With the new year upon us and a lot of turmoil surroundings us on all levels, protecting and developing our future becomes an ever more important aspect of life.
In the new decade the concept of an IDEAL GROWER will gain traction as more and more people realize that they can really only depend on themselves and their own actions to accomplish what they are looking for and reach the goals they are setting.
When a new year starts, we often set resolutions and mine is to offer as much information, support, mentoring and advise as possible for anybody concerned with financial future and successful retirement.
My IDEAL GROWER approach begins with the I in IDEAL that stands for “Income”.
Fundamentally I believe it is important to reflect what income really means.
For most people it is the amount of money they receive for work they have completed or time they have exchanged for money. I actually like the term inflow or revenue better than income. Yes, money is coming in but we have been conditioned to assume that we can now spend this money as we desire. In reality we can’t really use it freely and only have what’s left after all expenses to apply to things not already identified before the money reached us.
In business that money is called revenue and only what’s called profit is what one can spend freely, invest, or safe. It’s money after deduction of expenses.
In real estate, which I am promoting as the path of the IDEAL GROWER to take towards a successful, fulfilling and early, if you start while young, retirement.
When you start reading books or looking online for the financial terminology surrounding real estate you will often find the words “cash-flow”. That is basically the same as profit. You buy a property, pay the mortgage, insurance, taxes, management fees, and what you are left with is cash flow.
Some people think they can use that cash flow to buy more investments or get something else that the business or, if private, the heart desires. The IDEAL GROWER is aware that you want to make sure that you are successful in good times and bad.
Good times exist when you own a property, receive rent, can cover mortgage, insurance, management fees and taxes and no other money needs to be used for maintenance or big repairs.
Bad times occur when you have to pay for major repairs or maintenance, like a dripping faucet a plumber needs to fix, etc. As an IDEAL GROWER, you will put some of your cash flow aside when times are good so you have it when times are bad. Also, it provides peace of mind and potentially new opportunities.
I recommend that an IDEAL GROWER has two savings accounts – one for maintenance and one for major repairs (also called CAPEX).
Some people suggest that you put 10% (5% & 5%) of your rental income into these savings accounts. I agree with this suggestion unless you have more than 5 properties in your portfolio. In a future article I will describe in more detail why there is a separation between 1-5 properties and more than 5 properties. Just know for now that it isn’t smart to have ever increasing amounts of money in your two savings accounts, especially when the interest you can receive is very low, as we experience right now.
Should you have some of your cash flow still left after paying mortgage, insurance, taxes, management fees and your repair and CAPEX savings, I suggest to have a third savings account – I call that the “investment account”. Here you want to keep the money that’s left from the cash flow until you reach an amount that allows you to use it as a down payment for your next investment property.
You might wonder after reading this article so far, when you will actually have some money to spend freely on your desires? Well. That has to do with your goals.
With the new year just started, you want to ask yourself what your goals are and when you want to achieve them? If you decide that developing a portfolio of real estate is what you will do and become an IDEAL GROWER, it will take time until you have developed a foundation that allows you to start spending some of your cash flow on ‘non-performing’ things.
What’s a ‘non-performing’ thing you ask? Well, it’s anything that either loses value after your purchased it or is consumed. Examples would be a nice dinner with a friend – you eat it and they money you spend as well as the meal are gone. Another example is a car. As soon as you drive it off the dealer’s lot it is losing value. Your money is not performing or working for you increasing, it is non-performing and decreasing.
The goal of the IDEAL GROWER is to establish a goal. Make
sure it is defined both by what it is, what it does for you (how it performs),
and by when you want to achieve it.
Now that you know what the “I” in IDEAL GROWER stands for,
ask yourself what income you have, how you use it, how you can make it perform
for you and how it can help you to achieve your goal.
With that in mind, don’t wait till the end of each month to
look how much is left, but rather determine how much money you want to apply to
your goal and pay yourself that amount first. You will see that there are all
kinds of creative ways to get the rest of life paid for.
If you don’t pay yourself first you might discover that you
rarely ever have enough to contribute towards you goal and without that, you
can become the IDEAL GROWER you set out to be when you started.
There is not better time than the start of a new year and a
new decade to set your vision towards a challenging goal and use the IDEAL
GROWER methodology to reach (maybe even exceed) it.