Tuesday, May 26, 2009

An analogy for high school males when it comes to money

Editor Note: Stay tuned for how you can own an IP from as little as $100/week and even less now! Coming soon...

We all did it. Well, in reality, some of us did it and it all made so much sense back then. In Australia, as I suppose all over the world, getting your drivers licence was akin to removing the shackles that held back your social life, growing wings which allowed us to explore the endless possibilities our new found freedom had to offer. We bought a car and away we went. 

But no, we weren't content to just leave this car alone. No, we had to put every single cent we made to "upgrade" our beast. For me, this was car sound, sub-woofers, tweeters and crossover front stage speakers, monoblock amplifiers and trying to reach 140dB. So you're probably wondering what this has to do with money and I'm here to tell you that it's a hell of a lot. 

So, Lesson101 for all those teens out there (and those of us that can relate). Think of this analogy:

When you started to get a bit of cash together from probably entering the job market, you didn't just modify one part of your car, did you? You bought a fancy head unit and probably an amp and a sub, but you also would have shelled out for nice mags, probably a body kit and even some go fast bits and pieces like extractors and high flow catalytic converters just to name a few. And I have to say, this was really smart thinking, thinking that you should take with you into the world of making money. You see, by focusing on different parts of your car, you "diversified" your interests. You didn't just spend money on mags. You spent money on all different elements to create a much better "overall" package. Imagine Fast and the Furious cars, without the cool body kits...it's just not the same. It's the same with money. If you put all your money into savings accounts, it's just one element. If you only buy real estate, it's only one element. If you pay down your mortgage, it's only one element. If you buy shares, it's only one element. You get my point...

So, I challenge everyone out there to get back to their car modifying roots and apply the wealth of knowledge to finances. Diversity what you do with your money, think about improving the "overall" picture, not just one aspect. People always say "Don't put all your eggs in the one basket", but instead I say, "Don't just get flash mags, make sure she goes hard and sounds awesome too!"

To do this with money I am going to list a few obvious options. Think very carefully about which one will suit you, but the main theme here is to have a range of them (no particular order):

1. Buying real estate.
2. Buying shares.
3. Pay off personal debt (i.e. credit cards/personal loans).
4. Invest in long term prospects such as art and unique cars and motorbikes.
5. Open an online saver and actually save your money.
6. Start a small business.
7. Consider your spendings. Do you really need that KFC for lunch?
8. Find mentors who can help you in your quest to build up an awesome car, eeer....  I mean awesome bank balance....:)
9. Live frugal, although I'm not a great fan of this...

Living frugal is an acceptable way of creating some wealth, BUT (and there is a big but, and it's not mine), it's like having a stock car. Not too much fun and ultimately, it's why you're doing this in the first place...

Until next time my loyal subjects....go forward and diversify!!!

Wednesday, May 13, 2009

So you have $100 spare a week....

I'm going to assume you've read the rest of the posts here and have found you have $100 spare a week. Instead of going out and buying that really expensive seat covers for your beast, why not think about doing something constructive with this money instead?  

You've probably already read about putting this cash into the tempting online savers or term deposits. But let's face it, you are going to earn, AT BEST, $5 per year on every $100. This is a very time consuming way to make cash flow, albeit safe and secure. Yes it's stable and you will have compounding interest working for you, but why not instead think about other cash flow streams? You could do a kazillion things with this money, but I suggest that you buy a house. 

Now, before we all get our panties in a knot about whether we should buy shares or invest in property or maybe just to go and buy a toeaster at K Mart, I'll let you in on a little secret. Buying property brings in at least three types, if not more, of income.

Here they are:

1. Rent: That's right, someone less fortunate than you, or in a particular predicament that buying a house is not for them, will need a place to live temporarily. Bingo, cash in on rent made from an investment property. 

2. Property price increasing: You may buy a house for lets say $150,000. Admittedly, it's not going to be flash, but it's a start. Historically speaking, this property will, OVER THE LONG RUN, double in price every ten years. The secret here is that you need to hang onto this rental house for at least 7 and if possible, even longer. In this time, you will make an additional $150,000, or $15,000/year and if I'm being very conservative, I'd say $10,000 a year. Does this sound good for $100 weekly investment? Put in 100, get back 200....sweeeet...

3. Tax breaks - If it costs you more to repay the mortgage, rates and insurance than you get rent, hey presto, you are losing money. But it's all good...come tax time, your income tax is reduced and you get a sort of "pseudo" cash flow. This is often refered to as negative gearing or cf- (cash flow minus).

4. Depreciation - To add further to the incentives, especially if you can afford a newer house in Australia, you treat the house as a tool for making you money, and hence, you get to claim "wear and tear" through setting up a depreciation schedule for things like carpet, the kitchen cabinets etc. These items, as they get older are worth less and you can claim this difference against your tax as well. This is sometimes called the "hidden income stream" by property gurus. I call it JACKPOT!!! :)

So by now you're thinking, well yes it sounds good, but it's sooooo risky. To all of you I say...build a bridge and get over it. Jump in. Grow some kahuunas and have a go. I always tell people that the worst that can happen is you make minimal profit, as long as you HOLD THE PROPERTY FOR AT LEAST 7 YEARS! This is almost a guarantee in the Australian market. Don't forget, this will make you serious money, but you have to wait for quite some time to realise the cash.

