30 – Progress Update: Done!

And that’s the end of the beginning, so to speak.

Since land settlement in March (only six months ago), we’ve built a house and found tenants. The grunt work to secure financing happened before all of that, of course, so make it nine months all up if you exclude our dithering at the beginning of the process.

I spoke to our Client Liaison Manager at Open Corporations earlier this week—the final phone call to say “it’s all done”—and today we received a fitting gift from Open Corp in the form of the Monopoly game.

From here we transition into the various guarantee phases with Open Wealth (rental and maintenance) and start on the pathway to long-term property value appreciation. Hopefully the property will become positively geared one day in the near future (I’ll post a financial overview of our current situation in an upcoming post). The next few years will certainly be enlightening as I interpret the numbers come tax time and we do our best to ensure we’re keeping the ATO happy.

It’s impossible to accurately predict what the future holds for our family and our country and whether this will prove to have been a sound investment. Will negative gearing laws have been abolished and would that really affect us much anyway? Will more significant tax reforms have come into play? What will population statistics show? What will the employment landscape look like. Will China be at war with the West? Will the upwards trend in property values that started in the 70’s continue at the same pace or fall back? Will there be a shift towards a preference for apartments over houses?

Going on the history, it will have been a wise investment and become an asset but I’m not going to assume history will repeat because there’s no guarantee. For now, however, I think we’re on the right track and I’ll leave it to the goodwill of time to smooth out any short-term lumps and bumps. The hope, of course, is to one day retire—if not live—off the income from this and other (as yet to be acquired) properties.

Of course Brisbane hasn’t seen much in terms of significant growth for a little while now so it will be very interesting to see if we do get that initial growth as the property clock advances and the cycle peaks in the next few years.

I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. This content is not professional advice and is not tailored to your situation. I'm learning too and expect to make many, many mistakes along the way.

Enjoy,

Michael

24 – Teaching the Kids About Money

I grew up watching my mother balancing the cheque book (manually) at the kitchen table. She worked as a bank teller before she had us kids and she’d regularly fret about being out by a penny or a few cents. I’ve written previously about some of the key financial nuggets my mom implanted in my mind—mainly the old line “every penny counts!” and the idea that you can call up and challenge the banks if they’re not being helpful.

My father was an economist working for the Canadian federal government and although he did not regale us with the highs and lows of economic social policy, he was an educated man with a lot of common sense. My dad was a newspaper subscriber and we had the Ottawa Citizen delivered daily, which of course contained a business section which I’d infrequently leaf through.

Every night over dinner we’d talk about school and friends and some news but we’d also talk about family. Specifically, both of my parents were open, in simple terms, with us about the family’s financial situation. Money was never a “dirty” subject within the confines of our immediate family and we always received an honest answer when we curiously put up the question “how much money do you make, dad?”

My sister and I both received a modest allowance and when we were older we were also paid to mow the lawn—a sweaty, two-hour job in the Canadian summer humidity and blackflies! We had piggy banks and bank accounts from an early age and would occasionally buy a few savings bonds. Our parents covered our basic needs in terms of clothing, shelter, and food but if we wanted something special, we were encouraged to save our money until we could afford it. We also had to buy our lunch at school one day a week and did so from a young age—I remember buying my lunch in second grade.

My first allowance was a quarter: 25c.

Beyond those basics, the financial education I received at home was minimal. Some of these core tenets I’ve noted today form the foundation of my financial sensibility but I plan to raise the benchmark considerably with my children.

Growing up, for example, I knew my dad earned a “salary” of x dollars and my parents had a mortgage on the family home. I knew my paternal grandmother gave my parents a chunk of money when she downsized and I knew our family home (land and house) was bought and built for $60k in the early 70’s. I was also vaguely aware the inheritance received following the death of my maternal grandmother allowed my parents to pay off the mortgage. I was told we were a middle class family and my mom returned to work when my sister and I were older because she wanted to not because she had to. Beyond that, I was not taught about the relationship between income (salary) and expenses (mortgage, cars, and other costs). I knew my parents were cautious and somewhat frugal—definitely not flashy in their spending—but I didn’t know why; I always assumed it was because we were balancing on the knife-edge of affordability.

With our kids—the newborn and a clever toddler—I’m starting them young. Both kids have their own bank account (high interest accounts at 5% interest currently with deposit/withdrawal limitations imposed by the bank). Interest is paid monthly and I make a point to take a moment on the first day of every month to show our eldest her bank account and note how much interest she’s earned “for doing nothing” (as I put it!).

I pay each child, despite being very young, a weekly allowance (currently paid monthly into each account and rounded up slightly to $25/month). Although I don’t want to train her that working is the only way to earn money, I remind her that she needs to her earn her allowance by helping me vacuum, for instance (with her toy vacuum). We also receive the occasional cheque from family in Canada for birthdays and Christmas and that money typically goes into accounts. My 3yo already has a fair chunk of money to her name and earns monthly interest of about $10 (which stays in the account to earn interest).

