While success is in the eye of the beholder, I heard an interesting fact recently about intelligence and financial independence. And that fact was that the vast majority of financially independent people have average or below average intelligence. We are talking here about raw intellectual capability. This would seem counter intuitive to everything we are taught to believe in school, the corporate world and life. That we have to be ‘smart’ to accumulate financial advantage. Turns out the opposite is true and social researchers put it down to one simple thing:
“People of average intelligence are not overly impressed with how clever they are.”
Sounds like a silly thing to say, but it gives average people like you and me a big advantage. It means that we know we have to work hard, and maybe even a bit harder. And it also means that we don’t think we know everything already and so we have on open mind to learn new things and methods.
Turns out that some of the key factors in the success equation are about being average.
There is a phrase which comes from a best selling book*
I tell all of you with certainty, a prophet is not accepted in his hometown.
The economics of this statement are simple. If we want to get paid for you knowledge & skill, then we ought travel to a location where we are the unknown quantity.
*No, I haven’t read the book in question.
It’s good to remind ourselves of what we already know. One of these things is the really important stuff which our financial position has no influence on. Here’s my top 10 list.
- Being a good family member: Integrity, love, caring, effort, understanding and being able to listen have no price.
- Our fitness levels: Having a gym membership, or exercise equipment is not a requirement. Walk, run, push up. Move.
- Eating health foods: The healthiest foods are the cheapest. Fruit, vegetables, raw oats, milk, water.
- Being happy: We’ll be as happy as we chose to be, right now. I know plenty of rich miserable people.
- Education: Library cards are free, all libraries have internet access. University courses are now free.
- Enjoying who we work with: If we don’t like who we work with, we can leave. We are not trees. Our roots are not fixed in the ground. Walk on.
- Giving: Sharing what we are lucky enough to already have costs nothing. Whether it is a physical good, advice, or knowledge. At the time of giving there is no price.
- Friendship: The to and fro of sharing life with a friend is a pure gift.
- Faith: Not necessarily the religious type, but the ability to believe in something, anything which makes the future a place worth arriving at.
- Work: The joy that comes from doing. The willingness to put in effort now, because it’s worth doing, not because of the reward.
Why did I decide to write this blog post? Well, last friday I had lunch with a friend who I hadn’t seen in a while. During the lunch I got to thinking about how there was nowhere I’d rather be at that moment. That no amount of wealth would change how enjoyable it was, or create a desire to be elsewhere. That moment was in itself one which existed outside of our financial construct. Turns out, that most of the important things do.
… want to get rich so they don’t have to care about the company they work for, or the crappy project they are doing. Once they make bank they can do what really turns them on.
I used to be that guy.
Now I just do what really turns me on, and all of a sudden I don’t care so much about how many zeros are in my bank account.
My father once told me; “Regardless of how rich you are Steve, you can only eat 3 meals a day, lay your head on one pillow and enjoy the company of those around you. Money is an illusion. The art of becoming wealthy is actually knowing what it means.”
Needless to say my dad is the richest man I know.
So what we ought do, is not let the Industrial Complex redefine wealth on our behalf and make us live a life of postponing what we care about. Because once we can feed ourselves and have somewhere warm to live, the rest is in our minds.
A startup blog regular – Josh Moore has been asking for as post on Property Investing. Which like anything can be treated like a startup. It’s a big topic with a million books on it. But I have had a side interest in it for some time. So here are some tips on stuff that I think is worth knowing when investing in property. A bit of a 101 guide:
- Property returns on average about 10%. Which is quite similar to the share market on.
- Banks will lend much more money for property investments due to lower volatility than shares.
- You should buy investment properties that you, yourself would like to live in.
- Land goes up in value. Concrete and air does not increase in value.
- Period buildings (unique styles, historical) have higher capital growth than the average property.
- Rental returns are usually below 5% per annum.
- Property investment can be a quicker path to wealth than shares due to leverage (borrowing money).
- Getting someone to manage a property costs about 7% of the rent per week. (so you wont have to fix toilets)
- You should always allow for 6 weeks a year vacancy on rental properties.
- High capital growth properties & areas, tend to have lower rental yields.
- High yield properties tend to have low capital growth.
- Areas going through gentrification usually have greater capital growth.
- A rental guarantee is a lie – the rent for the guarantee period is usually built into the selling price.
- Auctions are invented by real estate agents who want it to sell quick to get their money.
- Homes on busy roads have a higher turnover of renters and reduced yield.
- Homes near water (river, beach, lake) grow faster and fetch a premium.
- Tax benefits of property investment in Australia are a significant advantage.
- You can draw out profits (capital gain) from a property that has grown in value and not pay tax on it
- You can buy insurance against tenants in case they damage your house (Landlord Insurance).
