212. How To Climb The Personal Wealth Ladder (Step-By-Step)

The five levels of personal finance and how to upgrade and level up in the world of your own personal wealth.

And you may find yourself at different levels at different times and that's just the way life is. Things maybe go swellingly for you and you want to offload a bunch of shit or you have a life event that happens, that's okay.

How can we utilize crypto to help you level up your personal wealth gain? That's exactly why you're in crypto, right? Crypto is only a small part of your overall investing game plan.

Exactly. And compounding is not linear. And you will get to a point where you earn more from your investments than you do your job.

Welcome back to another episode of the Ben and Bergs podcast. I'm Ben, your favorite high school dropout, the founder of Collective Shift alongside Ms. Bergs, your favorite MBA and COO of Collective Shift. We're here to bring you world class crypto research strategies and insights to help you crush this crypto bull market. Plus get an exclusive behind the scenes look as we scale Australia's leading crypto research company. And off the back of our how to build a personal finance plan that grows your wealth episode, we we shared a couple of weeks ago. We're back. Berg's leveled up and we are now sharing a deeper dive. As it was so well received we got so much awesome feedback around the five levels of personal finance and how to upgrade and level up in the world of your own personal wealth, which is gonna be an interesting topic. Bergs, as I said, we got so much awesome feedback. Apparently now a thing or two in this space so you know who, who would know, who would believe that I.

Like the way you said that. I've leveled up mate. I've known this for over a decade. I'm just waiting for you to catch up mate.

You know I, I, I'm happy you've.

Started, I'm very proud of you for doing that.

You know.

Brought you one of the company, you know, pay a bunch of money and you decided to not share this for four years. So I appreciate you holding back. You know your knowledge story is that.

Ben's company was just in flames. There was this giant hole of car that he just needed to like filled and he was just like this is ridiculous. I need someone to come and save me from myself. Pays me 4 cents.

And he wouldn't listen to me for like the first three years and now all of a sudden he wants to listen. So we go on an exec retreat, he draws a painting and now he wants to listen. So it's time folks, it's my time, let's get into it. So we had a great reception from quite a few people messaging us personally saying, hey, this is great to go over the basics. Even our high net wealth people, they still need to think about the basics and have it, you know, reiterated to them and explained in a certain way so they can make sure that what they're doing is lining up and actually accelerating. Now for everyone out there, this is not financial advice, not tax or legal advice, general in nature, only for educational purposes. And please see your licensed professional. Now, I've, I don't know what it is about me, but I love personal finance, I love kind of structuring and building and I put together five different levels and we're going to go start right at the bottom, go right to the top, and I've given them a little name. So level one is starting out or starting over. Level two is free first foot on the ladder. Level three is climbing the ladder. Level four is accelerating. And level five is choose your own adventure. And you may find yourself at different levels at different times. And that's just the way life is. Things maybe go swellingly for you and you want to offload a bunch of shit or you have a life event that happens, that's okay. But really these build on one another. And this is to get to an awesome spot where you're so financially stable that you just don't worry about it and systems are working for you. So Ben, let's kick off level one, starting out and starting over. So this is generally younger people or people that are starting over later in life. You're probably going to be in debt. And what you need to do are very two very basic things. Spend less than you earn and save up an emergency fund of three months of income. And I think just doing that will give you an awesome level of freedom. If you have three months of money of living expenses in your emergency fund, that is like the first level of FU money because you don't have to go to work, you don't have to appease your boss, you don't have to live in that share house that you're in. You can exit that, you've got an emergency fund that will take care of you. And if you quit your job, you get whatever severance you get plus three months to figure it out. It is an awesome spot to be in. But the key here is to spend less than you earn. Don't spend exactly what you earn, don't spend more than you earn, which a lot of people do, and they go into debt, they leverage credit cards, whatever you earn, to spend just under that. And you can focus on, you know, increasing your income, upskilling. And that's really what you want to focus on for level one.

Now, level two, first foot on the ladder. This is where it starts to get really interesting. You've got your emergency fund and you're spending less than you earn. So what you want to do Here is invest 10% of your income into your chosen asset class. Generally, your income will come from your job. Let's say you get $1,000 a week. 100 bucks will go into a specific asset class. This is for the long term. You want it to compound over time. Very basic principle. Time in the market, not timing the market. Automate the hell out of this. It'll take you one hour to set up. After you have an emergency fund, the capital you don't need for the next 12 months, put it in your bank.

Have some savings, have your emergency fund. But there's a key principle here, and it is after you've got that emergency fund and whatever basic savings you need, don't put your money in the bank. Buy the bank. Why would you put your money in a bank and get 5% and then have to pay tax on that and the bank lends out your money when you can buy bank shares and share in the profits and get the dividends. That's the kind of mentality, flip where people need to go from just saving. And then once you start building, you need to invest because you need to beat inflation. And these are some of the things that you set up. Ben?