Finally, think how long you would have to wait to save up $10,000 normally from your everyday wage. With property, you can effectively make your first 10k in about 6-8 months.

For more info on this sort of investing visit my other blog here. At propertyinvestinginaustralia I document further thoughts and ramblings, letting you in on what I am doing to acquire more and more property and how it has put me in a financially stable position in 5 years.   

Next episode: Buying a starter investment property. How you can do it with as little as $100/week (right now!)


Saturday, May 2, 2009

A new property forum!!!

Hello everyone,

Just a quick note to let you know I have started a property forum. I know it's not specifically about making money, but as you are probably aware, buying investment properties is part of my strategy. I think it has potential to become an excellent resource for us all, so please, say hello, add a comment, have your say. Who knows, you may even be able to help someone with a suggestion or two, or get an answer to a question you may have...

See you there!!!

PS. Making Money has slowly increased its viewers, so please, if you find this useful, don't be afraid to tell others...ciao!

The evil B word - Budget!!!!

You all know you should have one. You all know that without one you will continue to be a slave to your job, a slave to your bank, and a slave to your mum. You all know you like KFC.

Let's face it, you need to create a workable budget that will allow you to buy KFC whenever you want, but probably even more pertinently, allow you to afford the gym membership to then work off the extra flabby bits as a result of the aforementioned chicken feast. 

Until I was 27, I never had a set budget. I just spent as I needed and if cash ran out, I would stop spending. Let's call this Budgeting101: Living by your means. At it's simplest form, this is indeed budgeting, but it's a crap way to live and as time goes on, this creates a stalemate; a continuous cycle when all of a sudden you start asking yourself (possibly as you're standing in front of the KFC counter), where the hell did my money go???    

So a budget strategy is in order.

Budgeting201:Thinking about your money
Second year budgeting involves starting to watch where your money goes. It DOES NOT necessarily mean you have created a budget, but it does mean you are starting to become aware of where you spend your dosh and why you have nothing just before you receive your next pay cheque. 

This inadvertently leads to "but I'm spending it on things I need and want, I can't change, I can't stop eating KFC!!!"  I hear it from people again and again, that their bills and food expenditure, as well as other parts of their lives that require cash are the bare minimum they HAVE to spend. But it's a load of bullshit. It is the same people I see down the pub, driving huge petrol guzzling cars and always wearing different clothes. They're the people I see buying the latest mobiles, spending money on take away and having a Telstra phone account. They are the same people...you get the idea. I was one of these people a while ago.

It is important to note though that those students taking Budgeting201 are at least considering their financial state and I would hope that at a minimum, the population is at least at this stage of budgeting. 

Budgeting301: The invention of paper

Entering Budgeting301, third year budgeting is where it all begins. Those that itemise and write down some sort of a budget are at this level and it is the first step to realising what your money is ACTUALLY doing. You may recognise a few things at this stage:

- You eat way too much KFC.
- You have way too much fun. This isn't a bad thing, until all of a sudden you want to retire or stop working.
- Most of your money goes on petrol and car costs.
- You live to the end of your income.

And it is this last point that really should be looked at. Why is it that you run out of money at the end of your pay period and are left with nothing?

I was in this position a few years ago, even though I had no mortgage to pay, or any real outlays. But when I dug deep down to the underbelly of what was going on, it soon became very apparent that there were many many costs out of control. For example, I had a mobile phone that was supposed to be at $29.90/month, and was costing me $50-$60. I was eating (WAS) take away almost on a  daily basis...cost.....$20/day!!! I was renting....giving my money to someone else to help them pay off their mortgage. Pretty quickly it became apparent I was going to have to make a real budget. And so began the arduous journey that has taken so far 3 years to perfect and still has a way to go...

Budgeting401: Creating a cash flow chart.   

This is where I am at the moment I believe. As you can see in the table, this is a VERY SIMPLE way of doing a budget. My mate does something similar with Excel, and of course there are heaps of software out there that can help make this look all pretty and give you deep analysis for further digging. This is a simple, one page view of where your money goes and shows how my cash flow is travelling. This table for example showed that indeed I had more cash available than I thought. I am very happy to be in this position, but some of you out there will have trouble just to be in a positive cash flow position = spending less money than you have coming in. Regardless, this is an Identification Tool. It's what you do with it after that really matters.

In my last post I discussed disposable income and how important it is to start having cash flow positive actions, it is now that this can be applied. If you tweak and play with your budget so that you have SOME cash left AND you are happy with your disposable income amount (the money you spend on other parts of your life such as down at the pub), then what is left can now be identified as a dollar amount that can be used. This may be $5, $100 or $1300/week, depending on your income streams and it is this amount that can work in your favour. The basic notion of making money stems from this small left over cash reserve. What can you do with this amount of cash that will change your financial position? Stay tuned for Budgeting501:Strategic Cash Flow Thinking (last year of study before Masters level)