I tithe. That means 10% of my income and capital gains is given away. That either occurs quarterly on trading income or on settlement for capital gains. I give sacrificially, if I don’t miss it I’m not giving enough.
Why? Because I think my gifts make the world a better place. I also believe that it is the obligation of the fortunate to contribute to society’s less fortunate. I also get better results when I’m tithing to when I’m not. The evidence for that is anecdotal and without scientific verification.
The main reason I tithe right now is to answer the following question. When is the best time to start giving your wealth away? If I can’t give sacrificially today while I’m building the wealth how will I give once I’ve made it? And how will I know when I’ve made it sufficiently to start giving?
There is never a good time to start giving. Start anyway the discipline is worth it.
When I learned to drive I was required to have a fully qualified driver in the front passenger seat. That “black licence” was required to be sober and responsible. That is good risk management on behalf of the community.
In poker if you can’t tell who the sucker at the table is, look in a mirror. That is good risk management on behalf of your wallet.
When investing make sure there is only one learner in the team per deal. Your team consists of you, your financier/broker, your lawyer and your real estate agent.
I made a mistake with these three units. I am breaking in a new broker, a new lawyer and it’s been a while since I bought three units at the same time — so I’m rusty.
I had a 75% LVR loan offer on the table from NAB as part of my professional’s package. But it needs me to tidy up some outstanding paperwork that is not good timing right now.
I heard of a broker who could organise finance for such small apartments easily. I casually mentioned this to another keen broker I know well, let’s call him Bob. Now Bob is a top producer for his firm. This guy writes loans. A lot of loans. This means he knows how to get things done.
But my requirements are outside the square. Bob is good, but he’s also new at it – a little over a year. So he doesn’t have huge vats of experience.
Bob tells me he can get me 80% LVR no probs. So I go with Bob. Three weeks later I get all the paperwork they want together and am running through the fees. Guess what? The extra 5% LVR will cost me 1% application fee, 3 months interest early repayment fee, 1.18% premium for the risk. So they’ll give me the extra 5% but take it back in fees! I pushed back and Bob found me another loan.
During the scary time in the middle of this I called the Experienced and Reputable Broker. He said 90% LVR, LMI 1.5%, three day approval, two week settlement. I’m meeting with him on Monday.
The lesson is one new driver at a time. Nothing is insurmountable providing there aren’t a dozen problems at once.
I bought a strata unit with a credit card cash advance once. I’ve used the same technique for a deposit in a hurry. Until recently I was a fan of lots of credit cards with high limits — providing you knew how to manage a bank’s Debt Service Ratio (DSR) calculations.
You see, banks assume your credit cards are maxed out all the time and factor that into your borrowing limit. What if you listen to Paul Clitheroe, Robert Kiyosaki or other wealth advisors [or pundits like me? 😉]
Don’t carry a balance on your credit card?
Surely that counts for something?
Often not. The major banks’ DSR assume you carry the limit because you can. Look up “contingent liability” someday. So if the DSR looks tight you might cancel or reduce your limits before applying for the loan.
Anyway I no longer favour lots of cards with lots of limits. You ask why (go on I’ll wait)?
Three little words…
…Fees, Fees, Fees.
I have been a Citibank customer for years. It gave me a nice feeling to have Big US Bank credit cards in my wallet. But US banks are “early adopters” of fees and then the Aussie banks follow.
In addition to annual fees and high interest rates, I have the priviledge of: late payment fee, over limit fee, foreign currency conversion fee and cash advance fee. Credit cards are not about convenience where a smart operator can take advantage of a system designed for balance-carrying sheep. The cash advance fee is 1.5% of the drawdown regardless of how long I keep the money.
Now Westpac is following suit with similar fees and my experience is the other banks can’t resist a good revenue stream.
I just go home from listening to Peter Holmes à Court give a casual talk at the Sydney Chapter of Young Entrepreneurs Organisation. I won’t reproduce his entertaining, inspiring and insightful comments here — if you ever get a chance to hear Peter talk, take it.
One point he did make was
“Someone’s always trying to screw you, don’t let it change you.” – Peter Holmes à Court
There is power in this zen-like state. There are crooks, opportunists, charlatans and even terrorists out there. We may be unfortunate enough to cross paths with a few. As a matter-of-fact it’s almost inevitable. But that doesn’t mean we must fret about it. We are big people now, with confidence to deal with whatever life throws up.
Take some risks.
PS Peter’s 10 points inspired a number of reactions in me. I’ll be posting on those reactions over the next few days.
I sat in on an exchange between two very experienced businessmen today. What an education in five minutes. The Salesman and the Entrepreneur.
