Issue #14 – 31st July 2020

3) Control over their time and their life

What if money was no object?

Seriously, how would it all be different for you?

Would you get out of bed later in the morning during winter, help others, invest, travel, upgrade the house, upgrade the car, upgrade education? 

One thing is for sure … the more money we have, the more choices we have and who does not want more choice?

So, how does one get to that position, where money is no object? 

Financial Planning

Positioning for Success

How does one get to the point where money is no object anyway?! 

We know what works. 

It has been said many times that people spend more time planning their holidays than they do planning their financial future.

If you can plan a holiday, you can plan to be financially independent, so that money is no object.

Step one is the overarching framework,  (the strategy), which includes:

• What do you want, big picture, long-term;  What must you have and achieve long term to be happy with no regrets?
• What really matters?   This is all about your moral compass and your core values.  Any planning and investing must align with your strong beliefs and core values.
• How will you get enough money for everything?  Something few ever achieve.  You can seriously improve your chances of real financial independence by adopting The SUSTAINABLE Wealth Model.

Mindset Alignment

Align your behaviour with your goals

If it was as simple as owning a couple of rental properties, saving in Kiwisaver or being in business, then why is it that every New Zealander is not totally financially independent, and at the point where money is no object? 

There are lots of reasons and most of them come down to mindset alignment.  In other words, for most people, their behaviour is not aligned to financial independence.  They don’t do the things that allow them to engineer enough money.

One of the common problems that we see at WISEplanning is that many people do not ask big enough questions of themselves.  Some believe that $1 million is a lot of money and that somehow the income off that will be enough for them to be free, where money is no object. 

Of course, you choose your own number and your own life.  The point here is be very careful about the questions that you ask yourself about your financial future. 

If you do not ask big enough questions of yourself, then it is likely that money will continue to be an object forever.

Investing

Price is what you pay; value is what you get

Would you like to be a successful investor? 

Well, here is how to be a successful investor. 

Over the last couple of months, we have highlighted some key steps to investing success:

1. Invest in capital assets. These are simply assets such as residential property, direct shares and your own business.  They are called capital assets because they have an income stream.  That is important because we can compare the income stream with the capital used to generate that income.  Low levels of profitability (poor use of capital) represent investments to be avoided, whereas those investments that offer a high return on capital because they deploy that capital effectively are where we want to invest;
2. Ignore trends and fads – just do not go there. Play your own game as an investor;
3. Become a value/eco-Investor. This is a game changer and means that you can invest successfully without relying on markets and economic conditions to be favourable.  This brings us to that secret I talked about last month, developed by Warren Buffett and Charlie Munger;
4. Analyse and invest in the economics of the asset.

Over many years, indeed decades, Warren Buffett and Charlie Munger achieved investment success that others could not achieve, nor understand. 

Without doubt, their skill as investors is unparalleled; however, at the very core of their success was their discovery, many years earlier, about how to invest successfully beyond the numbers. 

Basically, we separate out the financials from the economics of the asset and we now have a more robust and more reliable way to invest. 

When we apply this to residential property, we know that location is a key economic.

We can add to that, other economics such as the tenant to property match.  This one is important because when the tenant and the property are well matched, then we likely have happy tenants who will not only pay the rent on time but they will also look after the property and keep us updated with any repairs or maintenance that the house needs in order to keep it well-maintained.  When they let us as landlords know that repairs and maintenance are needed, they are doing us a favour (they are not complaining). 

If we apply the economics to direct shares, one of Warren Buffett’s favourites is the competitive advantage. 

To be clear, residential property and direct shares are both capital assets but entirely different in the way they behave.  The way we analyse and think about these two assets is very different. 

Anyway, once we understand that when a large business has a competitive advantage, we can also see that their pricing will be strong and that their profitability will also be strong as well. We as investors can see better returns.

Hopefully, you can see that rather than chasing a rising price (Tesla and Netflix comes to mind), we are adopting a fundamental approach so that we are investing in quality assets, so that we are not reliant on external trends or fads to make money long-term.

So, if you are not taking into account the economics of the asset in which you invest, you are relying on the market for investing success – not recommended.

By understanding the economics of the asset in which you invest and by investing directly, you take control over the investing process and therefore you can determine how much money you want to make long term, so that money is no object.

“Never depend on a single income, make investments to create a second source”