Discusses Christian Stewardship, demonstrates money management techniques and shows how to set goals, take control of your finances and start investing. It explains how a combination of using Good Debt to buy properties and then allowing Compounding to do its work is one of the most effective ways for creating wealth over a 10 to 20 year period.
Barnes & Noble.com
Christian Investing and Money Management
Motives for Wealth Creation
The importance of wealth creation.
Inspiration leads to enthusiasm, and enthusiasm to action. When you know why you wish to achieve something you are half way to achieving it.
Several years ago, about a week before Christmas, the Melbourne warehouse of one of the leading charity organizations was burnt to the ground, resulting in a loss of $1,000,000.00 worth of goods, which were intended for distribution to the needy over the Christmas period. The organization made a heartfelt plea on the TV “News”, asking people to give generously to help them restock at this important time.
On the televised “Carols by Candlelight” on Christmas Eve an announcement was made. They said that when Dick Smith (a well known, wealthy businessman and adventurer) heard about the fire, he pulled out his chequebook and immediately wrote out a cheque for $1,000,000.00 to the charity. This unselfish gesture enabled countless needy families to enjoy a more happy and comfortable Christmas than they would have been able to otherwise.
This is the sort of power that wealth can bring to you. It gives you the power to make a difference to the community. You will have at your fingertips the power to help those in need.
I read in a magazine that Oprah Winfrey has “adopted” an orphanage in America. She has donated millions of dollars to ensure that all of the children there will receive the best education possible.
As Christians we know that everything that we have and all that we are has come from God. He has blessed us with money and possessions, and he has given each of us specific talents and abilities. We have been called to be good stewards - to use our money, our time and our abilities as best we can to benefit God’s kingdom.
Giving tithes and offerings demonstrates our obedience to God, and the recognition that all we have has come from Him. Giving our time in the Lord’s work, whether in ministry, helping those in need or greeting people at the Church door, shows our determination to follow the Lord’s teachings.
There seem to be two distinct lines of thought relating to wealth creation for Christians– the one promoted by many of the big name TV evangelists which is the “prosperity” and “name it and claim it” teachings and the other viewpoint of many of the conservative Church officials who push the opinion that seeking wealth is ungodly.
Unfortunately both of these viewpoints seem to run contrary to the Word, and to Jesus’ teachings about stewardship.
The “prosperity” teachers promote the idea that whatever you give to God, he will return to you many times over. Although this is close to the teaching of stewardship, which says that you should seek to multiply whatever God gives you, so that you can give Him more back in return. It has been distorted, in as much as the actual motivation behind giving promoted by the prosperity teachers is self based (if I give more, God will give me more) instead of focusing on Christ. There is a huge difference between giving to get more, and working to increase your means so that you can give more to further the works of the kingdom.
Some now try to imply that if you are not prosperous, then your walk with the Lord must be lacking in some area, and others at the other end of the spectrum are always making condemning statements about the evils of being rich.
We need to really look at what the Word says, and the examples that Jesus gave.
I firmly believe that the enemy wants to deter us from aiming to invest and make our wealth grow, as he does not want us to be successful. He doesn’t want us making lots of money that we can use for the Lord’s work. He doesn’t want us to be able to fund mission outreaches or to feed the poor or to fund Christian projects. Some Christians seem to have the misconception that being wealthy is evil and being poor is holy. There is nothing holy about being poor. God doesn’t want his children to be in poverty. A rich person has far more power at their disposal to be able to help where financial assistance is needed than a poor person. At the same time though we need to make sure that our motivation for creating wealth is to “get so we can give” as opposed to the prosperity teachers notion that we should “give so we can get”. As long as we do not idolise money, and retain the truth that all we have has come from God anyway, then there is no need to feel any guilt about how much money we make.
There are many examples in the Bible that show God’s desire to bless his faithful followers with wealth:
Genesis 39:2 “And the LORD was with Joseph, and he was a prosperous man; and he was in the house of his master the Egyptian”.
Deuteronomy 29:9 “Keep therefore the words of this covenant, and do them, that ye may prosper in all that ye do”.
2 Chronicles 26:5 “And he sought God in the days of Zechariah, who had understanding in the visions of God: and as long as he sought the LORD, God made him to prosper” and 1 Kings 3:13 “And I have also given thee that which thou hast not asked, both riches, and honor: so that there shall not be any among the kings like unto thee all thy days”.
God loves to bless his children, especially if we in return are happy to bless others. Therefore there is absolutely nothing wrong with setting goals to be good stewards and create wealth to give back to our creator. In fact, as stewards of the resources God has given us, it is actually our responsibility to aim at increasing what we have.
We should be seeking to be successful for God. To genuinely set goals for investing both our money and time into the kingdom of God. The best way to increase your monetary wealth is not to go asking the boss for a pay rise, but rather to start a regular investment program. More important still, is to learn how to invest wisely and not be wasteful with our resources.
