So how can you own and not borrow, buy and not have a mortgage?
The answer is that a mortgage can actually be viewed as an investment rather than a borrowing. If you buy a property with a mortgage, you make a monthly investment. The fact you pay that to a mortgage company we can gloss over. You see, in the longer term (and if you’re lucky, the shorter term too) you can reasonably expect that the interest you pay on your mortgage will be less than the increase in the value of your property. What you are banking on is that the value of your home will, in the longer term, go up and therefore you have invested whatever deposit you put down, and your mortgage money.
SO HOW CAN YOU OWN
AND NOT BORROW, BUY AND
NOT HAVE A MORTGAGE?
Renting on the other hand is not an investment. You will never see that money again. Of that there is no doubt.
With a mortgage, you stand a good chance in the long term of seeing your mortgage payments lead to an increase in the value of your house. When you sell, you get that increase in value. Bear in mind, however, that buying property is a long-term investment and you may not gain in the short term. If property prices plummet, you’ll struggle to turn any of your asset into cash. Some experts advise that your house should represent only half of your total assets. That might seem optimistic to some of us, but it’s a good target to aim for.
There are those who believe that buying your home instead of renting brings with it huge stresses, and means you have less fun. The lesson is to think carefully about how much your mortgage repayments will be and whether you are able and willing to pay them.
Ideally buy cheap and sell for a lot more. You then have a choice. You can invest the profits in the next property without borrowing any more and in doing so you decrease the mortgage each time. Eventually you own outright, without mortgage payments, and you have somewhere to live and don’t have to pay for it at all any more.
Alternatively you can do what most people do and buy a bigger, better, more expensive house. This isn’t a wealth creation strategy but it can be what you wanted your wealth for, which makes it fine by me.
RULE 48
Understand what investing really means
Many investments have a twofold purpose. They generate income and they increase in value. In other words, if you invest a lump sum (this is known as capital) you get regular small payments of some kind and the actual value of the capital itself increases, i.e. the lump sum gets bigger.
Let’s suppose you invest in property. In an ideal world you should be able to rent it out, thus providing the regular small payments in the form of rental income, and the value of the property should go up also, so your capital increases in value over time.
Likewise shares should pay out dividends (generate income) and should be worth more than you bought them for when you come to sell some time later (increase in value). You get the idea. And notice I say ‘should’ rather than ‘will’ – nothing is certain in this game.
You can of course invest in pretty well anything you want:
company shares
your brother’s harebrained buy-an-old-boat-and-do-it-up-and-sell-it-for-a-fortune scheme
fine wines, paintings, krugerrands, classic cars, rare books, Georgian glass
pension funds and such like including savings and deposit accounts
inventions and new product development
ideas and people
theatre shows, films, TV programme development.
And it doesn’t have to be just plain old investment. There is also:
sponsorship such as race cars, football teams etc. to raise brand awareness (hopefully yours and not just the race car or football team)
angelic capital – you invest in people and ideas in an altruistic way rather than purely as a money-making venture (as opposed to venture capital, where you invest in people and ideas purely as a money-making venture).
Remember that investments of any sort are a form of gambling no matter which way you look at it. And that you can lose. Ask Lloyd’s if you don’t believe me.
On the other hand, investing in a broad range of low-risk investments can still net returns worth having.
REMEMBER THAT
INVESTMENTS OF ANY SORT
ARE A FORM OF GAMBLING
NO MATTER WHICH WAY
YOU LOOK AT IT
RULE 49
Build a bit of capital then invest it wisely
Lots of people don’t get prosperous because, as we saw earlier, they are too lazy. But a lot fail because they don’t know what to do once they start to earn some money. It’s easy to think, once you’ve got your hands on a bit, that you have earned it, you deserve it, you’re going to spend it. You have earned it – assuming you haven’t robbed anyone to get it – and yes you probably do deserve it. But no, don’t spend it all now, no matter how much you want that new car, holiday, cottage by the sea, whatever.
I’ve done it. I guess we all have. I once got a massive tax rebate. I don’t remember why I was being taxed so highly but I was for several years and when they repaid me it was quite a handsome sum. And of course I blew it, on a spendid holiday. But that’s the difference between the rich and the not so well-off. The rich see a sudden windfall like that as an opportunity to make some more money out of it. The not so well-off remain not so well-off as they see it as an opportunity to have some fun. Nothing wrong with that if that’s what you want in life – instant pleasure. But if you want greater wealth and pleasure (albeit delayed) then you must learn as I did that once you get your hands on a lump sum, or build some up, you must immediately put it to good use. And frankly the only good use is as a starter kit for prosperity.
