May 1, 2017
IF YOU THINK YOU CAN’T CREATE WEALTH FROM EQUITY… THINK AGAIN
Learn how you can with Think Money’s proven strategies to reduce debt and create wealth through property.
If you think you can’t create wealth from equity… THINK AGAIN
If you have a mortgage, and the value of your home is higher than your home loan, you have equity. With equity comes options, you can use equity to create wealth.
Ever heard the saying the rich get richer?
This is the way they do it, by using their equity and leveraging (borrowing money from the bank) they buy investment properties. This over time produces more equity and income in the form of rent. Which puts them on the ever increasing wheel of wealth.
Unfortunately, most people are on the other wheel, the ever-increasing wheel of debt. If you have a mortgage and some personal or ‘consumer’ debts like credit cards, personal loans or car loans it is amazing how quickly you can become overwhelmed with payments. It seems like all of your income is committed to repayments and basic living expenses like groceries, leaving little or no money to pay other essentials like insurances, regos, school expenses and electricity. It seems you need to go without luxuries like holidays, Christmas and upgrading furniture or worse still they need to go on ‘interest free’ or credit cards which add to the burden and the whole cycle starts again!
Refinancing can be your best friend or your worst enemy. Your best friend, if after refinancing you change the way you do your banking and begin to create wealth, or your worst enemy if you use equity to get out of consumer debt and then repeat the process of consumer debt.
Money just doesn’t have to be that stressful. It is amazing when you actually look at how to do your banking properly and more importantly how to manage your income or cash flow, just how quickly you can regain control.
Are you ready to get off the wheel of debt and look at how to do your banking the right way? This could be just the beginning.
ANALYSTS CRUNCHED THE NUMBERS TO SEE IF PROPERTY BEATS SHARES
In the battle between property and shares for investment dollars, which has better returns?
The answer depends on how much time you have, according to the latest Place Advisory report.
Place Advisory’s Lachlan Walker compared returns off the ASX All Ords Index versus the inner Brisbane apartment market over the past 30 years and had some surprising results.
Over the longer term, it’s the inner Brisbane apartment market that’s won out.
The property market outperformed the share market over the past 30 years, with the Inner Brisbane apartment market recording 6.5 per cent price growth per annum, whilst the share market has recorded an annual return of 4.5 per cent,” Mr Walker found.
Even over the 10 year period, it was property that won with a return of 2.7 per cent versus 0.1 per cent for shares.
“Overall, the share market is much more volatile in comparison to the property market, with greater fluctuations from period to period. For example, in the wake of the Global Financial Crisis, the share market recorded a 44 per cent decline in 2008, which then saw a 36 per cent increase in the following year.”
But over shorter periods, shares beat property, Place Advisory found, with shares returning 6.8 per cent over the five-year period versus 2 per cent for the inner Brisbane property market.
It was slightly higher over the 12-month period, while the apartment sector turned negative.
“Over the past 12-month period, the ASX recorded strong growth. As at December 31, 2016, the All Ords Index stood at 5,719, reflecting an increase of 7 per cent compared to the previous 12 months. Meanwhile, Brisbane’s apartment market saw a decline of 4 per cent, recording a median price of $485,000.”
Place Advisory found that the stock market and inner Brisbane apartment market moved in similar cycles over the past three decades — with the exception of the Global Financial Crisis when there was a “significant variation”.
Overall, according to Place Advisory, “property is deemed to be the safer option, particularly if you are looking for stability and long term growth.”
“However, if you are an investor seeking strong capital growth, liquidity and willing to take some risks, the share market may be the way to go. At the end of the day, informed decisions based on fact and good investment timing will generally see better returns on investment.”
The 7 things I wish I’d learnt at school
- Where to go for advice
Most people go to a bank for advice on the right bank accounts and loans to have. A bit of a laugh really when you consider their profit margins.
It’s like asking the mouse where to put the cheese! I wish I had been taught to ask someone who has money the best way of handling it.
- Credit cards are like fast cars
A fast car driven recklessly is dangerous, but treated correctly it isn’t. Credit cards are the same. Most of us just use them to help the banks, but you can turn the
tables and use the banks money for free and use your money to reduce your interest. This secret could have saved me thousands!
- More organised = more money!!
It is a fact that if you get organised with your money, you have more of it. Bills get paid on time, you don’t waste precious money on fines, fees and overdue payments, and you make your money work for you instead of against you. A cash management program accelerates your debt reduction and wealth creation.
- You can make compound interest work for you or against you
Saving to buy something instead of borrowing can halve the price you pay for most items. This sounds boring to us in this ‘have it now’ world, however, compound interest working for you instead of for the loan company saves you thousands. I wish someone had told me that ‘interest free’ isn’t free at all. The interest has been tacked onto the price – ask for the ‘cash’ price and see.
- Debt consolidation can be your best friend or your worst enemy
Consolidating credit card and consumer debt onto your home loan can reduce your repayments each month and lower the amount of interest you pay. I wish I had been told to use this extra money to then reduce the home loan much faster, and not fall into the same trap again and again – burning up precious equity that could have been used for investing.
- The power of separating your life from your investments
There are 1.7 million people in Australia who invest in property, less than 2 per cent get to five properties or more. Why? They don’t keep their personal and investment money separate. I wish I had learned that the key to successful investing and stress-free living was to keep these sides quite separate from each other.