- Investors should choose between yield or capital growth when investing.
- Capital gains tax on selling is 50% lower if you’ve held the property for over 12 months.
- Property investing is very dependent on government policy, technological change, and infrastructure.
- The key to investing is compound growth. Trading removes the power of compounding.
- Trading properties & developing, is not investing, they are more like running businesses.
- Trading properties is expensive – acquisition usually costs between 6-9% of market value.
- Disposing of property usually costs around 3-5% of market value.
- The property market can go through long periods of sustained stagnation, 10% returns is 100 year+ average.
- Buying properties off the plan is risky. The saving in stamp duty can be a false friend.
- Mortgage insurance is for the bank, not the mortgage holder.
- The word mortgage is French, meaning; An engagement until death.
- I believe that property is a get rich slow category
- The biggest land holder on earth is ‘The Catholic Church’
There are only 2 things we can invest:
Time & Money.
Rather than complaining about not having enough money to invest, invest your time instead. Time is the great equalizer. A rich person has no more or no less than you, me or anyone. We can beat anyone with what we do with our time. Learn the skills or put in the labour until it turns into money.
The trick is once the money comes in, to keep investing the time so you know how to use the money and not lose it.
The common question we hear is: Are you a spender or a saver? It’s the wrong question. Any smart person needs to be both. A more relevant question is what is worth spending our money on, and what things should we resist the temptation to spend on. Given that any good entrepreneur needs to have an live a lean life, not just in their startups but in their life, I thought I’d throw together a top10 list of what to spend on So here it is:
Top 10 things to spend money on:
- Books & newspapers
- Annual vacation
- Gifts (non lavish) for family & close friends
- Sports & exercise
- Fruit & vegetables
- Comfortable accommodation
- Public transport tickets
- Internet access
These are the things that we shouldn’t even think twice about spending on. They add value to our lives and make us better people. In the long run they pay for themselves.
Things which don’t appear on this list, and things we should make what I call our ‘Considered purchases’.
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If money didn’t exist what would we do differently? Let me first remind us what this would mean.
In this imaginary moneyless it would mean: That we all had enough to eat. That we all had a place to live. That we all have equal access to healthcare and education. That we wouldn’t get paid for our work. That no-one gets paid for the work they do, in dollars at least.
It means that we do in during the day has an entirely different perspective. In this imaginary world it make sense that we choose our line of work carefully. The work itself, becomes the thing that matters.
It turns out that this is also the best approach for a world that does actually have money.
I was interested in reading an article in this weekends Australia Financial Review which was titled ‘What worries the rich?’ – Firstly, who cares? Not me. Not because they are rich, just that it is an irrelevant question. We all have worries, and the worries of a particular demographic are no more important than any other demographic. However, in reading one particular persons comments I was astounded at the irony.
The rich person in question was Bruce Mathieson, who has a net wealth of over $1 billion. He said:
“I’d hate to think that I had a lot of money but my family and everyone around me were unhappy. That would be an absolute disaster.”
For anyone who doesn’t know, Bruce made the majority of his wealth via Poker Machines. Here is a guy who “sells hope, and provides misery” – claiming he’d hate to make anyone unhappy. Is he serious?
Poker machines provide nothing good to society. The only thing that poker machines are good at, is redistributing wealth from the poor to the rich. And governments falsely believe the tax revenue outweighs the cost of the social ills they create.
You might think this is slightly off topic for startup blog. But for me it sent me a clear message about what business is all about. Creating value for all those who participate in the value chain – not one sided value. If the cost of being wealthy, was creating heart ache for people, I’d rather be poor. In addition, I like to think we are entering an age where wealth creation is more often a result of creating value for society, not by tricking people.
There is no point being a successful entrepreneur, or selling a startup if we have no idea how to handle the money we get. So here is my top 10 financial life hacks.
- Spend less than you earn, no matter what that amount is. The net result is happiness.
- Allocate cash to savings & investments before anything the day you get your profits, pay or dividends.
- Never go into debt for anything which does not appreciate in value.
- The real definition of an Asset: Anything that puts money in your pocket. The accounting definition of an asset is flawed.
- Do not trade stocks. Trading makes the broker and tax man rich and you poor.
- The greatest financial instrument is ‘compounding’. It only happens when we hold assets, not by trading them.
- If you can’t afford a consumer product in cash, you can’t afford it.
- There is no such thing as ‘financial engineering’. It was invented by Wall street to trick you.
- The best type of share investment is an Index Fund. They are investments in civilization. If that fails, we have bigger worries than our money.
- Invest more in education than entertainment & ‘things’ and you will outdo society financially.