And it isn’t lost, merely put to one side to work for you. Once it has grown and attracted lots more lovely money, you can have all the holidays you want. But you have to wait and you have to use that starter kit well and wisely. See it as a ‘loader’. This is a term guides who receive tips use for starting the tip collection off. You have to put a loader in the plate or no one else will tip. Buskers do the same thing, put a coin or two into the hat to get the crowd going. No one will put anything into an empty hat. What you are going to do is load your prosperity hat.
Ah, but I hear you say, I’m never going to get my hands on a lump sum. Not true. You get your hands on a lump sum every week of your life in the form of wages – I’m assuming you do have a job here. You choose what you spend that money on – mortgage, food, car, entertainment, etc. But if you want a way out of that particular lifestyle and into another, you have to be proactive about it. And the way you start it is to put something aside each week to build up that lump sum. Once you have something built up, think about where that money is going to generate you more money, and get it invested. Ideally you need to turn that money into an asset that will generate more revenue for you – be it shares, a property you can rent out, or something else. Wealth happens slowly over a period of time, when you turn surplus cash into something that will work for you.
NO ONE WILL PUT ANYTHING
INTO AN EMPTY HAT
RULE 50
Understand that property, in the long run, will not outpace shares
So, you’ve built up a bit of money to invest – where to put it? Property and shares are two popular choices, but which to choose?
In the aftermath of the ‘dot com’ crash of 2000 when share prices started to plummet, many people in the UK turned from investing in shares to investing in property. It’s not surprising really – many people who invested heavily in shares in the late 1990s saw the value of many of those shares drop so much it really hurt – and some companies folded completely, meaning investors lost all their money.
With people turning in huge numbers from shares to property, the buy-to-let market boomed and with greater demand from investor buyers, house prices rose. Eventually we reached a point where in some areas there was a glut of property available to rent and income from rental properties failed to match expectations (sup
ply outstripping demand). However, those early into the buy-to-let boom who bought in the right areas did well. In the years since 2000, however, share prices have recovered and those who could hold on to their shares on the whole have seen their value climb again.
So what’s the right thing to do? Property or shares? Well, shorter-term blips notwithstanding, in the longer run, shares will outperform property.
Don’t get me wrong – there’s always a place for property – it’s about getting yourself a good spread of investments – a portfolio as the professionals like to call it. Any decent investment portfolio is going to include property as a matter of course.
One big advantage of investing in property is that you can live in it (as we said in Rule 47, you have to live somewhere and you can’t live in cocoa futures). Alternatively, if you’re buying to let, you will get income from the rental of the property (though you have to be extremely careful that the rent is as much as you hope it will be, that you are sure there is enough demand for rental properties in that area, and so on).
With shares, you hope to get regular income in the form of dividends paid to shareholders, but the greatest return usually comes from a long-term increase in share prices. And quite simply, as companies have greater potential for growth than property, the longer-term picture should see shares giving you a greater return. I stress potential here as it doesn’t always get realized – the value of your shares, or your property, can go down as well as up. There’s always risk. The other reason to prefer shares to property alone is that shares – especially a nice well-balanced portfolio – will give you a decent risk spread. The more variety, the less the risk. Did you know that in a slump baked bean sales go up?
ANY DECENT INVESTMENT
PORTFOLIO IS GOING TO
INCLUDE PROPERTY AS A
MATTER OF COURSE
RULE 51
Master the art of selling
Just as deal making is a vital skill, so is selling – and they aren’t always the same thing. You sell stuff outside of deals. Indeed one of the most important things you have to be able to sell in life to increase your prosperity is yourself.
Selling is the bedrock upon which every fortune is built. Whatever you do to make yourself prosperous will involve selling: selling your skills, selling things, selling ideas. You can’t make money without selling. Selling is where it’s at. Every rich person knows this simple fact. Every poor person doesn’t.
In an ideal world you should aim to sell:
yourself and your abilities, skills and attributes (every minute of every day)
something while you’re asleep
in countries you’ve not only never been to but have never heard of
via other people, so someone else is selling for you
things that are incredibly cheap to produce and give you a really healthy return
things other people make and finance for you
things that have a 99 per cent penetration into every household
things that store, transport and stack easily.
The list is probably endless. But where people go wrong is when they try to sell things that no one really wants. Unless of course you are Damien Hirst and you make pickled sharks. Now there’s a market I never thought of.
And don’t go thinking selling is for sales reps in shiny suits with a nice line in patter. Every time Richard Branson appears on television busy with a hot air balloon he is selling; selling his entire brand. Clever man. Clever selling.
I like the young chap Alex Tew who started at university in 2005. He wanted to become a millionaire and realized that if he had a million things he could sell them all for $1 and achieve his goal. And he realized a web page has 1 million pixels. He then set about selling each one for $1 to advertisers. You need a block of around 400 (thus costing $400) to be seen, but he sold half by Christmas and the rest within his first year at uni. Head down? I don’t think so. You can see the result at www.milliondollarhomepage.com – and yes, I supported his venture and paid him $400 for advertising my business as I figured such an enterprising young man needed a monetary round of applause for ingenuity, cleverness and innovation.
