Common mistakes for wealth creation 3

In my last post, I wrote the misconception that wage increase adjusted inflation is a bad way to think about wealth. In this post, I will talk about another common mistake workers make. The mistake is related to lifestyle, with special emphasis on accommodation. Whether be it rented house or owned home, the same problem is observed. 

     Many workers tend to live in a middle-class neighborhood. There is nothing wrong with this idea if your wage can afford it. Some workers pay house rents which can represent about 40% of their takehome pay. This may not be obvious because house rent and condominium fees are paid in different days. One can only create wealth when he or she minimizes the expenses and maximizes accumulation and compounding mechanisms. 

     Many other workers take up high value mortgage in order to own their houses. Although having a home is good, one cannot put all his money in that. How can one live in a house with mortgage value of $1 million, but living on a monthly wage of about $20,000? What happens if the person buys a small house and accumulates $7,000/month for a period of 10 years in investments? At the end of this period, the person can buy the house of $1 million and pay cash. The person will be rich to the point he or she can even decide to stop working. 

     Wealth creation requires patience. In the success jargon, it is called delayed gratification. That is, to have patience and make sacrifice now so you can be wealthy in the future and buy whatever you want. Think about that!