The Money Management Skills You Need For Real Estate In 2022

by | Blog, Finance & Budgeting, Getting Started, Goal Setting, Invest in Real Estate, Property Investment, Reduce Your Tax

Real estate is the perfect asset structure for wealth building, but it has to be done right – and that means having solid money management skills to back you as you make these major financial decisions. 

Some of these skills may seem obvious – like having a budget – but you’d be surprised how many young investors didn’t get to build this foundation of knowledge through their school or home life. 

You see the idea of having wealth is still very much stigmatised in Australian society, especially in the middle class. And yet who can truly say that life wouldn’t be easier if you knew you and your family were set up nicely to live the lifestyle you truly desire?

HOW TO BUILD YOUR WEALTH

Outside of having terrific money management skills, there are three basic principles to building wealth: Understanding money buckets, learning what grows your wealth vehicle, and knowing your number.

Understanding money buckets 

Money buckets are basically the means of how you grow and accumulate wealth. 

The issue we have in Australia is that a lot of people only have one money bucket, and in there they only put one thing – their wages.

Now we know that wages alone can’t create great wealth. Even if you earn a huge salary, it’s pretty rare that someone has ever ‘saved themselves wealthy’. That’s why we need to have other buckets filled with strategies or assets that accumulate wealth too. 

This could include:

Superannuation: Money we set aside that accumulates money with very little effort from us. The more contributions we make, the more money we make.

Tax: Most Australians pay too much tax and don’t apply for the deductions they’re eligible for. Good money management skills will ensure you get the most out of tax to top up your bucket.

Side hustles: Creating a second income, or side-hustle, is another potential income that will help you accumulate extra wealth. 

Shares: With good financial advice you can buy shares and get a nice dividend at the end of the year. 

BUT what will be your biggest bucket of all? Cmon, it’s real estate!

Learning what grows your wealth vehicle 

Let’s be clear, the vehicle you use to create wealth doesn’t have to be property. It could be shares, businesses – whatever you feel you have the money management skills to do well at.

If you’re here it’s likely you’re either already in the property game or looking to invest, in which case you need to understand what drives it to grow. Once you know that, you will know where and when to invest.

With property, there are six market drivers that grow its value:

  • Population growth
  • Infrastructure growth
  • Supply vs demand
  • Economics
  • Demographics
  • Yield

Basically if you can see population growth in an area where infrastructure is improving and expanding, where you know that people are going to want to live, then that’s a good place to invest.

Get to know what influences and grows your wealth vehicle. By doing this you will make investment decisions based on education and knowledge, not emotions and impulses.

Knowing your number

While most Aussies agree they want to retire comfortably, very few actually work out how much money they’ll need each month to reach that. 

The biggest mistake you can make is believing your super and pension will be enough to live the lifestyle you want. The pension number for a couple today is $36,000 per annum, while the average super balance at retirement is $128,000 if you’re male and $73,000 if you’re female. 

It doesn’t even take an expert to tell us that no-one is living the high life off those numbers.

Nail down how much income you need every month to live the life you want. Once you find that figure you can then start working towards achieving it.

Of course, in order to get there, you’re also going to need the best money management skills to keep you on the right path. 

10 WEALTH MANAGEMENT SKILLS YOU MUST HAVE

1. Say goodbye to instant gratification

Building more wealth is a long term game. Whether you’re buying an investment property or investing in shares it takes real time to grow assets.

A typical real estate cycle lasts anywhere from 10 to 15 years, and yet 99% of people fail in real estate in the first six years – less than a full market cycle! Why?

Well one of the reasons is they expect instant capital growth and strong rental returns, and when they don’t get that gratification they simply give up.

2. Know the difference between a need and want

Do you really need to buy a brand new $50,000 car – or do you want it? 

If you want to know how to build your wealth you should start with a little self reflection. The lifestyle you’re working towards through property investing is within reach as long as you’re not trying to live it too early on an income that can’t afford it. 

