The Blue Roof

As you might remember, my main business is short term insurance, but I am also part of a group that teaches and helps people to invest in residential property (seminars are free – so you are welcome to contact me). As part of the presentation we normally compare projected future values and incomes derived from property and conventional investments in terms of Present Value. In other words, we take the projected future value and discount it back to what we can buy with that money today.

 Regular readers will also remember that I have written about the need to do that very often. There is one very big difference between R1 000 000 today and R1 000 000 forty years from today. Insurance and investment companies give us projected future payouts that seem astounding!

 Anyway, quite often when we show this to people at the presentation, they question the figures, sometimes aggressively. After all, the insurance companies have been advertising for ages and here comes I, a nobody, and tells something totally different and, to add to that, something that threatens their financial certainties. Because the difference is dramatic.

 I don’t have to defend myself – I experience the power of property (and fortunately was bitten by endowments and the like before I was 27) . I normally just ask this:

 When you rely on a retirement annuity and shares for retirement, where does the money come from? And the answer is simple: “I pay it from my own pocket.” And I can guarantee 1. you are not paying enough and 2. you can probably not afford more and 3. even if you could afford more, you don’t want to spend more and 4. what you are doing is not enough. That is why the figure on that side of the equation is so shocking.

 If we look at property and we ask: “where does the money come from?” The answer is not so simple any more. I borrow from the bank. Hm, other people’s money! And I have a tenant who pays substantially more on my bond than I do. Hm, other people’s money and other people’s time. Think about it, your tenant is selling his time for a salary to pay your asset! No wonder property outperforms other investment classes! You don’t have to be an Einstein to realise that 2 people can save more money over 40 years than 1.

 Interesting enough, those who question the above, never get involved in property. Those who grasp it immediately, see the light, so to speak, cannot wait to start buying properties.

 Just remember, I don’t work with “either or”, I prefer “and and”!

 And you are more than welcome to contact me for that presentation, as long as you are serious about learning! There is no strings attached. If it is not for you, it is not for you, I understand that. But you can only say that once you have seen how we do it. But please don’t tell me “it does not work”. Then you say I am a liar, because it really does work for me!

Finally she asked:  out of everything you tell me to do, where do I start?  Now that is an important question.  I am convinced that a lot of the financial trouble that people experience is because they do last things first!

Since we have arranged for medical aid, short-term insurance and PPS, we have covered the risks that can be financially crippling.  That should always be step 1.

ABSA gave her all the access to credit possible, so I am concerned that she will go on a shopping spree with a credit card.  So the second step is to stay away from credit cards and overdrafts.  I am glad, very glad, to report that she said:  I am your daughter, don’t worry!  Hey, made me proud!

Nobody else would tell you this, because it is “old wisdom” and not in favour since we have credit cards and the like, but every month put away some money in a 32-day notice deposit account.  Try to build up to about 3 to six months of salary.  This is an EMERGENCY fund.  All those unexpected expenses, such as cars breaking down, microwaves blowing up.  EMERGENCIES.  Since it is a 32-notice deposit, you obviously cannot use it when you crave a pizza and it becomes an emergency.  Without a fund like this, the banks will own you, since you will have to use debt to fund emergency expenses.  And debt is a very steep hill to climb.  And very slippery.  Millions of people can testify to that right now.

Step 4 is to invest for cashflow.  We cannot be financially free without a passive cashflow.  Furthermore, the sooner you have that cashflow, the sooner you will be free.  And unless you have the extra cashflow, your whole life will be like the thing that now bothers you:  I won’t have money to live.  The best cashflow, financial freedom investment, is property.  So get going as quickly as possible.  But remember, we are taking it in steps here.

Once your property portfolio is giving you a cashflow that is sufficient, you start investing for capital growth.  That is step 5.  And for that, refer back to “how does shares work”.

The point is this.  Once your passive income is secure, you have more than enough money to live.  You can have nice holidays, cars, if that is what you like, speculative investments, whatever. 

If you change it around, if you start with nice holidays and speculative investments or building capital, you will be a slave all your life.  Just look around you!