Over the last few years I’ve been blessed with the opportunity to mentor dozens of small business owners. Helping entrepreneurs to monetize their passions is extremely exciting. I learn a lot about various industries while helping entrepreneurs leverage their strengths and recognize their weaknesses.
One of the most troubling weaknesses that I’ve been helping entrepreneurs with is their lack of personal financial awareness. Most entrepreneurs have very little savings and no idea how to get started. This creates a significant risk for the majority of our small businesses, which more than 77% of all businesses fail due to lack of financial responsibility and awareness*.
Why should I start now?
Every business owner I’ve ever met has numerous tales of seemingly insurmountable challenges. These challenges typically share a common theme, one of a financial nature. This is one of the most difficult challenges to deal with – it causes stress, challenges…
At last it’s Springtime! Warmer weather, the trees are budding, the grass is coming back to life. It’s wonderful! This week I’ve gotten to enjoy outdoor exercise every day. Last night as I biked surrounding neighborhoods I noticed a number of luxury homes for sale so I snapped a few photos.
Just for fun I thought it would be an entertaining exercise to determine the cost of living in one of these houses. After researching I found most similar houses in this neighbourhood ranged in price from $950,000 to $1,299,999($1,577,397 to $2,158,542 after mortgage financing at 4.5% average interest rate over 25 years). For the most part these houses featured 5 bedrooms and 4 bathrooms and include a living room, family room, dining room and eat-in kitchen.
Let’s forget the financials for a moment and the fact that there are single family homes a few streets over for $315,000 to $399,000 ($523,032 to $662,508 after mortgage financing at 4.5% average interest rate over 25 years). These houses have 4 bedrooms and 2 bathrooms and include a living room and dining room.
Why are we so motivated to buy bigger all of the time? More importantly does it actually increase our daily happiness? Does the happiness justify spending an extra $1 million to $1.5 million (which is really $1.5 million to $2.25 million in salary earned before income tax is deducted)?
While I’ve written many blogs in the past about first-world slavery (Are You a Slave to Consumerism?, Start Working for Yourself without Quitting Your Job!), I find myself inclined to write another blog on yet the very same topic yet framed in a different manner. The reason I’m inclined to do so is that first-world slavery is a tough disease to battle because it’s fed by some very resilient bacteria known as misinformation and denial.
Now before you take offense and storm off, take a moment to bear with me and read this through. Believe me, if this blog gets through to you, I guarantee it will transform your life in ways you couldn’t have imagined. I may have just added another decade or two to your happy retirement!
Take a moment and write this down: “I want a bigger house because…” Now, take a couple of minutes and write down all of the reasons that you want to buy a bigger house (or possibly even renovate your current one). Once you’re done that, take a couple more minutes and write them onto two separate sheets – want and need. I’ve done this exercise a number of times during my financial freedom workshops and in most cases, if you are being honest with yourself, the items will all end up on the want sheet (bigger yard, more rooms, balcony, higher end finish), in very few scenarios items may end up on the need sheet (new baby arriving, moving for work, etc.). Be careful and be honest with yourself – the only individual who will pay the long-term consequence for any stretching of the truth in this scenario is you.
Several times a month I’m asked by individuals for advice on buying a house in Ottawa, Ontario or Gatineau, Quebec. While I will refrain from commenting on the personal elements (e.g. politics, etc.) as they are subjective, I’ve put together a financial analysis for those who wish to consider.
In conclusion, unless an individual earns more than $150,000 / year, from a financial perspective, it’s still significantly financially beneficial to live in Gatineau, Quebec vs. Ottawa, Ontario.
Here’s the facts. For this assessment we’ll use the salary of $75,000… (reference for calculations: http://bit.ly/RLVw04)
For 9 years I took course after course on real estate investing. Topics spanned residential, commercial, legal, taxation and the list goes on… Despite thousands of hours of time and tens of thousands of dollars in education, I was always finding a reason to never take that first step, even though, in reality I was ready after only a few years of courses.
One day towards the end of 2010, I woke up and told myself that I would finally just do it. I would buy some investment real estate. And I did.
Now only 2 years later, I’ve built up a real estate portfolio of 18 properties and on my way to owning 100 in the next 8 years. Sure there were challenges and surprises along the way, but, now I’m much closer to achieving my dreams. Don’t make my mistake. Don’t let excuses get in your way of success. If I kept saying “I’m too busy”, “It’s too risky”, “I’m too afraid”, I would never be where I am today.
So, the choice is yours, what are you going to do? Make an excuse (or) take action. Your dreams are entirely within reach, it’s up to you whether or not you take action to achieve them.
Today I’m going to aggravate even more individuals than I typically do, because frankly I have a lot of family and friends who make their living selling mutual funds. By the afternoon I’m willing to bet that I’ll have a dozen negative emails with adverse reactions, snarky comments and excuses identifying why the items I’ve outlined in this article are invalid and why my approach is “too risky”. A warning in advance to financial advisors, I won’t respond to your comments, they are biased and I know my article is risking your cashflow for the benefit of your coveted customers. It’s unfortunate that average investors will be persuaded to listen to such rhetoric because well, simply put – it’s complete bullshit!
Okay so here’s a picture-perfect scenario. This is you. You buy mutual funds. You have for years. You are very happy with the returns. As you can see, even though it’s unlikely, I’ve chosen the best case scenario for the sake of this explanation because there are a hell of a lot of naysayers out there (usually financial advisors in this instance because I’m cutting their commissions out of the equation). Now; let’s assume that you’ve chosen a high quality mutual fund that is managed perfectly, with low fees, consistently high returns and is executed entirely ethically – nobody is generating a single dollar of additional revenue beyond the managed fund’s fee of 2.9%. Sounds like a dream come true, right?
Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing. Let’s talk in terms of something that keeps us away from doing what we want, when we want to. Yes, that’s right… work!
Today I’d like you to start thinking differently about your purchases. In an attempt to accomplish this feat, I’ve decided to take one very simple scenario that typically occurs in most people’s lives and showcase how dramatically this can impact you in the future.
The scenario we’re going to explore today is the simple purchase of a vehicle. Bob and Jennifer are both 30 years of age and they’ve both decided to purchase a vehicle. Bob desires a slightly more luxurious vehicle and purchases a new one every four years, while Jennifer is happy with a more modest vehicle and holding it for a few years longer. If this trend continues until they are both 60 years old, what will the end result be if Jennifer simply puts her savings into a simple index fund investment and receives an average annual return of 7%?
Wouldn’t you love to work for yourself? Are you afraid to quit your job? Surprisingly, you don’t have to! You don’t even have to work any additional hours! What am I talking about then? It’s simple. Start saving today!
Alright… at this point I’ve lost a solid percentage of my readers, individuals who simply aren’t willing to sacrifice their own “perceived happiness” just to save. But hold up one minute there… what exactly is a sacrifice?
When I used to have to wait to purchase something I thought of it as a sacrifice as well, but as time has went on and wisdom has slowly creeped into my head I now realized that I had a threatening disease known as first-world slavery and that making the actual purchase is the sacrifice. What?! Am I completely nuts? No, in fact I’m not!
Recover from these words, regain your composure and then continue reading my blog please. It’s okay… you can do it.