SELLING IS THE BEDROCK
UPON WHICH EVERY
FORTUNE IS BUILT
RULE 52
See yourself as others do
If your plan towards wealth means you’re going to sell anything – your time, your products, your services or anything else – you need to be the kind of person people want to buy from. If you want to be seriously wealthy, you’ll need to think about yourself and how you come across very hard and very honestly. You’ll need to know how other people see you, and if necessary adapt your image to suit your line of business.
Would you buy a pension from someone wearing torn jeans, a hoodie and flip-flops, and chewing gum? No indeed. Would you sign up for surf lessons from someone in a three-piece suit and a comb-over? Of course not. But swap these two round...now we’re talking.
And it’s not just about the way you dress of course. It’s about your personality, your manner, your attitude, your punctuality, your integrity, your communication skills, your level of organization, the car you drive, whether you hold your meetings over breakfast or with a drink down the pub, how open and honest you are, whether your paperwork is efficient, scary or non-existent, how fast you return phone calls, whether you market yourself aggressively or subtly, whether you’re arrogant or self-effacing, what you promise and whether you make people laugh. And more.
Every aspect of your ‘brand’ should be conscious and considered. Don’t leave it to chance. Ask friends (who you trust to be honest) to tell you how you come across, and listen to feedback from colleagues and work contacts too – whether it’s direct or implied. They might not be totally honest of course – get ready to read between the lines.
And whatever you do you must be sincere too, because that will show. No, it’s not difficult because you shouldn’t be constructing an entirely artificial personality – you’re just making sure that you’ve got the right skills (easy to talk to, good with numbers, or whatever) and then you make sure you show the bits of your own, genuine, personality that people want to see. If you’re having trouble with this, what on earth are you doing in the job?
I have very dear friends, a couple, who are among the funniest people I know. They amuse me endlessly with their sharp--witted, slightly subversive humour. Evenings spent with them are always hilarious. Their job? They’re funeral directors. When they’re at work, they hide their sense of humour unless their clients clearly appreciate it. But another aspect of their personalities shines through – their caring, thoughtful, compassionate side. That’s just as honest and genuine a part of them. It simply isn’t the whole story.
MAKE SURE YOU SHOW
THE BITS OF YOUR OWN
PERSONALITY THAT PEOPLE
WANT TO SEE
RULE 53
Don’t believe you can always win
There is a whole list of things and people you can’t beat, so it might be best to be cautious around them. They include the bookies (and anyone else trying to take money off you for gambling – casino owners, card sharps, race courses, online gambling websites etc.), the tax authorities, speed cameras, the government, your mother, planning authorities, the police, your kids and death.
Dan Brown, author of The Da Vinci Code, was sued by the authors of another book, Holy Blood, Holy Grail, as they believed he had plagiarized their work. They lost. They lost big time. They lost somewhere in the region of £1.75 million including costs.
They probably believed quite sincerely in the merits of their case, but did anybody tell them they were unlikely to win? It’d be fascinating to know whether anybody advised them not to proceed as they would probably lose...
The reason to be very cautious in your dealings with bookies, barristers, accountants and such like is that they have knowledge you don’t. They are holders of secrets that can enable them (if they so choose) to make mo
ney out of you purely because of your ignorance.
And don’t go getting all moralistic on me and trying to change the system. These are facts of life. Live with them. Work with them. You won’t get rid of them. You can’t beat the bookies – or the odds – so don’t go trying or attempting to get rid of them on the grounds that they are making money out of the poor, innocent and gullible public. Trouble is, the poor, innocent, gullible public walk in there with their wallets open, crying ‘Help yourself’. And then complain they are broke, no one gives them a chance, life isn’t fair, no one likes me, it’s not my fault, there ought to be a law against it, etc. Remember that there are sharks out there. So don’t bleed.
REMEMBER THAT THERE
ARE SHARKS OUT THERE.
SO DON’T BLEED
RULE 54
Don’t pick stocks yourself if you don’t know what you’re doing
The Rule after this one is about investing in the stock market. But before you go there, I should just point out that the next Rule may not apply to you at all. You might be better off skipping it altogether. If you don’t really, truly, know what you’re doing, you shouldn’t be playing the stock market. Basically this Rule is about whether or not you should read the next Rule.
It’s all very well saying that no one should invest in the stock market unless they know what they’re doing. How on earth can you do it for the first time then? Isn’t it like having a baby or sky-diving – you just have to learn as you do it? Well, yes and no. You see there are people who know what they are doing, and I guess they weren’t born knowing what to do, so it must be possible to learn before doing so you are as prepared as possible.
The Rules of Wealth Page 8