What should I do BEFORE I invest in property?
The quickest way to build wealth, make money, become financially free, financially independent, retire early is via Bricks or Business. Simple right. Well not quite.
There are of course a lot of other types of investments (and savings). The stock market, savings accounts, but in my opinion these should come second to either business or property.
Let’s stick with the term “investing” for now, which could be in whichever asset class you wish.
There are things you should do BEFORE you even think about investing in anything.
1. Obtain An Accurate Financial Picture
The first thing to consider is “Where am I now?” .
Take a look at your incoming and outgoings per month. Plot them in a basic spreadsheet. Don’t leave anything out; consider dividing annual expenses by 12 and including them. This can include things such as:
- Car / life / house and gadget insurance
- Car tax & MOT
- Boiler servicing
Once you know what you are spending and what you are bringing in there are three golden rules:
- Spend less then you have coming in
- Spend less then you earn
- Do not spend more then you have coming in.
Hopefully this makes sense. Everything left over is your road to freedom, flexibility and wealth.
2. Reduce Expenses
Once you know how much you have left over, it’s time to make the most of what you have.
Now it’s time to identify where you can reduce your outgoings.
Be honest, be realistic, be practical.
Here are some common area’s where most people can make positive changes:
- Mobile phones – reduce your contract or go sim only
- TV and streaming services – Consider consolidating into one package
- Broadband – shop around
- Coffee, Tea and lunch while out and about (this can seriously add up)
- Smoking / Drinking
There are lots of other area’s where most of us spend money, that lets’s be honest is optional. It’s upto you where your priorities sit, genuinly. It’s your choice and the choices you make will come down to your goals, your timeline and ultimately what your priorities are.
At some point you will have reduced your expenses as far as you are willing to go (or as far as you practically can). An important note: Reducing expenses has a limit. There is only so much you can reduce you expenses by. Which brings us to….
3. Increase Your Income
There are a lot of ways to increase your income. This will be a full separate topic at some point. Here are a few ways you can increase your income:
- Business – Start One
- Property – If you already have the savings, invest it
- Side Hustle – Sell / Make / Do
4. Protect Your Money / Build a Buffer
Get insurance. There is no point working hard to save and invest if it all comes crashing down with one major life event. The following should be considered to form a strong foundation for your wealth:
- Life Insurance
- Critical Illness Insurance
- Get a Will
Now consider building a financial buffer. A minimum amount of cash that does not get invested. Used for day to day spending , bills, shopping etc.
Everyone is difference and the amount you choose will depend on your spending habits and your apatite for risk. This could be anything from £1000 to 6 months salary. Everyone has a different idea of their own comfort blanket. Just make sure you have one of your own.
5. Clear Debt - Make yourself the MVP
Debt. A big issue. There is GOOD debt. And there is BAD debt. This is a bigger discussion for a whole new post but very simply, I want to focus on getting out of bad debt. Bad debt does only does one thing:
TAKES MONEY OUT OF YOUR POCKET.
If you are not using debt to make more money (BTL mortgages) OR buy a home then you should focus on paying that off first. For example:
- Personal Loans
- Credit Cards
- Finance (Department Stores etc)
- Pay day loans
These should all be paid off first because they do not make you richer. They charge high interest rates, which will only take money out of your pocket. The longer you leave them unpaid, the more they cost.
If you are very deep in debt, struggling to make the minimum payments or taking out more debt to make the payments on the debt you already have, you need to seek help.
The following links can help you get that help:
One more thing: DEBT MAKES OTHERS RICH AND KEEPS YOU POOR
When you think about this, if you are paying someone else via a loan or credit card to fund your lifestyle, they are the ones getting rich not you. This should make you angry! Motivated to pay off debt? Make yourself the Most Valuable Player.
A quick summary of they key points:
- Most debt is bad, some is good (BTL & home mortgages for example)
- Used properly debt can be useful but there is risk
- Debt makes others rich, and keeps you poor
The Debt Snowball / Volcano
This is in my opinion the fastest way of clearing your debt.
- Decide how much of your monthly expendable income you’re going to use to pay off debt – as much as you can
- Use that money to build a starter / buffer / emergency fund first
- List your debts in order of outstanding amount – smallest first
- Blast that smallest debt with as much money as possible – make minimum payments on the rest
- Snowball / Volcano
Let the amount you are focusing on one debt build and build. Every time you pay off a debt, add that to the amount you pay off the next in line. This builds and builds until eventually you are left with no debt and a habit of saving a large amount of cash.
Maintain that habit and INVEST.
Now you’re bad debt free you can start investing. Here at MVP Properties, we like property! This is one fabulous asset class, but it’s important to know there are other ways to invest and other assets that should be considered as part of your overall portfolio.
The basic asset classes can broadly be labelled as:
- Equities (stocks, shares, funds)
- Gilts and Corporate Bonds
- Commodities (Metals like Gold, Silver, Copper, Iron, Oil and Gas and Soft commodities like wheat and sugar)
For more information on investing we recommend Monevator.com