I’ll note here I typically wouldn’t recommend an adult save their money in a bank account or even a high interest savings account. Although the risk is theoretically low, the interest rates are typically low too and the interest earned is counted as taxable income. And then inflation quietly takes most of whatever gain is left. In the kid’s case, the interest rate at 5% is higher than our mortgage interest rate, for example, and there are no bank fees or income tax. At the end of the day, this is an accessible learning exercise for the kids; if they eventually have the savings to fund a house deposit (possibly as a team) I’d encourage them to go that route but they may opt to travel or study or start a business instead.

I also talk to our oldest child about money. My goal is to create in her a clever, shrewd consumer able to work the system to her advantage, rather than be taken advantage. I typically take her grocery shopping with me each week and I explain to her how I compare prices. I’ve taken her to the accountant in the past and she’s sat beside me when the mobile mortgage broker has come out to the house (she colours…). She comes with me to the bank to deposit cheques and when we opened her brother’s bank account. She can count to ten and I’m slowly teaching her to add.

The core message I’ll be teaching our children is money can set you free but you have to be prudent and sensible in your financial dealings. This may work for us—will it make us wealthy? I can’t say but my hope is it won’t leave us poor. In either case, I hope our children will learn from our successes and our mistakes and my intention is to be as generally transparent on the subject of money as I am other subjects. Instead being taught to be a worker/consumer, my intention is to teach my children to think and behave wisely about money.

I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. This content is not professional advice and is not tailored to your situation. I'm learning too and expect to make many, many mistakes along the way.

Enjoy,

Michael

2 - Choose to Live Well

New Year’s Eve approaches and I’m feeling reflective—on the year that was and the year to come. Specifically, I’m thinking a great deal about what it means to be happy, free, and self-sustaining. I look to my family for these things as they make me happy and help me (us) to be free and, eventually, self-sustaining.

As a stay-at-home dad, I made a conscious decision to put aside, if not discard, my career in IT and take on a role unfamiliar to many men. I handed financial control—at least the income generating aspects—to my wife. Rather than being the member of our family with the highest income, my raw financial contribution in dollars and cents become zero and I spend my days wiping bums and playing house. In short, as Robert Kiyosaki might say, I stopped doing what I can do best: making money as an employee.

Has this hurt us, financially? Not really. Not yet. Not in the short term. Fortunately my wife makes a decent income on her own and this year has been financially productive with her working rurally for six months. I’m not contributing to my superannuation, of course. Had I been working, most of my income would have been put towards paying down the mortgage on our family home. These are important things to think about, particularly in regards to our future financial position and our ability to retire comfortably. My time as a productive employee is limited, after all.

Do we live any less well than than we did when we both worked? No. We’ve always lived frugally. Realistically we’ve been a single family income for a while now as my wife had twelve months off when our first child was born (only a fourth months of which, roughly, was paid). We’ve become accustomed to tightly managing our available funds and resources and while we don’t scrimp and pinch pennies as much as we once did, we by no means lead a lavish lifestyle today.

We’ve essentially chosen to live well.

Our daughter would have had to go to day care, full-time, from the age of one, if I had opted to continue working. Or my wife would have had to put on hold many, many years of education and training in the medical field to stay at home (part-time work is not a real option for her today). Sure, we could have bought some more furniture and some overhead cabinets for the kitchen and maybe another big machine for my woodworking shop but all of those things can wait. In general our long-term lifestyle goals are not much different than our reality today: no flashy cars, no big house, no designer clothes; we appreciate the simple things in life.

A second income would also make us more appealing to the banks in terms of investment loans but I know what we can and cannot afford in terms of debt service so I’ll take my business to the lender who best understands that. Notably, securing funding for this first investment property has not been a problem, primarily because of the equity in our PPOR.

I’m also somewhat fatalistic and I know I won’t live forever. I’m not living it up today, in my thirties, to counterbalance that eventuality, but I despise the idea of working myself to the bone, slumped over a desk day in and day out while life and reality pass me by. My wife would like to work part-time one day in the future (when it will be easier for her to do so) and I genuinely hope she can. She does have a significant contribution to offer society as a doctor but there’s no denying the past ten years of training has been gruesome and taken a toll on our family life.

This is the reason why I’ve opted to invest in residential property. It’s the hope of achieving financial freedom, at relatively low risk, and the promise—however distant—of making a passive income legitimately. An empire of appreciating land, buttressed by the houses on that land generating income so I don’t have to, is, for me, the pinnacle of financial success and personal financial security. There are complexities. There will be hard times ahead. There are also simplicities and there will be good times ahead too.

I spent a significant amount of time this year preparing mentally, through knowledge-building, to start executing a multi-year (multi-decade) investment strategy focused exclusively on residential property. I have minimal experience in this area. There is no doubt I will make mistakes but in pushing forward I gain experience and ultimately reduce and remove risk. As a stay-at-home dad I had a bit of spare time (not much though!) to fast-track my property investment education and I’m reliant on a number of companies to help me stay on track. I like to think I’m not idle at home (beyond the twelve-hour days running the house, that is) and that I’m contributing—financially—to my family’s long-term success and our future ability to live well.

I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. I'm learning too and expect to make many, many mistakes along the way.

Happy new year,

Michael