It is “more blessed to give than to receive”. Psychologically you feel better about yourself when you give something away. This is how God made us. Think about how you felt the last time you gave a gift to someone and it really meant something to him/her. Did you feel warm all over, and feel a joy in your heart when you saw how grateful they were, and how much they appreciated it and how happy it made them feel?
It is often just as uplifting to make a gift or donation and just know that it will do some good, without even having to see the end result. True power is having the ability to make an impact, in a way that is different to what anyone else can. To have your own individual “I was there and did something important” trademark that makes you unique.
Giving is uplifting to the soul and makes you feel good about yourself. Remember this as you follow the steps in this book and create your wealth, because it is no use coming to the end of your days, looking back and finding that you are wealthy, but not happy. The habit of giving will enable you to feel more fulfilled and happy with your wealth and the joy and power it has given you. Often people who give generously find that rewards have a way of coming back to them many times over.
I think that to be truly wealthy you need to have more than just money. You need to have Health, Prosperity, Wisdom and a Generous Heart.
Why else do we need to create wealth? Because if we don’t we will reach retirement, unable to support ourselves.
As discussed earlier, in Australia, as with many other countries we have an ageing population. With the advent of the so called “Baby Boomer” generation, which saw a huge number of births taking place between 1946 and 1964, combined with the current low immigration and birth rates, the average age of Australians is gradually increasing. This also means that the number of retirees in the next twenty years will be drastically increased. Top this off with the fact that the number of younger, working age people will be dramatically decreased and it does not take a genius to recognise that economic danger is looming.
There are currently approximately six working age people for each one retired person. It has been estimated that by the year 2020 there will be only three working people for every retired person. The effect of this on the economic viability of sustaining, or even keeping in part the aged pension, seems dreary indeed. The government has recognised this fact, which is why they have introduced the compulsory employer paid superannuation scheme.
For the majority of Australians however, the amount of superannuation that will have been accumulated by the time they retire will just not be enough to sustain a comfortable existence. Taking into account that many people are now retiring earlier and also have a greater life expectancy, it may be likely that they will need to sustain themselves financially for up to thirty years, i.e.: if they retire at 55 and live to 85..
One government official recently commented that with 9% Compulsory Superannuation contributions over a period of forty years should give a sufficient payout to sustain someone in retirement. Others have argued that at least 15% would be a far more realistic value.
In either case, there are many Australians who will not have had the benefit of forty years of contributions by the time they retire. The scheme was only introduced in 1995. Women who leave the workforce at some stage to raise families are at an even greater disadvantage.
This is why every Australian, no matter what their current age, should realise that they need to begin to take responsibility for their future and start to strive to become financially independent.
To reach financial independence you need to develop a portfolio of “Income Producing Assets” that will give you an income stream that not only covers all of your monthly expenses, but also gives you an excess that will allow you to cover both life’s luxuries, and any unexpected expenses that may arise – such as needing a new car.
How much net worth is required for a comfortable retirement?
Many people feel that the payout they will get from their compulsory superannuation will be sufficient to see them through. However, because of the relatively short time that this has been in existence, there will be many people reaching retirement with less than a $300,000.00 payout. This may seem like a great deal of money, but if it is deposited into a term deposit account earning 6% interest, which would give an after tax return of around 4%, how long would this money actually last? With inflation averaging 7% Table 1.1 shows just how it will soon be eaten away.
YEAR CAPITAL REMAINING AFTER-TAX INCOME (4%) LIVING EXPENSES (RISING BY 7%)
0 $300,000.00 $12,000.00 $28,000.00
1 $284,000.00 $11,360.00 $29,960.00
2 $265,400.00 $10,616.00 $32,057.20
3 $243,958.80 $9,758.35 $34,301.20
4 $219,415.95 $8,776.64 $36,702.29
5 $191,490.30 $7,659.61 $39,271.45
6 $159,878.46 $6,395.14 $42,020.45
7 $124,253.15 $4,970.13 $44,961.88
8 $84,261.39 $3,370.46 $48,109.21
9 $39,522.64 $1,580.91 $51,476.86
10 -$10,373.32 -$414.93 $55,080.24
Table 1.1: Diminishing value of $300,000 versus living expenses
As you can see, the money would run out in less than ten years. This is another reason that it is vitally important to ensure that your investments are placed in areas where they will not only produce an income, but will also see the capital base of the investment grow in line with, or at a greater rate than inflation. This is why investment in residential property is the best medium, as I will discuss further in Chapter Six.
It may surprise you to know that in 2000 over 95% of all retirees were surviving on an income of less than $400.00 per week. Only 1% of the population of people aged over 65 had an income of over $1,000.00 per week.
To achieve an income of $1,000.00 per week from your investments, how much net worth is required? This should exclude the family home, which in non-income generating?
