The concept of lifestyle creep is another crucial factor that keeps many people from building real wealth. As income increases, most people automatically increase their spending, maintaining the same savings rate instead of dramatically growing it. The key, according to experts like Brian Tracy, is to maintain your current lifestyle even as your income grows, allowing you to invest an increasingly larger percentage of your earnings.
Rauld challenges the conventional wisdom about retirement accounts, particularly 401(k)s, citing two main issues: money being tied up until retirement age and hidden fees that significantly eat into returns. He provides an example where the stock market gained 20%, but after fees, an investor only saw 7% returns.
Instead, he advocates for alternative investments, particularly real estate, which offers superior tax benefits through mechanisms like bonus depreciation and 1031 exchanges.
When it comes to investing, Rauld recommends dividing investments between active and passive opportunities. Active investments might include directly owned real estate or starting a business, while passive investments could include real estate syndications or other hands-off investment vehicles. This balanced approach allows investors to benefit from both direct control and passive income streams.
Even traditional approaches to college savings get a fresh perspective. Instead of relying on 529 plans, Rauld suggests considering the purchase of a single-family rental property. Over 18 years, the equity built in the property could more than cover college expenses, while potentially offering better returns and tax benefits than traditional college savings vehicles.
