Hi, it's finance time again, and this one's rather important because, well, I think this applies to absolutely everyone. So it's really important stuff to learn about. Um, wealth. And I've come up with an equation, which I think is kind of cool and it basically is.

I've called it the wealth equation and it's how to build up wealth over time. Now, this is not a get rich Quick video. It's not a how to Invest video. Do Not take investment advice from an engineer on Youtube.

Okay, but hopefully this will give you a good idea of over time. How like Joe, Average can become wealthy in quote marks. That doesn't mean you know you're super rich and you can afford your own private island, a luxury yacht, and everything else. But and this is an almost guaranteed way to do it for most people.

I mean, there's bad fortune, and there's bad circumstances and everything else in life. If you follow this basic formula, you should accumulate wealth over time. And of course, wealth can be in property. It can be cash and bonds.

It could be in gold or silver. It could be in other commodities, It can be in equity. It could be in index funds, It could be in crypto. It could be in collectibles if you're into that sort of thing.

Or it could be your own business that you've built up over time. And there's other asset, uh, classes as well. But basically is wealth is your collective assets built up over time. and it might look a bit scary, but you know, follow with me.

Now this is the summation or sigma symbol in mathematics. So basically what it's saying is that we run through a loop here and we do all this stuff and we add them up over time. We're summing them up over time. Think of it like a for loop.

The full loop starts down here and ends up here with these are the boundaries and this is given the symbol I So I've got. I equals start work. So this video. It doesn't matter where you are in life, let's just assume that you've got zero wealth.

You know you're a student, or you've just graduated or whatever. or you've just starting working, you've just hit rock bottom, you're bankrupt, and you want to start again. Or you've simply got no savings at all. and you want to start building some wealth.

So this is time equals zero. By the time you start work, all the time you start getting income to year. In whatever that is, it can be 10, 20, 30, 40, 50, 60 years down the track. So this part of the equation here, it just keeps adding up.

Every year we go through this loop, we just add this up and I'll at the end of this, I'll actually go through a working spreadsheet with you to show you how this works. Now, a lot of people think that the best way to get wealthy is to invest in things is to invest in crypto, doggy meme coins, to invest in bloody Tesla shares when they're one dollar and they went to like, a trillion dollar bloody asset value or whatever. Or invest in, uh, property that's just gone gangbusters so we don't care which, um, investment asset class gives the best return over what time period? It doesn't matter. Okay, it's the fundamental concept that when you start from the bottom, which you are, you're starting at day Zero.

You've got zero cash in the bank, You've got zero assets, and you want to start building wealth. You can't just suddenly go and invest in these sorts of things. You've got no money to invest, You've got no cash to invest. The number one guaranteed way for you to build wealth over time is to accumulate your income, spend less than your income, and the return on that then adds up into your wealth into these asset classes.

In most cases, your income is what is going to make you wealthy. because you've got a skill, you've got a talent, or even if you don't, you know you're working at a just working at a dreary job. For the man, you're still earning income, your wages, your labor that goes into your income, your time is money, your time is your income, your time, or your talent is your income. And this is where most of your wealth is going to grow from.

In fact, it must grow from this when you start at zero here so income can come in different forms that can come in wages. It can come up from your own business if you're starting your own business. If you've got a side hustle, highly recommended, Be a midnight engineer. I've talked about it many times.

You might have a wage job during the day, and if you've got a side hustle at night, you know you're trading stuff on ebay, you're making something, you're selling kits, you're doing something or other, or you might be doing some consulting work on on the side that then leads into your business. once. Uh, your side hustle gets bigger then the wages working for the man, for example. Then you go.

I'm going to go, I'm going to level up, and I'm going to go into business for myself. And then there's lots of advantages to doing that. And then you might also have in future years investment income coming from the wealth that you've built up in these assets here. But we'll talk about that more later now.

