If you have been reading this blog for some time, you are probably sick of hearing this, but I am going to say it again anyway! We always start off by investing for income. That is very important.

 Real financial freedom means that the income I derive from investments are equal to or more than my salary. At the least my portfolio income should be enough so that I can maintain my standard of living without working.

 I am under the impression that the majority of the population does not understand the above. Yes, they know the words, but they don’t realise the power of the idea. The moment you start deriving income from your investments, your life changes.

 Let’s use an example.

 I have a cheap flat on which I have a monthly profit of R800 per month. Normally I would pay the full R800 into the bond and shorten my repayment period. This month I had a lot of unexpected expenses and I had a choice – I could either withdraw money from a savings account or I could use some money from the rent. I decided to use R500 of the rent money and my budget is in balance again. I know, I know, it is small amounts! But would you not agree that it is nice to know I have that available? And repaying the bond at a much quicker tempo does not affect my own cash flow!

 But there is more. My wife and I have a life policy that covers the “death costs” of this flat. If either of us were to die, the flat will be fully paid up and the total rental income available for whoever inherits it. The implication is that we need less lifecover, since we don’t have to provide for income through capital! If either of us become physically disabled, the flat is paid for.

 You see, what people don’t understand about the idea of “cash flow first” is that it means freedom, but also SECURITY. Imagine the time when I have 10 properties fully paid up and I receive all the rental? And you know what? Once you are in a profit situation with a property, repaying the bond is not so difficult any more!

 Let me conclude with two things. First, I could say a lot more about the importance (emotionally and financially) of creating a cash flow first. The above will suffice for now.

 Secondly, if you want to know how YOU can invest in property safely with very little risk, please contact me. My personal e-mail is pietm3(antispam)@yahoo.com – just remove the brackets and everything in-between.

Retirement Village unit selling for R495 000 and a rental of R6 000 per month. At 12% interest it will cost you (out of your pocket) R950 per month and after 4 years you will start making a profit.

  If you are interested in this excellent opportunity – pietm3@yahoo.com is the answer to all your info.

 The other person who responded to benchmarking your wealth, does not agree with my basic premise.

 Now what can I say?

 The advert above is real, if you act quickly you can buy this unit. And I will use this as an example to “proof” my case.

 Let’s assume you buy this property with a 100% bond. Then you owe R495 000 and you have an asset of R495 000. Your income is R6 000 per month. After paying expenses (levies and management) you need R1 000 to pay the bond.

 Now assume there is no capital growth in the property (not very realistic, but I want to simplify things). And assume the rent increases by inflation every year. Very realistic. Further, with the increasing rent, your contribution to the bond will decrease over time, right? Which means that in time you will start making a profit which, if you are wise, you will utilise to repay the bond.

 Let us further assume that your contribution will be R1 000 per month for 4 years (R48 000). Obviously this is wrong, but let’s keep it simple. After 4 years you start making a profit. And within 15 years you have settled the bond.

 What is the result of all this? For R48 000 you bought an asset of R495 000. That is not bad in anybody’s book.

 But the best part is this: for R48 000 you bought an income stream of R6 000 per month, increasing by inflation, for life! And that is what it is about!

 Now consider the alternative.

 I don’t know how much you have to save EVERY month for your whole working career to have an income of R6 000 per month growing by inflation. And keep in mind my rental R6 000 is present value!

 When you retire with the capital you have saved over your working life, you have one of two options:

1. You buy an annuity or pension – a monthly income – normally for life. Because the company paying the pension has to be sure that you don’t outlive your capital, the income is not very high and mostly is unchanged for your life. NO increasing by inflation. When you die, the capital goes to the company (this is simplified).

2. You buy a living annuity, which is a relatively new product. It means you invest your money, let’s say R1 000 000 and you take an income of 5% per year. What is supposed to happen, is that investment income and growth should be more than 5% so that your annual income can increase. But what happens when the stock market drops by 50%? Are you going to go without an income until the capital has increased again? If you DO take your 5%, then the capital reduces, so the growth is on less capital. What is more, there is a huge difference between 5% of R1 000 000 and 5% of R500 000!

This is very simplified, but look at the above and decide for yourself which option is better.

 And consider that investment opportunity!