The Blue Roof

 I am often amazed how we can look at something and simply not SEE. I was reminded of this again the other day when I spoke to a good friend of mine. We regularly discuss finances and investments. He believes in everything I believe in. Passive income, financial freedom. He reads a lot and he often quotes from the books he read verbatim.

 The only problem is, when I look at his lifestyle, there is a discrepancy. He does not spend his money to build passive income and financial freedom, quite the opposite! As the saying goes: talk is cheap, money buys the whiskey!

 Last week we went to an investment seminar. Its just a repetition of all the things I write about daily, the same things that we often discuss and that we believe in. But he is very excited – because he discovered that he spends too much money on things that robs him of his financial freedom! I mean, what have we been talking about! But then, it should not be a surprise, because it is 100% in line with his lifestyle!

 Just before you think I am pointing a finger at him, I have done the same thing! I was actually discussing a topic for a doctorate with my lecturer – a topic of the importance of cash flow for companies. Only to admit in hindsight that I did not know what I was talking about.

 You do the same thing.

 I am still doing the same thing, unfortunately I don’t know where I am doing it!

 The only way to discover it and grow, is to expose ourselves to knew ideas (or even expose ourselves again to old ideas). To talk to people with an open mind so that we can learn from them. Asking “why do you say that” instead of arguing about it.

 And then we all can come to a point where we can say: “I was blind, but now I see.” It is called growth, development, learning.

 A few things to remember. When you plan your finances in this way and you start out by investing for income first, then every investment increases your income! At first you may not feel the difference or see the income, as you will re-invest the income and add something more to it. But think about this:

 You buy a property of R150 000 (we had some of those a month ago) with a net rent of R1 600. Initially you will have to subsidise this property with about R200. But if you now do your income statement, your income has incresed by R2 200. Then you have expenses like levies and taxes and mangement fee. And then there is bond repayment. But the fact is, you have increased your income and very soon you will be able to see the benefits.

 Imagine you bought 10 of these? It would initially take about R2 000 per month from your pocket, but you have increased your income by R22 000! Net income increased by R16 000. Even if you do take 20 years to repay these flats, you will start making a profit within 3 years. Perhaps in year 3 you have a profit of R3 000 (R300 x 10). Not bad!

 And that is why I keep on emphasizing the benefits of this investment philosophy! If you ensure that the debt is paid when you die or become physically impaired so that you cannot work, you have an income for life.

 A simple calculation: If you want to provide an income of R16 000 per month for 20 years, you need capital of R3 640 000. And after 20 years the capital is gone!

 Understand me very well: I am NOT saying property is the ONLY investment (or the only investment with cash flow). I am saying: First invest for income and use gearing. Then invest for capital growth. The sooner you have made all these boring income investments, the quicker you can start with the sexy, exciting capital growth investments.