Don’t rob your own future by buying everything you want now. Focus on your wealth building plan and honing those money management skills.

3. Learn to automate your savings and investing

Having the right structure for your finances is crucial. One thing that can help keep you on top of your savings and investing is having automated systems in place so you don’t have to worry about moving your money around manually every week, fortnight or month. 

Money sitting in the bank these days is wasted. When putting together your finance plan ensure you’re directing the savings portion of your income in areas where that money will work harder for you like your buffer or offset account.

4. Understand the cost of debt and ownership

When it comes to real estate you have to consider more than just whether or not you can afford a monthly payment. Good money management skills means ensuring you figure out the entire cost of ownership before making a decision.

For instance, if you’re buying an investment property that is geared negatively, are the tax savings you’ll receive more beneficial to your financial situation and your goals than a neutral or positively geared property?

Remember there are a lot of costs you might not have thought about with property ownership such as legal fees, council rates and insurance. Here is a comprehensive guide on the financial commitments to investing in real estate.

5. Set goals

Every decision you make in your property investing journey will fall in line with your strategy. And your strategy? Well that’s based on your goals. So if you haven’t clarified what you want yet, how will you know when you’ve achieved it?

One popular goal setting strategy we use with our clients is the S.M.A.R.T. method, which is designed to help them narrow down what they want and what it will take to achieve their desires.

For example: “I will buy a second investment property by December 31, 2022, and I will negotiate the purchase price to be at least 10% below the fair market value.”

6. Learn to live within your means

One of the best and oldest money management skills is knowing how to budget. In fact, it’s not just knowing how to budget, but having the willpower to stick to it.

When creating a spending plan don’t set yourself up for failure. Consider your financial capacity, what your other life commitments are, and what you still want to enjoy on a regular basis. 

However, don’t forget the basic key of budgeting is to spend less than you earn, so if you need to cut out unnecessary spending in order to build your wealth – do it. 

Here’s another great blog on the five budgeting mistakes you might be making.

7. Be willing to make short-term sacrifices

Often life is about trade-offs. You have to be willing to give up something you want now – like that annual holiday overseas – for something better in the future.

An easy principle to work off? If you want an easy life later, work hard in the beginning. If you want a hard life later, take it easy in the beginning.

8. Seek out the experts

Even with the best money management skills you can’t build wealth alone. A lot of the time you’ll need the help of experts who can guide you through certain decisions and processes. 

In fact, you’ll need help from at least six experts – your six star team – if you want to make it through this long real estate investing journey. Learn more about that here!

Don’t forget, there’s no shame in asking for help when you need it.

9. Remove the bias

Don’t make assumptions about real estate before you look into it further.

Should you buy the new investment property or the older one? Well, ask a seasoned property investor and they’ll tell you that it depends on a lot of factors – your financial situation, your goals, the suburb’s postcode…

There are a lot of things to consider when managing your money and building your wealth and each of them will impact the success of your investing. Just don’t let bias around certain properties or locations push you to make poor money decisions.

10. Take advantage of opportunities

PAYG variations, negative gearing, renting out your principal residence – there are a number of tools and strategies you can use to grow your wealth.

Once you get your money management skills down pat, you’ll open yourself up to a lot more opportunities to get you one step closer to your ultimate goal. 

HONING YOUR MONEY MANAGEMENT SKILLS IS JUST THE FIRST STEP

Now that you know the money management skills you need to succeed as a property investor the real education can begin! 

Having the know-how around finances is just one piece of a much bigger puzzle. Building wealth through real estate takes a lot of planning and a core understanding of how markets work. Without a good team behind you to guide the way, it can be incredibly overwhelming to own property!

If you resonate with that at all, come along to one of our FREE property investing masterclasses. Our coaches and mentors have real life experience as investors and give you the tools, resources and knowledge to help move you through each phase of the investing cycle. 

Register now to join the next masterclass near you.

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