Simon’s Notes

Ok what is wealth? To me wealth is when you have a lot of time and a lot of money. Its no use having a great job, or being a doctor, or lawyer and making so much money if you have no time to enjoy it. Does that make sense? So how do you go about making money without spending any time? There’s no such thing, you have to give up time if you want to create wealth, but the good news is that you don’t have to give up as much time as you might think.

In the traditional world we are taught that to be successful you have to study hard, get a good job, and save up. This principal is not necessarily a bad one, except we are not taught in school anything about personal finance and how to create wealth, so while we can be perfectly safe with a good job, there is no way that we will be able to create wealth unless we learn to break out from the traditional mindset and learn to think out of the box.

So if having a good job isn’t going to make me rich, how can I do it? Any successful finance expert will tell you that in order to create wealth and retire in style you have to create assets that will put money in your pocket without much effort on your part. Its really not that hard.

Start by saving 10 percent of everything you earn, if you investigate a bit you should find a way to do this before you have to pay any taxes on it. Its really important to get in the habit of doing this because its human nature to live on all the money we have, so if you’re making 20,000 dollars a month odds are that you’ll find a way to spend it unless you’re getting it out of your reach as soon as possible.

If you have any debts, be sure to pay those off as soon as possible. All the money that you are now saving should be poured into your debts, its very important to do this and I’ll explain why in more detail in another post, but for now just trust me, put all your savings into your debt. By debt, I mean things like your credit card, and maybe committing to putting a little extra every month into your mortgage.

Once you have your life in order, you’ve got no more credit card debt and you’re paying a good amount into your mortgage, you can start spending that 10 percent on the accumulation of assets. How do you do that? There are lots of ways and methods to stock up on assets, and you need to tailor your methods to your own situations, but I’ll list a number of ways and suggestions that might give you some sort of idea on how to start.

• The first thing to know is that there are basically four different types of assets. Real estate, business, paper assets (stocks, mutual funds, etc), and Internet assets. I’ve got some paper assets in place, I’m building some business assets, and I’m learning how to create Internet assets, so I guess that’s a good example of diversification.
• One of the most common methods is to buy a second home, if done right this can be quite powerful. I’m not an expert but basically this is what I might do. Look around for some property that has quite a bit of potential, you want to look for something that won’t cost a lot of money to make it a lot more valuable, for example here in South Africa you could find a house where the garden was maybe a bit abandoned, then you could fix it up real nice and add something like a barbecue area or maybe a lapa and this would add considerable value. Then you want to apply for a loan against the equity in your first house and use it to buy your second house which you then rent out. Ok here’s an example. Lets say that I’m paying about 2000 dollars per month on my first house (this is still normal in SA), the first thing I want to do is add another $500 on top of that so that I can pay it off quicker. Then I’ll find a house that needs minimal work done on it and preferably something that has a small cottage attached to it, this won’t be easy but its doable. I want to get the best price for it so I negotiate as far down as possible, lets say that I find a 3 bedroom house with a 1 bedroom cottage attached, its all a little messed up and I bargain the price down to about $120,000 (doable in SA). I apply for a loan against my first house which has a built up equity of $50,000 and the bank loans me the rest, and I spend about $10,000 fixing up the place. So now I have a second house that I’m paying 1000 dollars mortgage per month on. I can rent the main house for 1000 dollars per month, and I get about 300 dollars for the cottage so now I have an asset that’s making me 300 dollars per month. This is a very general example but you get the picture.
• Its good to build up some paper assets as well. The real estate market can fluctuate just like anything else so its important to diversify. Its not hard to start building up a portfolio of paper assets. Don’t start by buying shares right away, go for something like mutual funds, build up a big enough portfolio of, varying levels of risk, mutual funds, and then start going for the riskier but more rewarding stock market.
• Starting your own company can also be a huge asset, but be careful not to get trapped in it to the point where it becomes a job, because that defeats the purpose. I’m starting 2 companies at the moment but my goal is to build them for a few years and then sell them. When I think about starting a company I don’t think about what I want to do, I try to pick a niche that will make money. Its more important to pick a successful niche than to go for turning your hobby into a business. I would suggest that you make your business your hobby and not the other way around. Be sure to keep an open mind and look at all available possibilities. Its very important to pick the right structure, the one with the least liability attached, I’ll leave that for a different post. Don’t look for ways that you can personally come up with the starting capital, instead look for others that are willing to, if you have a good business plan there will surely be an interested investor.
• Everyday I’m more and more fascinated by the possibilities of creating online assets. This is really not a topic that I can say anything about at the moment, but just let me say that you won’t regret looking into the possibilities. Start by creating a blog, the learning potential is enormous.

Wow, I don’t think I really remember where I started this. Important points, save 10 percent of your total income, pay off your debts first, and start accumulating as many assets as possible.

Simon

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Filed under: Money and Finances by Simon Rodrigues