Yeah, the automation's been great. And the book, I can't remember trying to remember the book that I was reading around, you know, just putting 10% of your money, you know, aside into a boring asset, you know, every week, something you automate, you don't even think about. And it's like, you know, you, you're just working off the 90% of income that you have. And then over time, that, that, that, that really compounds and grows. And that automation, I think, is the key, especially for a lot of busy people. You end up forgetting about it and you never do it.

It's like your superannuation. Just go and have a look at that, how much that compounds over time. That's the name of the game, beat inflation. So if you have a hundred dollars today, next year, if inflation rates 10%, it's purchasing powers, 90 bucks, that is no good. You want to have more than $100. And if you really want to look at the power of this and setting up this automation, just do a bit of forecasting. Whatever money you're putting in per month, there's little calculators online or per week and then how much that compounds at, say, 8 to 10%, because that's what you will get in a market like just buying ETFs, ASX, those kind of things. Doesn't have to be crypto. And if you want to get really excited, you can use tools like the rule of 72. So whatever interest rate you have, you divide 72 by that interest rate, and that's how many years it'll take you to double the amount of money you have. Yeah. So let's just say I've got $10,000 if I'm investing and I'm getting 7% per year. In 10 years, that'll be $20,000. Another 10 years would be 40. And if your rate is 10%, it'll only take seven years to double.

Yeah.

So it gets incredibly exciting.

Compound. It's very hard to get your head around, but it's, it's a. It's an amazing thing. Richest man in Babylon. So that was the book I was thinking about. That's. It's a good. It's a good little know story of exactly what B is talking about.

Exactly. And compounding is not linear. And you'll get to a point where you earn more from your investments than you do your job.

Yeah.

Which is exciting. All right, let's go to level three. Climbing the ladder. So this is not for everyone, but you can purchase a property. And a lot of people do this, especially in Australia, because you get very high leverage. You only need 10% or less. And property is tied to a lot of things, a lot of super funds, a lot of wealth. And it needs to be propped up, I believe, because so much wealth is tied into it, that if it's not, and there's a huge crash, the government has to pay out pensions and other subsidies and benefits. The amount of migration we have, there's a whole bunch of stuff going on. You can go down the property rabbit hole, but it is one of the classic asset classes. If you don't want to do that, you can just rent best. So you can rent. And the gap between your rent and what you'd be spending on a property, you can just invest that money and you can put it into an ETF and live a happy life or a mutual fund. Now, the keys to this do not overcapitalize on your home loan. Please do not do this. I've seen so many mates that were earning just top 3% income over capitalize on their houses, multimillion dollar houses and they think it's this great trophy and they deserve it but it is a mausoleum. It is a noose around your neck where you are paying I don't know, 6 to 10k per month for this massive house that you don't need because it's a status symbol. Status symbol. And it is, it is crazy. I've seen what it has done to my mates and they are just on this perpetual, you know, hamster wheel where they have to keep working in order to service that massive, massive loan.

And especially if it's home or occupied to Bergs, right? Like it's not tax, that's post tax dollars as well. That's like if you're paying 10k a month, that's like, that's a, that's like 15,000amonth. You know with pre tax dollars. It's insane.

Exactly. It's a lot of money and you need to factor in things like if you're younger and you're buying a house and you want to get married and your, your partner or you might not be working when you have children, factor those kind of things in. Because I know a lot of people that have struggled that didn't really think that through future expenses. Because your home loan nowadays is 30 years plus. And when you're doing, when you got your home loan, this is very, very personal to me. But seriously, fuck that 20% deposit. Because by the time you save a 20% deposit in order to avoid lenders, mortgage insurance, housing prices have gone so far up that you are now paying more. Capitalize it on your fucking loan and start servicing that thing and get the growth as soon as you can do your sums. How long it will take you to, to save? If you're at 5 or 10% now up to 20. How many, how long that'll take? Usually it's years. What will property prices be in years? And then what is paying LMI on your house for that equivalent amount and nine times out of ten you should capitalize on your loan. But speak to a mortgage broker about that shit. And now let's really get into it. If you've done this, you need to set up a little bit more automation so all of the income that you get, stick that into your offset account. Those that don't know you've got your mortgage, let's say it's $1 million. Anything you have in your offset account. Say you've got 100 grand, you're only paying interest on the 900 grand differential. So it's just like a savings account. But it's better because if you're paying 6% on your mortgage, if you invested that money and got 6%, you would have to pay tax on that. There's actually no tax and you're offsetting it. So 6% plus your marginal rate of tax. So if it's 30%, it's really 7.8%. Amazing. Do that, it's great. But also invest for the long term with that 10%. So all your income goes into that offset account then. And this is the tricky part, and it's not for everyone. It depends on your spending habits, but all of your monthly expenses, so you have your Ubereats, your subscriptions, your bills for your gas and your water and everything. Pay that on a credit card. So the way this works is all of your pay instantly goes into your bank account, your offset account. Your interest on your mortgage is compounding daily, if you didn't know. So every day you have money in there, it offsets it. You pay all your bills on your credit card. At the end of the month, you pay off your credit card. So you've been accruing, you've got less interest for those 30 days and you pay zero fees on your credit card. Plus you get a bunch of points. So really you're just leveraging debt from someone else. But you need to make sure that you don't overspend and you do meet your debt obligations.

