For the last few years, many property investors have been cheating.
What I mean by this is that since the onset of COVID, we’ve been put into a situation where we’ve seen house prices rising rapidly while not being able to go out and spend money. That’s a great combination for being able to invest and expand your property portfolio.
For anyone who has built some degree of wealth, one of the most important lessons they have learnt is how to manage money effectively.
I have to confess – when I was early on in my career I wasn’t any good at it.
Like many people who live in places like Melbourne and Sydney, I was earning a good income, but I had no real budget to speak of. Our family basically just spent whatever we felt we needed to that month and if there was anything left over that was a bonus.
I had to learn the hard way that this was not the right way to go about managing my finances and if I wanted to build wealth long term I had to change my ways.
Over the last two years, most of us have been forced-savers. We haven’t been able to spend money on travelling or eating out or doing any number of leisure activities that we normally would do.
As a result, our savings grew and hopefully some of you decided to invest that money wisely.
Now that we are getting back to a more normal way of life the onus is on us all the keep up with the money habits that hopefully we’ve started to implement.
A simple goal of spending less than you earn is a pretty good start and it will likely come in very handy in the years ahead – especially for property investors.
After a year of record growth in property prices, it’s likely that we will see annual increases drop to more normal levels.
If you’ve been drawing on equity increases to build your portfolio, this might slow down over the coming years, and you might be required to use your savings to continue to expand.
This is not a bad thing, it’s simply different to the last few years. But raises an important point in that it’s important for all of us to learn how to save and better manage our money.
In fact, I have been trying to teach my kids how to manage their money – something that I was never taught as a child.
They’ve been putting money away each week and I finally took them to the shops to spend their hard-earned savings on something they really wanted. The catch was that they could only spend 40 per cent of what they had saved.
For kids, learning how to wait for something is no easy task. But they are slowly starting to learn the right type of approach.
Hopefully, by building the foundations of good money management at a young age, by the time they become adults with careers and an income, they’ll be far better placed to manage their money than I was.