Expenses: You've got these every month every year. However, you want to totalize it. You've got to eat of course, unless you get your food for free. and then you've got to have a roof over your head that's either a rent or a mortgage or could be free If you're living at home with, uh, mom and dad.

the Bank of Mum and Dad can be important to build up assets. Let me tell you, then you've got taxes. Of course that usually comes yearly, but it can come quarterly if you're in business or depends on your country, depends on your tax circumstance. But you've got taxes.

And then you've got entertainment. Don't forget to have fun in life, right? There's no point just working your ass off getting as much income and not at least having some fun. Um, in life. So and then you've got health, Of course.

very important. Don't skimp on your Um. health. Even in a country like Australia where we have a world-class Um healthcare system, for two percent of our income, we pay two percent of our taxable income.

That goes towards universal, uh healthcare. It's pretty good, but you do, you know, ultimately, get better and more choice if you go for private health. So you might wanna, you know, put something away for private health, uh, expenses, for example. And then you've got transport.

If you need to drive to and from work, you're going to own a car, and that sort of thing. You've got to take the train or the bus or whatever. And then you've got uh, tools and other toys. I guess, toys you could whack into entertainment.

There, you know, you got your fruity iphone gadget, farty novelty gadget that you won't want to buy. So you've got your tools that you might need for your business or for your hobby that's doing your site hustle and you know stuff like that. and you can probably think of more expenses and more income sources if you really want to. But basically the major part of the equation is spend less than you earn.

If your expenses are greater than your income. You are not going to build wealth. If you start out I equals zero. It's literally impossible for you to build wealth if your expenses are more than your income.

So get your expenses down and get your income up. This is vital. It's not hard if you're not happy with your job. If it's not paying enough to pay for your expenses, where you know, wherever you choose or have to live, then well find another job.

Get a side hustle, Do whatever. I know that there's circumstances in life where this is not always possible, but in general I'm talking about Joe. Average here. If you don't like it, get a better job, find a way to produce more income.

And there's rules of thumb like not spending more than say, 30 percent of your income on uh, rent or mortgage or whatever. I've done a video on how to become your own bank and building up our property investments. So anyway, income minus expenses gives you a chunk of cash that you you've got left over every month every year that then you can put into various assets uh, to build up your wealth because you don't just want to piss it away on some freaking entertain some new car or some like that, right? Don't do it. Minimize your expenses.

You should Not be driving a new car. If you want to be building wealth, you shouldn't have a 2 000 bloody fruity iphone gadget. If you're trying to build wealth, don't do it. Minimize your expenses.

So now we've got this little eye next to it because I is our little counter here. This is like Year one. Uh, for example. So this is our income minus expenses for year one and you'll see this in the spreadsheet later on how this works.

And then you've got, of course, our asset investment return. You've got to add that on. You can think of that as another part of your income here. I forgot the little asterisks uh, next to that up here and that's basically it only becomes part of your income if you like.

Maybe you know, sell some shares a profit on some shares. If you sell profit on crypto, you cash it in, or whatever like that that, you can only realize those gains to come back in to the income here. But anyway, in your first year, you've got nothing to invest for the first year because you guess we're doing this in one year intervals, right? So that's why I've put I minus one here because this term here is going to be zero for the first year you're trying to build wealth. Basically, you only get an investment return from the assets that you held the year before.

So after each year, you should have a net remainder value in, say, cash. That then you can buy various assets and build your wealth. and that adds up year on year on year. So minimize expenses, Maximize income, Get some.

Maybe get some investment return you don't necessarily have to. This is actually usually a very small term. Like you know, a good investor will be happy with like five or seven percent investment return. especially in uh, today's climate.

You know, when I was a boy, you could get 15 percent. but there was a 17 return. We were getting on bloody Cash in the bank. 17 return.

And just to simplify this whole thing in this whole equation, we're not going to include inflation in this sort of formula. It kind of mixes things up. It's hard to sort of put it in there, but inflation matters. I mean, your expenses go up.