To calculate this, you multiply $1,000.00 by 52 to get the net yearly income required, in this case $52,000.00. Allowing for taxation at 48% means that a gross income of approximately $100,000.00 would be required. Working on the assumption that all investments will be in areas that give a net return of 5% per annum, to calculate the value of investments required to achieve this income, you will need to multiply $100,000.00 by twenty which gives you $2,000,000.00.
This means that if you wanted to retire today with an income of $1,000.00 per week, you would require a net worth of $2,000,000.00.
You would then need to know how much would be required in future dollars. Using the Rule of 72 (detailed explanation of this in Chapter Two) you can calculate the value that will be required in thirty years time, assuming you are currently thirty-five years old and want to retire at sixty-five. Allowing for an inflation rate of 7%, this means that your money would lose half of its spending power approximately every ten years, therefore to calculate the amount required to achieve the same spending power in thirty years time, as $2,000,000.00 would have today, you need to double it for every ten years. You would therefore multiply $2,000,000.00 by 2(10years) times 2(20 years) times 2(30 years). This gives a grand total of $16,000,000.00 that would be required in net worth in thirty years time to give the same return as $2,000,000.00 would give today.
$1000 (weekly) X 52 (weeks) + 48% Tax X 20 (5%) = $ 2,000,000
X 2 (10 years) = $ 4,000,000
X 2 (30 years) = $ 8,000,000
X 2 (30 years) = $16,000,000
This means that if you wanted to retire in just ten years, then you would need to build an income-producing asset base totalling $4,000,000.00 to achieve the same goal.
If you feel you would be comfortable having the same income as you are currently earning then again assuming 5% return from investments, you can just multiply your current income by twenty, then adjust it for inflation.
If your current income is $40,000.00, multiply it by twenty to get $800,000.00. If you want to retire in thirty years then assuming inflation is running at 7%, you will need to double this amount for every ten years.
$800,000 X 2 (10 years) = $1,600,000
X 2 (20 years) = $3,200,000
X 2 (30 years) = $6,400,000
If on the other hand you believe that true financial freedom would require a gross income of $60,000.00 per annum and, you would like to retire in ten years with this income, then assuming 7% inflation the calculation for the amount required would be as follows:
$60,000 X 20 x 2 = $2,400,000
This means that to become financially independent you will need to accumulate a net worth of $2,400,000.00 of income-producing assets during the next ten years. This may sound like an impossible task, but it isn’t. In the coming chapters I will show you how using the medium of property investment, coupled with the power of “other people’s money”, this is a very achievable objective.
You can decide for yourself what type of retirement income you would prefer to have, and use this as your ultimate AIM when you start to develop your investment strategies. Alternately you may like to use the strategy outlined in Chapter Thirteen, which shows you another alternative to enable you to retire in ten years, by utilising tax-free borrowings against the increased equity of your property portfolio.
Now that you know how much is required, and are aware of the keys that the one percent of people who achieve over $1,000.00 per week income at retirement use to create their wealth you can utilise this information to help develop your own investment strategies. In the coming chapters I will discuss in more detail the specific investment strategies that can be utilised as a basis for wealth creation.
How to retire young.
The factor that influences whether or not a person can retire is not governed by age it is governed by economics.
If you wish to become independently wealthy so that you can give up your full time job and go into ministry full time, or do volunteer work then you need to develop a source of income that will continue to flow in, regardless of whether or not you are working. You need to have a source that is not related to your personal effort, but will continue to come in regardless of what you are doing.
There are only two sources from which you can generate this type of income, either from owning a profit-making business that is run entirely by other people, or by owning a large base of income-producing assets, such as property or shares that will deliver you an income without your involvement.
In later chapters I will show you how concentrating on purchasing an asset base of property can be used as an effective means of creating substantial wealth. I will discuss how it is possible to begin purchasing investment properties without having to outlay any cash deposits, and how they can be used in conjunction with “other people’s money” to fast track your path to financial independence.
I will show you the different types of property available, the various price ranges, the geographical features to consider when purchasing property and the general criteria that should be considered.
I will discuss the necessary steps to take to research your investments, to reduce risk, and find properties that will perform best in terms of capital appreciation.
You will be able to utilise the information contained in this book to develop your own investment criteria and preferences, and begin purchasing your own investment portfolio.
Following the steps outlined in this book you will be able to set yourself realistic goals that when reached, will have given you financial success.
Once you have succeeded in creating a base of income-producing, capitally appreciating assets, that provide you with an income that not only exceeds your monthly expenses but also gives you a good surplus, then you will have reached the point where you are financially independent, and have the option of retiring whenever you wish.
In this book I will elaborate on the principles used by the rich to create an income stream, and will give everyone the knowledge and ammunition that they require to reach this form of financial independence. I will show you how to become one of the elite people in this country who will not only be able to be self-sufficient in retirement, but will have enough accumulated wealth to enable the type of freedom and security that all of us would like to have for ourselves and our families.
God loves to bless his children, especially if we in return are happy to bless others.