Building Your Base
Your First Asset Is You
Your first asset is you and your ability to generate cashflow.
So, get started. If school or university is not your thing, get out there and start working. Be good with people and find out what learning you can do on the job – this will make you valuable.
Through this time, minimise your outgoings and save hard.
Kiwisaver is important as it works on the principle that if you haven’t got it, you wont spend it. So lift your contributions to 10%.
To keep balance, you might want to do a budget, this will allow for savings but also allow you to feel comfortable about staying in control with your spending.
Next Assets
Cash is building up and now you have a choice. Do you purchase;
- Assets that go down in value, like phones, computers, and cars.
- Or do you purchase assets that go up in value like shares, managed funds and property.
If you want to get ahead, always purchase assets that go up in value.
First Purchase
Now you have income and a deposit, and so you can stop paying rent, its time to purchase your first home.
Get some flatmates or boarders in and will make a big dent in what you need to pay in mortgage payments.
If you can, shorten the term of the mortgage down to 15 years – this will make a big difference in the financial progress that you make
Over time, the value of your home will increase and your mortgage will decrease and you will create equity – this is your wealth!
Accelerating the Journey
With your first home locked in, now its time to accelerate the journey and you have 3 choices in front of you being Residential Investment Property, Commercial Property, Financial Markets.
Each of these has good and bad to them. For instance;
Residential Investment Property
Residential Investment Property has lower returns but benefits from using leverage (Bank borrowings). However, there have been many that become frustrated by the low returns as well as the difficulties in managing tenants.
Commercial Property
Commercial Property has a higher return than residential investment property and is really about cashflow. However, not all properties suit all tenants and you can undergo long period without tenants. You may also incur fitout costs from time to time.
Financial Markets
Financial markets generally considered to provide the highest return, but the value of your investments is measured every day and you will see them go up and down. Also, there is a lot of noise and its easy to make a poor investment that you wont realise until after say 5 years has passed. Better to work with a good financial adviser and get it right from the start.
Walk the Stairs
With your base firmly in place, now its time to walk the stairs. On one side is cashflow and on the other is purchasing assets that go up in value. So, purchase an asset that helps your cashflow, then as cashflow improves, purchase an asset that appreciates. Then, back to cashflow and so on.
This will ensure you can always meet your obligations and stay in control.