You can say, like, expenses, you know, multiplied by, uh, inflation or something like that every year, but it comes out in the wash. But you know, inflation can be a big part of this thing. So each year you end up with a value that then goes into your wealth, which you can build up in any of these asset classes. We'll talk quickly about them.

Property is a big one. Because I've talked about this being your own bank. I've done a video on that. Being your own bank means that you build up asset.

value in the property is a decent one because banks are willing to give you money back. You've got to use a financial instrument from a bank anyway. A property with an offset account. that's what it's called here in Australia.

You can actually put your leftover cash each year, each month into your property and then you can withdraw that out at any time. This is the part of this emergency thing I've put here at at any time in your life because life throws curveballs at you. Whether it's you know, a health-related thing, a life-related thing, family, um, you know, business-related thing already. I covered just happening.

Your business has crapped itself because the government's bloody will shut you down completely. You can use part of your emergency funds that you've built up in the assets. You can take those out and that can supplement your, or even replace your income if your incomes can't go into zero because the government mandates. So um, and then you can withdraw this emergency fund And that's easier to do if you've got, say, an offset account in property.

Real simple. Of course. if you've got cash, you might have to sell some shares. or you might sell some crypto.

or you might you know, sell some other, um, stuff to actually supplement your income. And this is of course, what. Having what's called screw you money if you don't like your job working for the man up here and you've built up some wealth in your assets over here, you can say screw you. I'm going to go get a better job or I'm going to go start my own business.

I don't need this damn job. I've got some screw you money over in my assets here. So the good thing about buying property is that not only are you accumulating an asset here that generally goes up over time, cross your fingers and hope that the property boom lasts, but generally over time property is going to increase in value. So hopefully the asset rise in the property is enough to offset the interest rate that you pay on that.

but also using an offset loan. I talked about, um, you can just use it as a bank account, so instead of having cash in your bank, you should always have some cash in the bank. To you know, cater for emergency expenses and things like that. but you can actually leave it in your offset account in the property and that reduces your interest.

Compounding over year on year is a very huge thing and so you can leave it in your property and you can withdraw that cash at any time for any reason. This is how I bought my lab here. I had built up wealth in my property like this. It was sitting in an offset account over here and when I decided that I'm going to do this Youtube business full time, I went.

Well, I want an office. How am I going to do that? Screw the banks, I don't need them. I withdrew the money that I had in the offset account in the property. I didn't need their permission, I just took the money out and I bought myself this lab here.

I owned it from day one because I built up wealth in my property. so some other asset classes you might build it up in gold or silver for example. You know gold's done pretty well. Um, over, you know, look at that over a longer period of time.

It's certainly done better uh, than cash has. uh, for example. So it depends like on how safe you want to be and this is all like investment advice which I don't want to go into. But if you're young and you want you know high risk returns, you might go into crypto or you know, some other stuff like that.

But generally like, if you want slower and safe, you know you might get a loan for a property you might, uh, you know, have some in cash. You might have some in gold, for example, and then you've got other commodities you might want to invest in copper or lithium or something like that. And then you've got equity and which is, generally, um, like stocks in the company. So the share market.

Um, and then you might have um, index funds as well. If you don't want to, you know, risk picking picking individual stocks or and you want to get like a return. Uh, there's index funds you can that actually pay an investment, uh, return on your money. They might pay it quarterly and it follows the index and I generally over time.

that's you know it's not a bad way to get your you know, five percent plus uh, return or something like that. And in here in Australia you can get fully frank tax benefits and things like that. But anyway, then of course we've got a big one. Everyone's talking about crypto.

Um, well, for the last what, five years or something there's been huge booms, a few bus in that crypto. very high risk kind of stuff. But generally it's here to stay, it's not going anywhere. So if you want a higher risk return, you might put it in crypto and that might be inflation for example.

Pretty much all of these things. You would choose these asset classes once again, to have a balanced asset, so you spread your risk across different asset classes, and to beat the inflation that we are talked about. because inflation. It's happening pretty quickly at the moment.

