The path to financial freedom is challenging, and achieving financial goals can seem elusive for most investors. But what if you had a secret formula that explained why it’s so hard? A formula that, once understood, could be used to your advantage.
Today, we delve deep into the secret formula for to achieve your financial goals faster, safer and with more certainty.
Watch the first part of The Secret Formula on our Wealth Amplifier YouTube Channel, hosted by George Antone.
A Critical Wealth Principle
At the heart of this topic lies a fundamental wealth principle. Understanding this principle is critical, and it’s all about the breakeven point. Breakeven, in this context, is not about business, but about the rate of return on your investments needed to maintain your purchasing power amidst inflation and taxes.
The Mathematics Behind It
Don’t fret about the math, but it does paint a vivid picture. Here’s a simple breakdown:
R stands for the effective tax rate. This can be provided by your accountant.
I stands for the inflation rate.
Taking an example where the effective tax rate is 30% and considering an arbitrary return rate of 6%, the break-even point is calculated as:
B = 0.06 / 1 – 0.3
This equates to roughly 8.57%.
This means you need to gain an 8.57% return, compounded annually, just to keep up with inflation and maintain your purchasing power.
If you’re seeing returns of, say, 6% or 7%, you’re actually losing purchasing power, even though you’re technically “making money”.
The Challenge of Building Wealth
The system is structured such that building wealth is genuinely challenging. Many financial experts might promise returns of 4% to 6%, but once you account for fees, taxes, and inflation, you’re hardly making progress.
The Reality Check
Imagine a scenario where a coffee costs a dollar today. To ensure you can still buy that same coffee when its price rises due to inflation, you need to maintain (or preferably increase) your purchasing power. If your investments only return 6% or 7% when you need 8.57%, your purchasing power shrinks. In the future, that same coffee might be unaffordable, despite seeing “growth” in your investment portfolio.
Diversifying Your Portfolio
Diversification is crucial. If half of your investments are in low-risk areas with returns of about 2%, the other half needs to work much harder to achieve the necessary average return. The challenge is figuring out where to invest to see compounded, consistent high returns, especially when the goal is just to maintain purchasing power, not even real wealth growth.
The Bottom Line
The stark reality is that the financial system makes it incredibly tough for individuals to build genuine wealth. While it might seem like your wealth is growing, inflation and taxes can erode purchasing power over time. Recognizing this and understanding the break-even formula is the first step to making informed decisions about your investments.
In our next video, we’ll dive deeper into strategies to beat this system. Until then, remember to focus on both making money and retaining purchasing power. The two aren’t always the same. Stay informed, stay vigilant, and always strive to understand the principles behind the numbers.
If you found this content valuable, don’t forget to like, subscribe, and share. Knowledge is power, and we believe in disseminating information that empowers. For a visual breakdown of the topic, download the accompanying PDF linked below. We’re dedicated to assisting individuals in realizing tangible financial transformations, with a keen focus on implementation. Whenever you’re ready to take the next step, we’re here for you.
Stay tuned for the next chapter in this financial journey!
