The Blue Roof

Let me share with you a real life case to illustrate why I believe what I do.

 Yesterday a very dear, 73 year old, friend phoned me on the pretext that he wants advice on his short term insurance (I don’t do financial consulting). The short term insurance was not the real issue. His finances, that is what he really wanted to discuss. He is retired and lives on a pension of about 10% per annum of his capital. His medical aid is about 50% of his income and then he holds a part-time job that was downsized earlier this year. With his wife in bad health, his medical aid savings account was depleted by end March.

 Amongst other things, he wanted to know if he should sell his house. He is not making ends meet. And to add insult to injury, yesterday morning his car broke down!

 This is a very sad story, but not unique at all! When he retired, he used the cash portion of his pension to buy the house where he now lives and the rest to buy the pension. It is sad to see how little capital he really accumulated in an employer subsidised pension fund after a lifetime of working. But accumulating capital is not helping him.

 His income is not enough. He cannot do very much to increase his salary. He is already living as frugally as possible. Does he start using his capital to increase his income? How long before he will then have nothing?

 Consider the following:

 Belonging to the pension fund was compulsory. He did not have any choice, and in the end, although it was not a fortune, it was not a bad thing.

 But what would have happened if he bought a rental property 30 years ago? And another property 25 years ago? And another 20 years ago? And another 15 years ago? That is four properties! Well, in the first place, the capital value of the properties would now be worth more than his pension fund! Secondly, I am convinced that the income he derived from the properties would be more than his pension. In other words, with not a lot of effort, he could have doubled his income and wealth.

 Obviously I did not tell him this, but I am sharing it with you, so that you can see the method in my madness, but also why I am so mad!

 Two other things that I told him that you may benefit from:

1. Give power of attorney to your children, so that you don’t end up in a situation where you cannot sign and nobody else can, either.
2. Take two of your children to the bank and give them signing power on your bank accounts.

 I don’t think one can be too young to do this.

Here is an interetting thought that caught my eye the other day.

I have already said that wealth is not money, nor the signs of affluence, such as cars and holidays.  Rather wealth lies in your ability to see and pursue opportunities to make the money to buy the right assets to increase your wealth.

If we look at wealth from this point of view, is there a limit to wealth?  No, there is not!  If wealth means the ability to “create money”, so to speak, there can never be a scarcity!  Wealthy people understand this and tap into as many sources of wealth as possible.

And yet, there are so many people out there who live with, what is called, “a scarcity mentality.”  First of all they think wealth equals money and then they “know” there is not enough money.  And the conclusion, only a few people can be wealthy and unfortunately, unless you are “chosen”, you can’t be wealthy.

And this is the idea that I read.  Most people grow up in households where they learn that there is not enough MONEY to get the things they want, and that is why they think there is a limit to wealth and not enough for everybody.

I try to think like this (and I mean try):  “How can I afford it?”  What can I do to afford the car I want?  And by that I normally want somebody else to pay for it.  How can somebody else pay for this expense?  Sometimes I am successful and get the solution and sometimes I keep on driving the car I have.

But thinking in this way, helps me see the opportunities!  When I started my business a few years ago, I took a small loan.  The bank keeps nagging me to take up MORE than the repaid capital.  Which I have refused.  The other day somebody said they needed cash to make a deal work.  I said:  tell me about it.   The upshot is, I get a share in the business, I borrow the money from the bank and lend it to the business who pays the full premium, which improves my cash flow. 

 Yes, if the business does not work, I will have to pay the money back – nothing comes without risk.  But with this cash, we already generated more income than the loan!  With the income re-invested we can generate more income.  I am creating wealth.

 Not because I am so good, but simply because asking the right questions makes me “tuned to the right wavelenghts.”