- Don’t assume a home loan is a long term debt
I wish I had been taught that a home loan doesn’t have to be a stone around my neck for 25 years, or best case, if I paid weekly or fortnightly, 17 years. What most people don’t know is that if handled correctly, a mortgage should be paid off in five to seven years just by doing your banking differently.
Chris continues to cover each of the 7 things about money over the next editions of Wealthy & Wise.
2. CREDIT CARDS
Most people that I meet who aren’t in too much trouble with consumer debt* often proudly announce they have never had or don’t use a credit card, or had one and now they have paid it off, have cut it up and will never use it again.
While I am not advocating maintaining a credit card debt and paying high interest I am advocating the benefits of using credit cards wisely. By using a credit card, and paying it out on the due date, you will pay no interest. At worst, there will be an annual fee. However, the benefits can be amazing.
Take into account the fact that the banks pay very little interest on money you accumulate in a savings account, yet charge high interest on any money you use of theirs.
Credit cards can incur interest charges in excess of 25 percent, personal loans are mostly between nine percent and 20 percent and mortgages attract six to eight percent depending on the terms of the mortgage. Should you use a credit card wisely, you would put all of your normal spending on a credit card while offsetting your cash against a loan or mortgage. This will in effect mean your money is saving you the interest rate charged – or be actually earning the same amount.
This same principle can be used when considering savings accounts, Term Deposits and even your children’s savings accounts. Mortgages are covered in the eBook, however should you be using an offset account or a line of credit as part of your mortgage plan, any excess money you have that is sitting doing nothing much in the bank, could be earning a much higher rate by investing in your own mortgage.
I have seen this reduce mortgages from 25 years to a mere seven years or even less.
*Consumer debt is another term for non productive, or non deductible debt usually from purchasing furniture, holidays etc.
Pay off your home loan FAST
Have you been paying your home loan off for years and feel like you are getting nowhere? Let’s look at your current situation:
Add up the amount you have paid into your loan to date:
Your monthly payment – say $2k x 12 months x 5 years = $120k. Yet most loans have only reduced by $5k in that time… now we have an OMG moment!
It’s time to do things differently. Change the way you are doing your banking, follow the next 5 steps and you are on your way to getting out of debt fast.
1. Get the right loan
A line of credit is my preferred financial platform for fast debt reduction. I also prefer to split the debt into 2 sections, a line of credit, and a term loan – both interest only. This enables you to have a smaller chunk of debt to concentrate on paying off at first, therefore you can see a bigger result more quickly which will keep you focused and motivated to do more! How do you eat an elephant? One bite at a time!
2. Set up a Cash Management System
The next vital step is to work out what money comes in and goes out. A Cash Management System lets you organise your money so that your proposed spending is less than your income. It is also very important to track what you spend against what you planned to spend. Otherwise your efforts of debt reduction will always be thrown off track by the ability to afford to re-spend these savings on ‘stuff’ and shoot your debt reduction plans in the foot!
3. Use Your Credit Card
Using a credit card for all of your spending, and then paying it out on the due date means you are using the bank’s money free of charge for up to 55 days. Yes FREE.
Most people deposit their money into a bank account, and the banks pay little or no interest. In fact, they often charge a monthly fee for the privilege of holding your cash. They are usually sitting on a mortgage with the same bank and paying 6% or 7% interest on the money the bank has lent them.
To top it off, they then borrow another few thousand on a credit card and pay through the nose for the ‘short term loan’. Worse still, continue to pay that money again and again, thus making the item they purchased with the card five times more expensive than if they had paid cash! Let’s break the cycle! (sorry, getting off the soap box now!)
4. Bank your pay into your loan
Let’s cut out the middle man, your bank account that earns you nothing, but costs you to have it, is like the middle man in a transaction. Banking your money straight into your home loan is like going straight to the wholesaler – saving you a fortune! Your line of credit is just like a bank account. You can bank money in, set up direct debits (but first check if the direct debit can be on the credit card for no extra cost), you can use an Eftpos card to withdraw cash. All the while your cash is sitting on your loan reducing the principal and you are paying much less interest. All of your normal spending is being done on your credit card, and you are paying no interest at all on the card. The credit card can be paid out in full on the due date from the line of credit. This can also be set up automatically so you don’t forget!
5. Stay organised
This method works so well as long as you stay organised. It is much less effective if you don’t actually do Step 2. If your money is mixed together, you can’t look at the available balance of the line of credit to determine what you can or can’t afford. This will often lead to a financial catastrophe, as it creates a false sense of wealth. By constantly re-spending the amount you have reduced your debt by, you will never pay off your home loan.
Change your life in 35 minutes
Yes I know it sounds impossible, but that is exactly what our clients tell us we can do. If you feel you have lost control of your financial direction, are just treading water, or worse still you are fearful of what your future looks like, then maybe it’s time to change what you are doing.
Get your money working for you, not the banks
We specialize in teaching people to do their banking differently, managing money to reduce debt and not your lifestyle and help you take back control of your life.
Pay off your home loan in 5 – 7 years
How would you feel if you were able to reduce your mortgage by $20,000 and purchase two investment properties in just 12 months? We have clients who have done that and more and are well on the way to creating the lifestyle they want.
The 4 Rules of creating wealth through property
There are 1.7 million property investors in Australia yet less than 2% own five properties or more. Worse still, more than 60% sell their property and get out of the investment market in the first two to three years. The secret is separating your life from your investments and we teach you how to do it.
Call us today to change your life for the better.