Let's just say that. So generally, uh, you want to choose various things to spread your risk and beat inflation so that you can build your wealth over time so you know it's not eating away. And generally once you smooth out the booms and busts, cash is probably the worst place to be. But as I said, you should still have some for emergency situations And that can be like in your property for example.

So yeah, you probably shouldn't have much in an actual cash account unless you don't have a property. But of course all of these things can boom or bust. So the problem here is that this asset investment return. Okay, it doesn't have to be positive.

It can actually be negative like that. If you're having a bad year, it doesn't. Trust me. property can crash.

Okay, cash is always going down. Inflation. You know there's no negative inflation. Inflation is positive right? So cash is always going down.

Metals can, uh, plummet as well. You know we have the in 1980s silver boom for example. and then it didn't recover. It still hasn't recovered.

Uh, to the Hunt Brothers, they shorted the metals market anyway. it won't go into it. Uh, commodities can crash there. Um, equities and shares and stocks can crash If you think your trillion dollar Tesla valuation you think that's only going to go up.

From there, I got a bridge to sell you links Australia and New Zealand and index funds. They can actually go down too on a bad year. Crypto, of course. Okay, you can't handle 20 to 50 swings in a day.

You shouldn't be in crypto and then you've got. uh, collectibles. Um, that's might be art, which is a basically a rich man scam. Pretty much.

um, don't get involved in that, but you know you might be into collectibles, newfangled, Nft things. and if you're relying on a bigger sucker to buy your thing, then anyway. there's lots of risk in the collectibles market. unless you're super rich and it's a way to.

yeah. Anyway, let's not go there. Um, and your own business. Your own business can be one of the best wealth drivers of anything if you think.

oh, I made fifty percent in crypto. Oh, my property went up fifty percent last year because there's boom and it's going to the moon. everything's going to the moon. Well, your business can do that too.

And it can do it in a guaranteed way if you're running a good business here. for example. And let's say that you're buying and selling stock and let's say you make a really good margin. Let's say you make a hundred percent profit.

You know you, you buy a widget for fifty dollars and you sell it for a hundred dollars and that's your business. you know, minus expenses of course. But anyway, um, like if you let's just say you can get a guaranteed 100 return on if you buy stock for your business and selling it. Um, of course there's a risk there.

The markets. You know, the retail markets can plummet things like that. people get scared and they want to hold the cash they don't buy anymore or other things can happen. whatever.

But if you know that, it's a really good bet that if you put all your money into buying stock for your business, if you know it's going to sell, and even in a crisis situation, you can still make 20 profit instead of your 100 profit or whatever. Um, you know if all thing goes to hell in a hand basket, then you can, you know, still make money on your stock, then it's better to after each summation period. After each year or however you want to look at it, you buy more stock for your business and that's a 100 percent return with a much higher guarantee than you'll get in any of these other asset classes. So if you're running a good business, one of the best things you can do to build wealth is to build a business.

The majority of really wealthy people that built their wealth instead of like getting lucky because they bought Bitcoin at, you know, a couple of bucks or whatever, but the ones that have built their wealth. um, they usually do it by operating their own business and reinvesting the assets in the business. But of course, business can have high risk. Just look, um, for the numbers in your country.

I'm sure they've published the numbers on what percentage of businesses fail each year, for example, and it's actually quite large. But there are some businesses, especially if you start them as a side hustle and then you build them up. If you don't go all in, then you know if you build it as a side hustle and build up this nice little business, it can be almost guaranteed that you know you can ride out any problems in life or the markets you know, covert hit or something. You can ride out all these sorts of hurdles, um, that come up in your life.

And building business is a great way to build wealth. So as a summary: over time, spend as little as possible, earn as much as you can. I know this is like this is not rocket science. Everyone knows this.

It's basic stuff, but you need the discipline to do it. And that's the important thing. Spend less than you earn. Realize that most of your wealth is going to come from your wages, your time and effort, and your talent that you can put into things.

