What if!!!
We’d all like to win a million dollars so we could go out and do all those things we hadn’t been able to do because we couldn’t afford it. But what if someone said, with a little bit of planning, knowledge, persistence, discipline and patience you could have that million, would you take up the challenge. Well if you said yes keep reading, if you said no KEEP READING.
Take 100 teenagers aged 15, where will they be financially in 50 years at age 65?
38 will be dead
38 will be dead broke
16 will still be working
7 will be retired on a livable income
1 will be wealthy
(Noel Whittaker 1987 Making Money Made Simple}
Statistically only 8 out of every 100 people will have enough money to give them financial independence and too choose how they spend the rest of their life. So money is also about choices. Let’s choose to have it, so we no longer need to use it in our decision making. When thinking about going on a holiday the questions should be where will we go? Or how long will we stay? Not can we afford it? Obviously life is not just about money, but it does seem to smooth the path. Our journey has to include body, mind and spirit, but maybe, in our current society money is the means of achieving that balance. We need it to buy food for our body, books and education to expand our mind, and time to work on our spiritual awareness. Life is a challenge. Let’s take up the challenge and take up investing.
Investing is the art of spending money in such a way that it makes more money, this is a positive action but it comes with risks. Saving on the other hand is a negative action where you restrict your spending in order to have some left over for a rainy day (or maybe at the moment, because there’s been very few rainy days). I like investing, because it is a positive action. Most of us are better at spending than saving, so next time you spend some money just say you’re an investor (this works best if you actually spend it on an investment).
When we start investing there are only three areas of investment to choose from, property, shares and cash, but from these choices there are unlimited possibilities. I prefer property as my vehicle on the road to financial freedom. As Jan Somers says “ Put all your eggs in one basket and look after that basket”. There are as many different theories on investment as there are grains of sand on a beach, so find one you are happy with and stick to it. Many people don’t start investing because they are afraid of losing what they have. Investing in property is as safe as houses, you can see it, drive past it, and the banks prefer it to any other collateral. Property is less likely to reduce in price during a downturn in the economy. Around seventy percent of people own their home in Australia, and when times get tough they stay in their current home and don’t sell. This reduces the number of houses on the market, which tends to stabilise prices and avoid any downward trend.
Another theory is we should diversify to spread the risk, and I believe this can be done, while sticking to property. The diverse areas that exist within the property market include, residential, commercial, houses, units, flats, new buildings, beach houses, vacant land, subdivisions and many more. There are also many choices about where you purchase, capital cities, large regional towns, small towns, rural properties, Eldorado, Victoria, New South Wales, Queensland, South Australia, Western Australia, Northern Territory or even overseas, Tasmania or New Zealand, that seems diverse enough for me.
The other side of investing is the use of money. Where does it come from? Usually we borrow money from the banks. I refer to the banks money as OPM’s (other peoples’ money). Using OPM’s makes YOUR money grow faster, but you pay for the privilege, it’s called interest. There are many types of loans and many rates of interest, so when selecting a loan it should be structured to suit you as the investor, and, the type of investment you plan to purchase. By using equity in your own home and OPM’s, you don’t need to use any of your own money to purchase a property. Setting up the correct loan can also enable you to acquire more properties without the need to continually go back to the bank.
Over the next few issues I will explain in more detail the many aspects of investing in property. I would just like to leave you with a couple of quotes that you may have heard before but which are worth repeating:
Work as though you don’t need the money,
Love like you’ve never been hurt,
Dance like no one is watching.
Live every day as though it will be your last, because one day it will be.
Many people have a good aim in life, they just forget to pull the trigger.
If the odds are against us that only 1 out of 100 people will retire wealthy, we may have to change things to achieve this, even if it just our attitude.
Ken Greene
Investment …. What if I don’t?
Not so long ago people started work at 15, retired at 65 after working 50 years, and died at 67. Usually the house had been paid off and the pension put food on the table. Now, we stay at school longer, quite often at university till 22, work for 33 years then choose not to work anymore at 55 with a life expectancy of 79. If we reach 65 there is a 40% chance we can live till 90. This would mean working for 33 years and living another 35 years enjoying ourselves. Or would we?
If we stop working at 55, we expect to lead a far more active life than if we retired at 65. In most cases this active life requires more money than the pension delivers, and we are not eligible for another 10 years anyway. (If it still exists then.) We all hope our compulsory superannuation will help us out, but our shorter working life restricts the amount of money we can put into superannuation. If we end up with $300,000 in superannuation, which seems like an adequate amount, it would effectively make us ineligible for the pension through the income test and deliver slightly less income than the pension with none of the other benefits associated with the pension.