Entrepreneur: We bought these from you last time at $1.62. Why do you want $2.25? Salesman: I have to pay MGM an 18% royalty on these. Entrepreneur: (grabs a calculator) $1.62 +18% (+10% for safety) that’s $2.10. How many have you got? Salesman: I’ve got 20,000 now and another 15,000 on the water. Entrepreneur: I’ll take the lot over 3 months and pay you slowly. I don’t want them showing up at my competitors. They’ll kill the market. Salesman: Ok, deal.
I spoke to the Entrepreneur after. He was happy to get the product at a price he can move the stock. You make your profit when you buy and just collect it when you sell. But you don’t have to screw your supplier. The Salesman knows he’s got a reliable sale. Win-win all round. But the whole deal was concluded in 10 minutes.
It seems that GE – Mortgage Insurance Services has decided that small units (<50sqm) are not good. This is a relatively new wrinkle as I have seen the lender summaries that brokers use to assess lenders. GEMIS used to do these loans.
Anyhow if it was easy everyone would do it and I wouldn’t have the opportunity to earn excess returns.
Tonight I heard that there is still a financier or two left who can lend 80% Loan-Value-Ratio (LVR). It may cost me a rate premium, but that’s still ok. More as it comes to hand.
American Express called Nella this week. They’re selling a life insurance policy.
So here are a dozen Life Insurance Rules of Thumb.
1. For the Term of his natural life?Jargon Busters
Term Life Insurance is a straight-up insurance policy. You die (or some other defined incident) and the insurer pays money. Whole of Life Insurance has a savings component and surrender value. Commissions, fees and charges are higher on Whole of Life, plus it takes about 20 years for Whole of Life to offer a decent return.
What to do?
Buy term – invest the rest. Note that second phrase.
Build your asset base to provide sufficient income, until insurance is no longer required.
2. Never buy insurance from telemarketers, or On sweatshops and boiler rooms.
How much money would it take to make you ring people at home in the evenings to sell stuff? They can’t pay me enough. Nella used to sell trade magazine advertising over the phone. Nella gave great phone for great commissions. Telemarketing is an expensive business and premiums pay for it.
3. Cheap and “easy”, “no medical” insurance isn’t, or What free lunch?
Online, I compared three Term policies from two insurers monthly premiums.
Amount
Co. A
Co. B
$100,000
$15.07
$12.30
$200,000
$22.65
$24.60
$300,000
$27.28
$35.98
Most brokers can get an average person $500,000 coverage for the $300.000 premium.
4. Don’t smoke, or Can you say Yule Brunner and Steve McQueen?
You know it kills you? Well your insurance company knows it. Smoking will add about 75% to your premium. I know it’s “Yul Brynner” but you’d be surprised how many people search Google with the misspelling.
5. TPD?Better than ADD.
Total and Permanent Disability cover is expensive and full of “exclusions”. That’s insurance speak for reasons not to pay you. However it is nice to get paid as soon as something bad is diagnosed. So I have Term Life and a much smaller $100,000 TPD cover. Should a bad thing happen I get money for treatment and to put my affairs in order. Term cover will then pay out when the end comes.
6. Only insure income producing assets, or Do you want fries with that?
Brokers love to upsell. Your home-maker spouse allows you to work and you’d miss them on cold nights. Don’t insure them unless they make mortgage payments. Invest the premium instead.
7. Review your insurance at least every two years, or know when to fold ‘em.
Once your assets are feeding you, do you really need half a million in Term Life? Thinkaboudit!
8. Income Protection Insurance, or You don’t need it, till you need it.
Can you afford 6 months unable to work? Would your investments eat you? Watch out for medical history excluding you on this.
9. Get Term Life before 34 but not too soon, or How old am I again?
Most people can qualify for Term Life before 34. Does a 23 year-old without obligations need it? No.
10. Start investing, or That means today, slacker!
Do something about it today. Insurance companies only write business for the cashflow to invest. There’s a lesson in that.
11. The most powerful force in the universe?, or Up, up and away
Compound interest. There’s an article in just this. You do know that at 10% p.a. you double your money every 7.2 years?
12. Add you’re own or Whose life is this anyway?
I can’t tell you everything or you won’t learn. Get a piece of paper out and write a plan. Now! I’ll wait…
Welcome to WealthEsteem — dedicated to the Psychology of the Deal.
What does WealthEsteem mean to you?
These are my musings on wealth creation, written during the quest for my second fortune. If my ideas work, great! See you in Monaco sipping Cosmopolitans. If they don’t, it’s a map of my folly. Hoist a cool drink to my memory and imbibe responsibly.
For the record, I made my first fortune by the time I was 26 and lost it and more by the time I was 27. The details should emerge in the Diary as time goes on.
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