It's not going to come from speculating on a bloody asset. Yeah, you can get wealth because you've invested in some doggy crypto meme, but you know. Look, come on, that's just luck, right? We're talking about how Joe Average can build wealth over time, and then when you include concepts like compound interest on things and then complex and generally the assets going up over time. And you know, yeah, you can have fluctuations, but over 10 or 20 year time frame.

Most of these things with the exception of cash and some other thing. you know, if you bought metals or commodities right at some absolute peak or something, it could take a long time, uh, to recover and stuff like that. But generally over time things will tend to increase and beat inflation and you'll build wealth. And then each year you'll be topping that up.

You'll be topping up your wealth with your income minus your expenses, and hopefully any additional returns, but build yourself into a position. Choose asset classes so that the investment return if it does happen to be negative that year, you know the stock market absolutely crash housing, tanked or whatever. Or crypto did a dead cat bounce and it's just lying on the floor dead. Then you can, uh, hopefully your income is going to.

you've got a large enough margin in income minus expenses to offset any negative returns there. Okay, so you had a bad year, No big deal, you've still, you're not going to lose everything. Hopefully if you have had a nice, safe asset wealth portfolio over there. Now as I said, some of these things can actually be used to minimize your expenses and this is a really good thing.

As I said, you have to live somewhere, right? Rent and mortgage. If you put in your assets in the property, for example, you can use that to live in or this office here. I'm using it to work in. I own this thing right.

I don't have to pay any rent. there's a little bit of strata for the building for servicing the lifts and cleaning the toilets and stuff, but apart from that, my expenses on this office are very low so I don't have to fork out rent like that. And I also over the years I've built up my house as well. so I don't pay a mortgage on my house and over.

You know, like you can't do this in like five years or even 10 years. But over the span of 10, 20 or more years, you can start owning property that then you can use for your business and for your to put a roof over your head as well because they're two essential things you really can't go without. Let's go to the computer, let's go to the spreadsheet and we'll have a look at you know, just puts, run some numbers in here and see how your wealth can build over time. All right, let's have a quick look at a very simplistic spreadsheet.

This is not going to include all the variables because it's incredibly complicated if you want to take everything into account and all the different types of asset classes and how they interact with, uh, your expenses and all that sort of stuff. So I'm going to start with the income here. a very basic 50 000 a year job, and then you've got your expenses that go along with that. And then I've got an expense percentage up here, so we can.

I'm going to say that you're going to spend half of what you earn. Okay, but we can say like I can change that to 30 and you'll see the expenses go down. If you can only like save 10 of your money, that's still worthwhile. Okay, even if you're even if you can only save five grand per year, you can see that your accumulated wealth is still going to increase.

That's nothing to sneeze at. Okay, but let's say that you're like let's aim for. I'm going to save her. I'm going to be really frugal.

I'm going to save half of my money that I earn. If I don't have a good enough job, then I'm going to ever get a better one. Or I'm going to supplement it with some side business income or something like that. And then I've got another column called happens Because does happen.

I'm just assuming that something happens every five years. I don't know. You break your leg and you need a i don't know some operation or something. You know you have to help someone out or something else happens.

Whatever it is, you know, every five years I've just put like some random expenditures here. So then your net gain is the expenses minus the happens. So your net gain is how much you've got left over that you can invest in whatever asset class you want. Next column here is investment.

Uh, return. And of course you get nothing on the first year because you haven't done anything. And then I've put just like a basic investment rate here and I've put like a nominal five percent like for most years, but some I've gone like negative minus 10. Oh, we made 10 that year.

Oh, we lost 20 percent. Oh, we made a 20 game here. Oh no. Crypto crash.

We lost 30 percent here. so I've just sort of mixed it up there. Okay, so that gives us an investment return, which if you look at the formula is, uh, just the accumulated wealth times. The investment rate here very basic.

and of course you may not get that if you're investing in property as we'll look at here because you don't get a and like you don't exactly get an investment return on your property like a tangible investment return. It comes in other ways as I'll say as I'll show you how you can actually save money here in a second. So I've got an income rise here now. I've set it to five percent per year because you're going to need at least that to overcome inflation.

