Today I met a new client for a coffee in Sydney. I was extremely impressed with this young man for many reasons, beyond the fact that he made me, at 6 foot four, feel like a midget. When my colleague remarked “now you know how I feel around you”, I sure as hell finally knew what he was talking about. Height aside, this young man of 25 ran a successful business in civil works. Not many tradies his age have made it to the top of their field. So why did he ask his accountant to organise a meeting with us? Despite earning a lot of money for someone his age, he had no investments or significant savings to show for it. Just a hell of a lot of expensive toys including an Aussie muscle car which he has already spent a mind-boggling amount on over 3 years, and it is still not finished! I see this not only with many young (and older) tradies, but also many white-collar professionals. This young man knew he needed help and taking that first step is key.
Like many others, he had followed the herd and lost money in Bitcoin. He has an intention to invest in shares but doesn’t know where to start. Income wise, he earns excellent money, but it fluctuates and is seasonal. He realizes that you must generate passive income and equity in blue chip assets and understands investing in major cities is preferred as he worked in mines and saw firsthand the fluctuations in fortunes.
Normally I would assist our property specialists in the background, and they can run with client. However, this young man reminded me of myself and I wanted to be more involved. You see back in 1999, I was a young successful accountant just three years into his career. I was earning great money for a 24-year-old with nothing except $20,000 in credit card and personal loans to show for it. I was educated in accounting and I could help my employers with their business, but I couldn’t help myself. In Australia, we are not taught to manage our own finances either at school or in tertiary education. To end this cycle, my late father made me buy the house next door and put up the family home as security in good faith to get me started. Although this was the only family asset, my parents wanted to take the risk on me. They thought the house next door was worth more to us than another buyer. Within 12 months of buying that house, I had kept up the repayments and paid off my personal debts. It forced me to be disciplined as my father would always say “the bank doesn’t wait for their money”.
Back to this young man. He is unsure of how much he can borrow. His mother is employed and willing to assist in putting up her home as security, but it does have a loan against it. He is reluctant to this as he said his mother has had a hard life and worked hard to provide for them. This impressed me immensely. He didn’t want to put his mother’s home at risk.
The prescription? If this young man was sitting in front of any other property person what would be the outcome? Whether he was with a real estate agent, project marketer, investment salesman or even a buyers agent, the next step would be selling a property or their buyers service. Our first step is to gift this young man a copy of The Richest Man in Babylon by George S Clason. A simple, parable like book about the Ancient Babylonians and the power of savings and compounding interest. I was given this book by a previous employer. When I was a financial planner, I gave it to many clients to read themselves or to get their children to read it. It teaches the importance of saving and putting aside money for investing and the power of compounding earnings on these savings. Exactly what this young man needs. Secondly, we both need to contact his accountant and broker to work out how much he can borrow and when. He also needs to speak with a financial adviser. Why? He revealed that he has an interest in minimising tax and investing in both shares and property. Not just residential property, but also commercial property for his business.
In short, the property advice from us needs to come last of all. Perhaps he needs to wait and save to build up his savings to a 20% deposit over the next 3-12 months. He has the capacity and some budgeting assistance from his accountant and/or financial planner is essential. He needs to assess his insurances, especially personal insurances to ensure his earnings capacity is protected and maintained. Without our health, most of us would not be able to survive, let alone service loans and invest for our retirement.
We might keep a track of progress and report back to all our subscribers with his progress. He already sent us a text message thanking us for our time and he is excited to finally start setting himself up. This is not isolated to tradespeople. I have come across people who were earning a million plus a year and had all the toys, debt and no investments. Not even an owner-occupied property. Again, we are not taught about personal money management, budgeting and investing in school or even in university. Many parents are ill-equipped to manage their own finances, let alone educate their children. By the time we work it out, it is often too late in our life and wish we could go back and save and invest a part of our incomes.
If you need assistance, speak with your accountant or financial planner. Don’t have one? We would be happy to recommend some strategic accountants and financial advisers that you can speak with and see if they are a good fit for you. Get motivated to save and invest for a better life. If you have children, get them started early on their financial education. To purchase a copy of The Richest Man in Babylon, visit our online shop at www.examineproperty.com.au/shop