A couple of sub ten-year olds provide us with the inspiration for today’s show, which is all about financial management. Teaching our kids how to manage their money is one thing, but what about us as adult property investors? Don’t take my advice on this one…I was actually quite poor with personal finance for many years if I am honest.
Fortunately, we have some excellent resources around now to help us to undertake personal financial management like child’s play if you want to. One very small word or two on the EU referendum, but I won’t be thrusting my opinions on you that’s for sure. Instead, let’s ready ourselves for the opportunities, whichever way it goes.
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Transcription of the show
Hello and welcome to another edition of The Property Voice Podcast, my name is Richard Brown and as always it is a pleasure to have you join me again on the show today.
It was Father’s Day last Sunday and I am sure many of us either gave or received best wishes, cards or if very lucky the odd gift too. Congratulations to all those decent Dads out there, who are determined to set a good example and be great role models for their children.
In addition, to my own giving and receiving of Father’s Day wishes, something caught my attention from a couple of kids no older than ten years’ old, which does apply into our property investment business I assure you! So, trust me on this one as we explore that idea a little more in today’s show.
Property Chatter
“Every week I get one dollar for allowance. Then I get to choose the section where I put my dollar.
There are four sections: spend, save, donate, and invest.
If I put a dollar in the ‘invest section,' my parents give me two extra pennies at the end of every month.
I’ve only used my 'spend section' twice!
I have way over $10 in my 'invest section.' I used to have more but I took some money out and put it in my 'donate section.' We used to it to buy food for people who don’t have much money in their 'spend section.'”
Steven I. Weiss, posted on Humans of New York, Sunday 19th June 2016 – also Father’s Day
This post has so far received….756k likes, 86k shares, 20k comments in two days!
These are financial management principles taught to a couple of kids that look under the age of ten that many an adult has struggled with!
Note the categories of money allocation:
- Invest
- Save
- Spend
- Donate
There is so much to be admired in how these children are being shown how to manage their money from such a young age. To illustrate that it can indeed work later in life, one poster added this comment:
“Back in 1939 when my dad was ten, his foster parents set him up with the same "accounting" system. He is now 87 and he would tell you it was the smartest thing they could have done for him.” Donna Rarick
The idea is simple, allocate your money across the four main budget categories or buckets. Applying it today, especially in a modern, complex world of easy consumer debt, lease payments and instant gratification can be a little more challenging, however.
In our house, we give our children an allowance every month, which is designed to cover the cost of their needs and wants…plus some saving too. They then get to decide how they will actually use the money themselves.
It is true to say that this approach has helped them to understand the value of money and at times, what it means when the money runs out before the month does! I am still working on the investment approach, so perhaps we missed a trick there and should have adopted Steven Weiss’s approach a little sooner than we did, although the savings and donate aspects are pretty well ingrained with them now I think.
If the 4 buckets illustration from the above Humans of New York story is Child’s Play, let’s take a look at some money management from around 90 years ago, which is in fact timeless in my opinion.
One of my favourite money management and wealth books is The Richest Man in Babylon by George S Clason. It also happens to be a very easy book to read as it is written in a parable style telling the story of how a wealthy man became rich as he mentors two hard-working & inquiring young men.
Here is a summary of the financial lessons from The Richest Man in Babylon:
- Pay Ourselves First (“Start thy purse to fattening.”)
- 10% ‘Me Tax’ savings
- Rich Dad, Poor Dad – Robert Kiyosaki describes how his rich dad set aside the first share of his earnings to pay himself first too
- Live below our means.(“Control thy expenditures”)
- Needs vs. wants – necessities or luxuries…either way, do not overspend and borrow to live
- Good debt vs bad debt
- Make our money work for us. (“Make thy gold multiply”)
- Investments to grow the capital
- Insurance protects our wealth. (“Guard thy treasures from loss.”)
- Always protect the downside
- Our home can be our biggestexpense. (“Make of thy dwelling a profitable investment”)
- Own your own home…
- or use geo-arbitrage to rent in low yield areas and invest in property in high yield ones instead!
