“Why can’t a young couple working at McDonalds for minimum wage become financially independent in seven years?” asked David Parker, author of Income and Wealth.
Parker then went on to explain how it was done and how he did it himself as a small-salary teacher and musician.
Mcdonalds millionaire
The trick is to ignore instant gratification, live with your parents if you have to, live frugally and try to save half of your income. That’s right, half.
It’s such a radical and surprising idea that it hasn’t gotten more attention.
You can see an interview with Parker here, where he talks about how he became a millionaire and built a large property portfolio on a teacher’s salary in San Francisco.
He points out that there is no connection between income and wealth, as evidenced by the number of people who profit with all the accoutrements of wealth – houses, cars and Rolex watches – but little in the way of savings.
A case study
A McDonalds worker in the US earning a minimum wage of $10 (R180) an hour will earn a gross salary of $2 400 (R43 000) at the end of the month.
That’s a pretty decent salary by South African standards, and perhaps unrealistic, but if half of that is saved every month, that’s R259 000 a year.
Double up for a working married couple, and the savings become quite impressive, enough for at least one-third of the downpayment on residential property, say R1.5 million.
Repeat this formula every year and, assuming a 4% appreciation in property value, the couple will have enough owner’s equity after 10 years to sell all their properties and buy the house outright, without collateral.
The rental income from this will replace the couple’s combined income from working at McDonalds.
Take it back to SA
Translating this to South Africa has some challenges, but they are not insurmountable.
For starters, anyone following this formula needs to choose the right area, as SA property prices will vary between 2% and 8% in 2021, according to statesman.
The Western Cape is a safer bet for anyone looking for steady growth in owner equity, while parts of Gauteng are stagnating or falling behind.
The hard part is saving 50% of your monthly gross income. Saving 20% or 30% per month seems more realistic, as inflation and the cost of living rise.
This can be done if the young couple shacked up with their parents for the first seven years or more, and survived the absolute bare minimum.
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Property and investment
Robert Kiyosaki’s book Rich Dad Poor Dad explains how rich people become rich by investing in income-producing assets, such as property.
The advantage of property is that the bank finances most asset acquisitions, so anyone with R100 000 in savings can theoretically borrow R800 000 or even R1 million, depending on their ability to repay the loan.
Parker elaborates on Kiyosaki’s theme, showing how investing in assets that generate income for ten years – even at minimum wage – generates enough income to replace income from work.
He then explained how successful people in business are less interested in government action because they know how to circumvent regulations.
Tax the millionaires
Admittedly, this is written from a US perspective, but we know from the SA Revenue Service (Sars’) campaign to tie the SA rich to the tax net that there are some universal truths in this.
A teacher, Parker applied his curiosity to the field of economics, and he was well-read on the subject.
Unashamedly a libertarian, he offers strong criticism of Karl Marx, John Maynard Keynes and Thomas Piketty, French economists who claim wealth inequality is everywhere, especially in more recent decades, due in large part to tax cuts for the rich.
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The only way to correct this, says Piketty, is through a more progressive tax regime such as the one in France after World War II.
Ideological failure
The problem with this is the potential for tax arbitrage, as over-taxing, the rich ask them to flee a more congenial tax regime.
Interestingly, Parker sees Marxism as less of an economic philosophy than a system of social control, but governments everywhere continue to experiment with failed ideologies in the hope that next time, with some tweaking, they will get it right.
David writes that Marx’s “language and ideas are those of medieval scholasticism – not the free ideas of Western culture.”
The value of this book is to challenge the accepted notion of what causes poverty, and provide a roadmap out that does not involve the government redistributing other people’s property.
This article first appeared on Moneyweb and is republished with permission.
Read the original article here: Is it possible to become financially independent on the wages of McDonalds workers?