It not all bad news though, it just means we have to get out there and start investing, so we can enjoy our 35 years of freedom from working and plan to do all those things we’ve wanted to, trips around Australia, or the world, getting out in the garden, write a book, take up painting, help people less fortunate than yourself, get involved in the community, or anything else you’ve always wanted to do.
Ken Greene
Budgeting the art of doing more with less?
For the most part everybody thinks of budgeting a bit like dieting, you restrict your food intake to achieve some future loss (weight). On second thought it’s nothing like dieting, because through budgeting, and ultimately investing, we hope to make a gain. So what we need to do is spend less than we earn on living, so there is some left over for us. In actual fact we should put the bit for ourselves away first, and use the rest for paying all those other people, the landlord, the bank, and the supermarket. Einstein said "Everything should be made as simple as possible, but not simpler". So put simply, start a budget, put some aside for yourself and start investing.
The main point about budgeting is that you have control of your spending. Maybe I should say that again. Budgeting gives you control. By having a budget you can allocate money to all those essential items such as food, water, clothing, house repayments or rent, medical care etc. We need these things to live, and having money to live for now is just as important as our future needs. We also need to use that amount we put aside first and make it grow. Surprisingly, once we start setting something aside we don’t miss it. If we put $1 a day away for the next 40 years, with the power of compound interest you would have about $1,000,000. So if you have just had a baby or know someone who has, why not tell them, get them started. Forty years may seem like a long time, but if somebody had told me I could be a millionaire at 40, (that would have been 12 years ago), I would have been extremely happy.
Rather than letting compound interest do all the work, we can start investing in property, get a better return on our money and therefore make it grow quicker. If you purchased a house for $102,000 and were able to rent it out for $145 per week it would cost you $1 a day. Can you believe that!!!!!! There’s that $1 per day again, and you can buy a house, how exciting is that? This includes borrowing $108,000 in total to cover the cost of setting up the loan, stamp duty, paying a real estate agent to manage the property, rates, water, insurance and even allows for maintenance. The loan would be an interest only loan at 5.95%, the current rate for a 3-year fixed loan.
Everybody is different and there are many factors that influence exactly what would be paid each week. People who earn more than $50,000 per year would have higher tax deductions and therefore pay less than $1 per day, others earning less than $20,000 would have less deductions and pay slightly more per day. Most people would be happy to adjust their budget and save $1 per day to put towards an investment. They just don’t realize that’s all it would cost to start. Investing is a very personal thing, so people need to look at there own choices. Some people can afford more than $1 per day so may wish to purchase a more expensive house, others may be looking at something cheaper. Some will be looking for a higher cash flow, others capital growth. Whatever you are looking for it is most likely to be available, the deal of the century arrives once a week, you just have to be looking.
The thinking behind my statement the Best Useful Device for Getting Everything Today is by taking the time to organize your budget, you are able to cover the expenses for everyday living and also invest in the future. Having your cake and eating it too. You are in control.
We are happy to change from spending everything we earn when we realize how little is required to start investing. Maybe we don’t need to make as many calls on the telephone, or have every light on in the house, perhaps we could walk to the shop instead of driving. Pretty soon we realize there’s plenty of ways to achieve our dreams, not by being restricted by our budget as some people think, but by expanding our choices and allowing every possibility to eventuate.
Being wealthy is a huge responsibility, and maybe, anybody can be wealthy, but they are too frightened to make that commitment. If you have more money than you need, what do you do with it? You could spend it selfishly, or, you could choose from the many different charities, so which one do you choose, who says we can’t be selfish? Why is one charity more worthy than another? How big a responsibility is that, you now have the ability to influence other people’s lives. The whole world can be changed by your decision to become wealthy. Your life would be changed too, are you ready for that?
When I start writing these articles I never know where it will take me, this seems a far cry from budgeting, but maybe it’s really the point. Maybe we have to get over the fact that this is new, is scary, start now, find out more about this, and do something.
Is everybody too scared to accept the responsibility of having more money than they need, learning how to handle that money, and the responsibility that goes with that? Being wealthy is a state of mind. We use tools like budgeting to create the knowledge that gets us to that state of mind.
I leave you with these words from Mahatma Gandhi
"If I believe I cannot do something, it makes me incapable of doing it. But when I believe I can, then I acquire the ability to do it, even if I did not have the ability in the beginning"
Ken Greene