- Have a retirement plan.(“Insure a future income.”)
- That would be a pension…note this is separate from savings and investments
- Invest in ourselves.(“Increase thy ability to earn.”)
- Education, training and knowledge in order to stay current
- Sharpen the saw
Bonus lesson: Track Your Wealth.(Know where you are and where you are going.)
-
- A household budget (income & expenses)
- A net worth statement (assets & liabilities)
There are many books I could mention on the subject of money management that have been useful to me. Obviously, there is The Richest Man in Babylon and Rich Dad, Poor Dad as I mention here. In addition, The Automatic Millionaire, The Millionaire Next Door and Get Rich, Not Quick are a few other very good reads I could mention on the subject.
In fact, if you get the book Get Rich, Not Quick by Norb Janis, the author will send you his budget calculator free of charge if you drop him a line…mention The Property Voice if you do, as he is often sharing my posts on Twitter and Facebook himself, so it’s nice to send a few his way too J
The Meaningful Money Podcast is another great resource on personal finance that I can mention and if you want to see the story of a young man’s quest for financial freedom, then make sure you check out the FI Fighter blog as well.
You see, there is a universal principle that goes something like this. Before we can be entrusted with great wealth, we must first master smaller sums of money.
Property investing does require the use of sound financial management skills to ensure success. If we were to apply the HONY kids’ principles to money management that would be a great start…and by copying the lessons from The Richest Man in Babylon or Rich Dad, Poor Dad, we are sure to see financial success I am sure.
One resource that I have developed myself is called The Number. This is a calculator that allows us to determine how much money we will need to safely retire…or achieve financial independence young! Drop me a line podcast@thepropertyvoice.net if you would like a copy of this.
If I am totally honest with you, it took me a long time to truly master my personal finances. When I was younger, after leaving university, I became burdened by debt due to spending more than I earned at times. It can be a rotten position to be in, when your ‘spend bucket’ is leaking due to the level of debt repayments that need to be made.
These days I am happy to say that I have set up automatic direct debits to transfer money into a stocks and shares ISA each month, before I touch anything else, and it is very satisfying to know that this fund is accumulating slowly but surely each month in the background. Obviously, I have the properties and the income that they produce, but I don’t ignore the little things like insurance, which can catch you out if not careful.
Personal financial management has been a tough personal journey at times, but after getting a little more educated and most importantly a lot more disciplined, it has started to become a little more like child’s play…eventually!
I hope you don’t take as long as I did to learn these financial and life lessons is all I can wish for you.
In or Out?
Turning to other subjects, I am very conscious that very soon after this episode goes out, we will discover our fate in terms of our EU membership. You will notice that I have steered clear from the topic on the podcast. The main reason being that I have found it extremely difficult to separate fact from propaganda, misinformation and even down right lies on both sides at times to tell you the truth.
However, in the final days before the vote, I believe that, whilst not 100% certain, I am at least clear on the direction I will be voting. Check out some of the posts on my Facebook page and Scoop.it news feed if you want to see some of the material that has got through my personal bullshit filter if you are still unsure...I tied to post points on both side of the discussion during the past few weeks.
I do recall the words of Evelyn Beatrice Hall, who famously said,
“I disapprove of what you have to say, but I'll defend to the death your right to say it.”
I do hope that this does not divide the nation. Respect the person, if not their views, is my policy.
However, I will perhaps leave you with this final thought on the subject…
No matter which way we vote as a nation on 23rd June, there will always be opportunities for the smart, well-informed and agile property investor…so, look for the upside and the benefits, whichever way it goes…
Finally, don’t forget to complete The Property Voice podcast feedback survey - the link is in the show notes, or just ping me a quick email for it instead.
Whether we vote to stay inside or to leave the EU this week, I just want to to say, thank you very much for joining me on the show today and until next time on The Property Voice Podcast…it’s ciao ciao!