So you know we change that to two percent per year. And like after 30 years of working like you haven't got much. Um, so yeah, I'm gonna leave that at five percent. You should be aiming for something like that, and somewhere in here you might decide to go into business for yourself once again.

Site income, all that sort of stuff. It all throws a spanner in the works of these calculations. But now, as I said, one of the important things is you need a roof over your head. And if you've got your own business, you need a roof over your business as well.

and you don't want to be stuck paying rent. So one of the best things to do is to actually buy a property because that pays long-term dividends in terms of investment saving. So I'm going to assume that after the eighth year here, we've built up enough accumulated wealth here that we can put a deposit for a property. And then once I've done that, I've actually got this figure over here, which is a property reduction figure of 10 and what I've done there.

and you'll notice that the expense calculation here before was, basically, um, your income multiplied by, uh, the expense percentage. But when you own that property, this equation changes. so it's it's still the same equation. but I'm going to subtract B9, which is your income times this a property reduction rate because often, uh, the repayments on a property are less than what you'll pay in rent, especially with the incidentals and everything.

especially on a commercial property that I'm in. For example, if you rent a place like this, you've got to pay the outgoings and everything else Like the rent can be higher than what you actually what the repayments uh would be. So yeah, it's not good, but once again, this is a figure I can uh, type in here and muck around with and you'll see those figures change. but I'm going to leave that at a 10 reduction.

So we were paying like for exactly the same 50 expense percentage ratio. We were paying 33 and we would have like if we actually go to zero. if we didn't buy that property we would have been paying 35. But let's assume that we got the property reduction of 10 percent and we're only now paying 28..

So we've actually saved some money. It might be the same, you might not save anything, but I'm just putting that in and then 10 years later. Okay down here. Uh, jumped from K3 there to K sell K4 for the rest of the time because as you pay down that principle as you put that money into the offset account which reduces your principal in there, then you're going to get a greater return over time.

Actually, you know I shouldn't do it like a step function like this. it should be like scaled so every year it like scales down like a a percent or two or something like that. Uh, depending on how much money you're feeding back into the offset loan on your property and stuff like that. But your your expenses should actually reduce over time.

and if I put both of those at zero, if we didn't buy that property, we'd be paying at still paying 108 000 expenses here on our 216 000 income in 30 years time. But because we bought that property and we're actually reducing that and you probably end up owning it after that amount of time. anyway it your expenses go down and down. In fact, they might be back at levels that you were, you know, like 10 15 years before for your expenses because once you own that property, that roof over your head, that's an ongoing cost which you're committed to because you've got to live somewhere and you if you're in business, you have to work somewhere.

So yeah, these reductions matter and they matter a lot. But the big takeaway with this video of course, is that most of your accumulated wealth, especially in the first decade or something like that or first couple of decades is going to be due to your income and your labor and your time that you actually put in. It doesn't come from your investments, just compare the investment return here every year with the net gain. Where does where does your investment return start getting more than your net gain here? You know, like we're assuming okay, our doji doggy coin hasn't gone to the moon or something like that right? Then You know, Look after 15 years, right? we're still not any higher, right? It's it's not higher we we have to get to like the 20 year, not even the 20-year mark.

Oh boy. over here Like you know, 20, 25 years? Something like that where your investment returns start bringing in more income than what you can get by your labor and your talent and your business can actually, uh, bring in. And yeah, it's a very long term down the road thing. This is why most successful entrepreneurs have built businesses.

They haven't gotten rich by simply investing, But of course there are those that have. and well, they've gotten lucky, right? Basically because you only hear about the lucky ones. So I hope you enjoyed that video. If you did, please give it a big thumbs up.

And as always, discuss down below and over on the Eev blog forum and follow me on all of my other platforms as well. I'm on like half a dozen different platforms. If there's a video platform out there, I'm probably on it. Catch you next time.

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