So speak to your financial planner about that. Accrue frequent flyer points. Amazing. And then in this level, I'm also going to say this is actually for further levels down, running at level three. But it's important to consider this as well. So speak to your accountant and your lawyer and consider structuring. So when you start accruing all of these assets, you're generally going to put them in your personal name, which is fine. But as you get older, you do more things. You may be a company director, you may be on the top tax bracket, and you want to divert income to another family member. Think about things like trust structures, company structures, the implications and asset protections there. Some have 50% capital gains discount that flow through. Some may have a lower marginal rate of tax and have that conversation sooner rather than later, depending on what you want to do in life. Because if you think ahead maybe 10 years, if you can, setting up those structures now will save you thousands, if not hundreds of thousands in the future and also protect your assets. Especially you, Ben, like a company director, you know, you're on the hook. All of your personal assets can potentially be on offer.

Yeah, especially, you know, we know a lot of you listeners have a lot of crypto in your, in your structures. You know, to move assets from structure to structure for, you know, most of the time it's taxable event. So you know, it, it's a, the longer you go, the worse you can get in terms of trying to unwind it and restructure down the line. So definitely something you want to get started and looked at earlier on than later.

All right, Ben, now this is the 1. Level 4 accelerating. This is my favorite one. Okay, so this is when you're really hitting your straps. So you've got your emergency fund, you're spending less than you earn, you're putting 10% away, you're investing somewhere else and you've got a property that you're paying off now. Let's go. You've got this big giant mortgage, right? It's crushing you. You can feel it across your chest. Just the weight. You want to die. You have to show up every day to work or you'll be homeless, but you can actually leverage that debt. So once you start to build equity in your home, that is the difference between what you owe and what your house is worth, you can generally leverage that as a debt facility. What that means is you can redraw from your mortgage or get another loan facility and you can use that money to invest. And when you invest that money, which is a loan, you can then get any profits that you have from that investing and pay down your loan faster. So this is called debt recycling. And this is amazing because your primary place of residence, that interest rate is not tax deductible. But if you borrow against the equity you have and you use it for investment purposes and speak to your broker, your bank and your tax agent about this, you can then use that money to invest elsewhere. Make sure you get over that hurdle rate of whatever your mortgage is and the additional profits that come through or dividends or whatever, you go back and pay off your non deductible debt. Because if you, if that rate is 6%, you'll get a tax shield against it at your marginal rate of tax, which brings that 6% right down. So good. This is very important and a lot of people don't like using debt. So what you can do, let's say you've got. I generally encourage people to think about if you've got 100k with equity in your house, take out 80k of it, right? Because you have no lenders mortgage insurance against it. There's a debt facility just sitting there. Think about that. You don't need to use that money. If you get in the shit, that money's there for you to use and you pay back at 6%. Brilliant. And if you want to start debt recycling, start with like five grand of the 80 grand and just see how it works. Try it out for a few months and accelerate paying off that non deductible debt. That's how you really start to become debt free. And the other thing is, this is about leveraging debt, using other people's money to build wealth. And it's important not to overextend the life expenses because over here you're going to probably be earning more money. You might have, you have more income, some of your debts might be less. So try not to have that lifestyle creep and hedonistic adaptation. Buy nicer things, that's fine. Do it in step with what you're doing, but don't let that always outpace. And keep up with the Joneses. Try to increase the amount you invest from 10% to maybe 20%. Now, if you're able to do this and this accelerating phase, it's not like one year, it can be 10 years, it can be 20 years. It can be different depending on who you are and what you want to achieve.

Yeah, Love it, mate. Nice.

Yeah. So that's, that's the fancy one.

That's like, that's a big one.

