace.

When I talk to young workers and investors, many want to invest early, but they are swayed by the media, which says that superannuation is the be-all and end-all.

Don’t get me wrong, superannuation and retirement funds are essential. 

But I highly recommend that you constantly ask yourself questions like:

  • What is a dollar worth to me today versus putting it into super? 
  • Could I invest that dollar more leveraged and powerfully?
  • Should I trust financial planners and the products they offer?

In my case, I used to blindly follow that advice and eventually realised that I could make significantly more money if I took those dollars and did something else with them. 

Again, superannuation and retirement are important, but I don’t necessarily agree that they should be the number one focus from the minute you enter the workforce.

As your career progresses, it becomes important to focus on saving and investing for retirement when your income may decrease or stop completely.

But let me also tell you that retirement savings vehicles are just that - vehicles. 

They are designed to be tax-efficient and encourage people to save for their golden years because governments would struggle to support everyone in retirement without them.

Are Banks' and Groups' Financial Products Worth It? 

Media and wealth professionals often recommend investing in products created by banks and other groups that get paid first, regardless of the investment's performance. These groups are not at risk of losing money and are typically paid for managing assets rather than achieving good results for their clients. 

And I can tell you that some of my clients lost a lot of money during the financial crisis. Some lost hundreds of thousands or dollars, and others even lost millions.  

Seeing them having to delay their retirement plans and feeling desperate because of their financial losses was very difficult.

Besides that, I also worked with several people who took whatever small lumps of savings were left after the global financial crisis and invested them in risky ventures to make up for the money they had lost.

So, if you’re concerned about controlling your own wealth-building, you need to start thinking in a different paradigm. 

Why? Because the plan that many wealth professionals recommend - working for 45 years to achieve financial freedom or retirement - is not the only way.

Their idea is to create enough money so that when we stop working and no longer have an income, we can use our savings and start eroding our capital.

What also upsets me is that some wealth gurus advocate that if you don’t listen to them or follow their 45-year plan, you won't have enough money for retirement and will have to depend on the government, your children, or your community for support.

Obviously, that’s a place nobody wants to be, so some people use fear to make others think they have no other option but to follow their plan.

At some point in my life, I also paid a fee for a financial planner, only to walk away with a generic plan telling me that if I sacrificed X amount of money from my active salary over the next 30 to 50 years, I might have enough to live off 4% per annum to last until I die. 

The Alternative Framework

So if this is the framework we are constantly being presented with, what other framework or paradigm could we consider instead?

The first is what I call the "alternative framework."

As a younger person, or wherever you are in your life, you need to learn how to be a good steward of your money as quickly as possible. 

The reason for that is that even if you don't have a high income, being a good steward of your money, investing wisely, and making your own decisions can lead to better returns than giving your money to someone else to manage and just hoping they do the best for it.


Building Capital by Investing in Good Quality Assets

Assuming you’re starting from zero, the framework I advocate is to take as much of your income as possible and invest it in assets that will grow your capital quickly. 

Be careful about what you invest in, but use leverage, like debt, to grow your money faster. This means investing in the best assets you can afford without using too much of your active income.

Because if you put your money into assets that will cost you $10,000 to $30,000 a year to hold, assuming it’s going to grow more than that will just slow you down. Whereas, if you invest in assets that, let’s assume, don't produce much cash flow, you'll eventually have the capacity to keep adding in additional investments that will work for you over time. 

So if I were starting over, I’d continue to focus on building capital quickly by investing in high-quality assets that are likely to grow and that I can finance using traditional methods without costing me too much money to hold.


Diverting Capital Into Income-Producing Alternative Investments 

Once your capital, equity, and net worth start to grow within 5 to 10 years, you can then invest in income-producing alternative investments.

If you do this correctly, you can end up in a situation where you can quickly gain momentum with passive income. One of the common mistakes that many investors make is thinking that traditional property or shares are investments that will only provide a small amount of income in the future.

As I discussed in my previous podcast episodes, the best-case scenario you can hope to achieve from a property, even without any debt, is somewhere between 1-2.5%, and with dividends, you can do even as well as 3-4%.

The point I’m making here is that you need a significant amount of capital to earn a dependable income from your investments that you can live off of.

So I’m advocating that instead of waiting 30-40 years to have a large net worth, you can take a small part of your money and invest it in alternative investments backed by real property. This will provide consistent cash flow that you can depend on, so you don't need as much net worth to achieve reliable income.

Unless you already have a very successful and profitable business, I suggest taking a 5-15 year plan to invest in alternative investments gradually. 

This is better than the slow train or 45-year plan for the average person who earns a good income and has some savings. Again, save some capital and invest a small portion of that capital in many diverse, recession-resistant deals.

But to do that, you must first wrap your head around a few things.

The Fear of Hard Work in Investing

Number one, don't be afraid of hard work. 

And I’m not talking about physical labour here. Instead, I’m referring to the hard work of learning about new asset classes and investments, talking to other investors, and investing in education because these can help you avoid making mistakes and fast-track your experience.

If there’s one thing I’ve noticed with many investors, they’re not interested in learning about investing because it can seem confusing and overwhelming.

While I understand where they’re coming from, it’s still important to take the time to understand it and find people who share your values and goals. Because if something intuitively feels inconsistent with the ethics and direction you want to go, it won't be easy to have confidence in your returns and investment strategies. 

So there’s no way around it. You must invest the time and effort to understand investing yourself. 

Now, I’m not suggesting that you need to get a college degree in finance, although some people want to commit to something like that.

I’m talking about consistently spending time learning about money and investing to help you make better decisions and put you streets ahead of other investors. 

Given the current market environment, you should be very careful about who you take advice from and listen to in the wealth space.

The Point Where You Can Start Playing the Life Game You Want

The final thing about this alternative framework is if you make enough money from your investments that you don't have to worry about paying for your daily expenses, you can start living the life you want. 

It's important not to sacrifice too much for too long because life is short, and we only have one chance to make the most of it.

If you want to change your life and have more time for what you’re passionate about, you need to make enough money from your investments to cover your daily costs. This way, you can focus on what you really want to do without worrying about how to pay for your basic needs. 

You can then use your time and energy to pursue your passions and make a bigger impact on the world. 

We're not talking about unrealistic goals, like making millions of dollars from passive income.  

If you currently live on an annual income of $100,000 to $200,000 and can comfortably afford your lifestyle with that amount, imagine if the same amount of income started flowing into your bank account without you having to work for it.  

That's when your life can change because, until that point, you are dependent on your active income (income from working).


Final Thoughts

There’s so much bad advice out there that we have to work for 45 to 50 years before we can be financially comfortable. 

But now is the perfect time to challenge that, think outside the square, and create an alternative framework that can get us the financial outcomes we want sooner. 

How Society Fools All Of Us
Are Banks' and Groups' Financial Products Worth It?
The Alternative Framework
Building Capital by Investing in Good Quality Assets
Diverting Capital into Income Producing Alternative Investments
The Fear of Hard Work in Investing
The Point Where You Can Start Playing the Life Game You Want
Final Thoughts