Episode 8 (of Rentvesting) – How to Get a Property Plan
Welcome to the reinvesting podcast the ultimate property podcast that unpacks the facts. Learn how to live where you want to invest where you can afford with your host Louis Strange and Jayden Vecchio.
Jayden Vecchio: Hey guys and welcome to this weeks episode of the Rentvesting podcast, where we talk about being able to live where you want but invest where you can afford.
Louis Strange: I’m Louis.
Jayden: We’ve got a good episode this week. Old Bernard the silver fox salt kind of got my goat a bit.
Louis: Oh the salty dog.
Jayden: So there was a bit of press with the Weekend Australian where he wrote an article which is mostly…
Louie: It’s a bit of a rant piece about hipsters these days, and their milk crates.
Jayden: But on a serious note, there was a fleeting part about young people where they can’t afford property because they’re going out and spending $22 on brunch.
Louis: Avocado on toast was the reference.
Jayden: So we thought this week – we should talk about reconditioning, cause there are a lot of young people in this situation. Mate, Ive been there.
I don’t know if you’ve been there… You know, you’re too financially sensible.
But people complain: “property is expensive, our parents had it easy, they went to university for free, all of those sorts of catch cries.”
Some of it is fair enough, but I don’t think some of it is. There’s always something you can do about it.
So we’re going to talk about changing the way you think.
Louis: Yeah cause there’s that constant argument between Baby Boomers, Generation X and Generation Y about who had it tougher? Who had the worst time? Right now Millennials are saying property is too expensive and it’s the Baby Boomers fault, and Baby Boomers are saying it’s the Millennials fault because they’re not saving enough and spending everything, or not giving it enough attention.
Jayden: Yeah like going on the internet, having expensive weddings etc.
Louis: So, old Bernard said people should spend less on breakfast and save for a home deposit instead. Yet the psychology behind that is – back in 1980 on average it took about 4 years to save for a home deposit and now due to income versus the expense of property, it takes around 10 years.
Jayden: So it’s expensive.
Today we’re going to talk about getting a property plan.
Louis: Yeah getting a property plan. But to take a step back, because it takes so long to save for a home deposit now, there’s a little psychological thing that is stopping people.
Jayden: Oh tell me more!
Louis: It’s a term called hyperbolic discount
Jayden: Do you use that as pick up a line?
Louis: Ha yeah! Hey baby let me hyperbolic discount you.
So, it’s basically the happiness you get from saving verse the happiness you get from spending now, as the underlying concept.
A lot of people would prefer to save a dollar now to spend $1.50 down the track. But some people would prefer to spend a dollar now get the instant gratification. So it’s a bit of hard wiring we have now, back from the old Neanderthals days, where who knows when your next meal is going to come around. So if you get something you will use it or eat it (whatever the resources is), because you wouldn’t have it tomorrow.
We have that same hard wiring, where we want that instant gratification.
Jayden: So ie. We want avocado on toast because “I’m hungry now and the toast at home isn’t as good and I’m happy to spend more now.”
Yeah in a way. It’s more focused on, for example, if you had $22, would you be happier to spend it now by socialising with your friends and go disco dancing? Or would you prefer to stay at home, put that in the bank and see it grow over time?
The fact it takes so long for funds to grow is the major reason why this is not an attractive thing, especially when people think – I’ve got 40 years until retirement or I’ve got 10 years until I’ve got a home deposit saved, so I’m not going to bother because it’s pointless at this stage.
Jayden: Which takes us to the property plan!
Louie has put together a sweet Excel Spreadsheet plan where basically, it helps you break down your goals and really show how much your money is going to grow. Or how to save that money in a few years.
Starting from the top: How do you set goals? That’s probably a pretty important part of your plan.
Louis: So you have to set the goal to be quantitive. First of all, you need to have an idea of how much you want to save and the time period.
That comes back to that SMART acronym.
So if you have a wish of buying a property – it’s a good idea, but having a goal to buy a property is a little different.
You should be saying – I need to save $100,000 in the next five years for a property that’s worth around $500,000. That’s an actual goal and going to get you there.
To set it up, all you have to do is put it in this little Excel Spreadsheet, add in your time period, how much you currently have, your end goal and it will tell you how much you need to save, and what return you need to get on those funds to get you there.
Jayden: Pretty cool, it’s got all of these little macros too – pretty impressive. I had a play with it just before.
Louis: So that comes back to, in the plan you need to focus on earnings.
So rather than spending to spend, spend to earn.
For every dollar you would spend on avocado on toast, spend that on something that will actually generate income. So it’s the concept of putting those funds away for a home deposit. The longer you have, the less you have to put away as well. If you had to save over a year, you’re not going to get a great return over a year. Basically you’d just have to save 100% of the funds. But if you’re thinking, you’re currently in your early 20s or you’re 18, you’ve probably got about 10 years realistically to save before you’re in your late 20s and that makes it much more achievable due to compounding interest.
Jayden: Oh don’t start about compounding interest again! Haha. It’s pretty important but the main takeaway is: focus on your monthly income. Write it down, think bigger, really plan around that rather than saying oh I’ll start on 1st January, or it’ll be my New Year’s resolution. Try to stop thinking like “What difference does this $100, $50 or even $10 make?”.
Louis: You need to stop delaying, just do it and don’t complain.
Jayden: And over the years it will compound.
Louis: Yeah, so there’s a simple way to explain that. There’s a thing called the rule of seven.
If you’re getting a 10% return on your funds every year, they should double every 7 years.
So say you have $10,000 now, you invest that in 7 years that should be $20,000. Then 14 years is should be $40,000 and so on. But the longer you delay, that’s obviously another 7 year cycle you’ve got to go through. So you can either save now and before 7 years is finished, double your money or you could just delay 7 years and hope for the best.
Jayden: Yeah it’s up to you really, we’re not going to force you to do anything! You’re all grown adults hopefully.
Probably the last thing is, invest in your knowledge and invest in yourself. You’re doing the right thing by listening to a podcast. Knowledge is power, the more you learn, the more you invest in yourself. Set in place a strategy for the future, so it means that you won’t be like some of our friends who are kind of whingy-Millennials that always complain.
Which is Lou’s last point.
Louis: So that was the last point. A little story on that one.
I was listening to a psychologist talk about why people complain and it’s simply because they know something better is out there. So if someone’s complaining saying “Oh I hate my job, my girlfriend is shit, I’m fat”. They know that there’s a better alternative but they’re just not willing to do it. See the thing is:
- You could go get a better job, but that’s a bit scary.
- You could go and lose some weight, that’s scary too. Not appealing for a lot of people (who likes waking up early!).
- You could go through that break up again, but that’s going to be a lot of effort and stress.
Jayden: We are not advocating divorce either.
Louis: From a financial planner – that’s super expensive, so probably don’t do that one.
Jayden: But really, the point is, you’ve got to just do it. Don’t complain.
Louis: You’re in control of your own life, so rather than complaining about external factors, you can really take charge and actually get there if you have a plan.
Jayden: So linking back to the top, get the property plan, you can download it here.
It’s a really cool template which you can use and look at it practically to set a goal.
Like “In 10 years, I want to save $100,000” and it breaks it down, to monthly ways that you can invest that. It helps you focus on earning and saving to invest. Not just saving to save, which is boring, investing is way more fun.
Louis: Yeah exactly!
Louis and Jayden: See you next week.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.