So fun. Like when you get to that level and you're structured, you got a house, you got an emergency fund and you got savings and you've got investments and you got superannuation. And now you're accelerating through debt recycling. It's like, oh, let's go. We're really, really getting after it now. And mate, level five, this is the top level. This is the choose your own adventure. This is the, you're in the financial kind of 10%. And that's not in terms of money. Okay. This is in terms of having your shit together. So you can do things like pay down all your debts if you want. Great. If you don't want to leverage any debt anymore, you can just use your own capital. So I know a lot of people that now will go and buy a house and then they will renovate that house and they just use their own money. So there's no hurdle rate. That's the level that they're at. They can do property development, they can invest in markets. They don't have to deal with banks. And here's the key. The income generation from their assets exceeds their living expenses. So let's say I spend 150,000 a year. I'm getting 150,000 post tax from my investments.

That's real freedom.

I don't have to work at that point because I'm covered by my investments. Work is a choice. Or you could work less or you could accelerate your wealth. It is really choose your own adventure. And it doesn't have to be 150 grand. If you live incredibly cheap in Southeast Asia and you work for an American company and you earn, you know, 200 grand and your living expenses are like 30 grand, you can save heaps over those years and it doesn't take much capital, it's like 300k at 10% to give you 30 grand a year to cover those living expenses, which is incredible. So you get to choose. It's not always millions of dollars. It is your life and how you want to live it. And it's the incredible spectrum in between quit and be a barista or take six months off work, six months heavy work, six months off. It's great. And you can borrow against other assets. So these like you've got a bunch of bitcoin, it's sitting there. You can now borrow against that. You can go spend this year while your bitcoin increases in value and then pay the loan off later. A lot of Amazon employees do this. They borrow against their rsu. So the stocks that they get from Amazon, because they know it's going to be a sure thing at a future point in time and they use that to pay their mortgages or use it as a deposit, whatever. You can potentially exit the tax system depending on your structuring and how you leverage loans and pay that back and how income is accounted for. And you can do fancy things like start to offshore your capital and super duper fancy things that I'm not even interested in. And that is the end of level five, mate. So there is a taste of five levels. Getting towards being financial, financial independence and even retiring early if you want to. And just thinking about money in a different way and really using it as a tool to your advantage.

Yeah, I love it, man. And it's so clear with the levels, I think you can start to figure out where you are in this ladder. And also, you know, again, one of the things we do a lot of with our platinum clients is look at, you know, how you Know, really, how can we utilize crypto to help you level up your personal wealth game? That's exactly why you're in crypto, right? You know, you're trying to fast track that, or utilize crypto to help grow your income or wealth or, you know, assets. So, you know, it's a fascinating thing. Crypto is only a small part of your overall investing game plan.

That's exactly right. I debt recycled into crypto. So at a point in time, I had a certain amount of money and I deployed it into the market. I had none left, but I had access to a debt facility. So I got that debt facility, I took a portion of it, invested in crypto, and as that accrued in value, I had enough money to service that loan through the money I was making through my previous job. And when that ballooned significantly, I took money out and I paid down my mortgage. Brilliant. And you choose an asset class, class that's right for you. It might be, I don't know, it probably won't be bonds because you just pay off your mortgage. It might be crypto, it might be shares, it might be real estate. A lot of people do this, they'll that don't actually understand this level of stuff, but they'll redraw some money from the more their primary place of residence. Get an investment property. Then when that investment property's paid off a little bit, get the next one. Get the next one. And mate, it just works. Don't be scared of this. Give it a go. You can use small amounts of capital to see how it all works. And just dedicating a bit of your time to this will save decades and decades of having to work, having to save, and will give you more and more choices in your life.

Epic, mate. Love it. Absolutely love it. Another masterclass from the personal personal finance wizard.

I love it, man. I absolutely love it. And it's just these simple things and to me it's glaringly obvious because all of these things I've talked about, like, none of them would take more than an hour to set up. Yeah, like, it is, it is so crazy. Like, like, okay, let's say three hours. If you want to get like a mortgage, you got to do some paperwork or you want to set up a trust or see a professional or set up a share account. But you do that and you go and live your life. Like these systems just work for you and you're enjoying your life and your wealth is just working in the background. It's a beautiful, beautiful thing. You don't have to pay, you don't have to think about it. And then when you check it every year or two, you're like, wow, didn't expect that to happen. And then you get some better choices in your life.

Yeah. And I really recommend looking at this in terms of your personal goals in your strategy and working on this and again, building your crypto assets and goals and frameworks around that. Because at the end of the day, you know, freedom and time, freedom and financial freedom is what we're all sort of striving for in different way, shape or form. So really great insights. Thank you, Bergs.

No worries at all, mate. Hope you enjoyed it out there, folks.

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What we'd love for you if you do enjoy it, is just share it around. It's how we can continue to try and reach more people and help everyone with their crypto and personal finance journey. So thank you so much for listening, folks, and we'll see you on the next episode.

Thanks, champions.