Retire Rich

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money podcast. I'm Jessie Edge and joined by Scott Parry. How are you, buddy?

Hey. Very well, very well. It's been a interesting year, to say the least. I thought after the last few years it would have been a little bit more relaxed, but not the case. It just keeps coming and we're two.

Months in and it's already been a very interesting year. I'm ready to go to bed and wake up when it's 2023, to be honest.

Yeah, well, I said that in 2020 and it's worked for me. So now I'm very excited about our topic today, Jess.

Yes, tell me about it.

Yeah, we're going to be talking about how do I become a millionaire. We have a lot of people who want to become millionaires and it's just they seem to think it's unachievable. It's actually not. It's so simple. It's a recipe. And if you said, Scott, what have you Lear over 20 years sitting with 6,000 families, what are those clients done that when I got to retirement, they couldn't spend all the money they had. What did they actually do? And if I could simplify this for you, it's really about having your house paid off, number one. That's why we're so focused on getting your house paid off for you, is so you actually have no debt. Because if you have no debt, that means you've got all your income to do what you want, when you want. And obviously you can increase your lifestyle, but you should be looking to invest some of it, whether it be into your super fund or into other investments, property shares, et cetera. Well and truly, by the time you retire, you should be investing. You shouldn't wait until you retire until you're debt free to start investing. You need to start investing.

We talked about, you know, being debt free is a very powerful thing, but it doesn't just buy you, you know, the money you've saved in interest. What it buys you is time. And when you've got all of your income to be investing and getting a return on. And we've seen, we've seen the numbers so many times with compound interest calculators, like, it is insane. Like, absolutely insane. So if you can be, instead of paying down debt, we're now investing and getting a return on that. You will absolutely be a millionaire by the time you retire.

So those people who got to Retirement and they couldn't spend all the money they had before they passed away. Had one thing in common, that is a debt free house. And they acquired two or three investment properties before they retired. Not saying they paid them off, they just acquired two or three investment properties before they retired. And so from that perspective, quite achievable. Got your house paid off then from there before that stage you would have at least bought one investment property, maybe another one. If you buy one every 10 years, fine, you're going to hit that goal of having two or three before you retire. So do not wait until you're debt free to start investing. The early start, that compound interest takes a fold. So why wouldn't you wait until you're debt free to start investing for property? Prime example, let's say today you've got enough equity in your home and you're looking at being able to get a pre approval for a property. You're going to be buying $600,000 property. And let's say your property does 4% every single year, which is quite conservative. And so some of it's going to be more, something is going to be less. After 10 years that property would have been growing at 4% per annum. But you're getting the 4% on a 600 grand asset value, the property price. You're not getting the 4% on your deposit of 60 grand or 120 grand. Whatever you put down towards that property, you're getting the percent growth on the 600 grand. Now let's fast track this and let's say after 10 years the property's worth 8, 853,000.

Yep.

That was nailed it.

Well done. Look at you guys.

And so probably is worth 850. And for those second 10 years you're now getting 4% on 850. So you're getting the actual growth rate on the asset value. And as the asset value increases, the growth rate increases because it's a bigger asset value. And so in that second 10 years, getting 4% on 850 by the end of that.

What's your guess? What do you reckon it is?

Oh, well, if I was to say 850, 40, I would say 1.2, 1.26.

Well done. You got a calculator over there? You've got a calculator, don't you?

I do not. Every day of your life for 20 years you get to know your numbers. So what I'm trying to say here is, and then if you keep that property after 20 years, you're getting 4% on 1.2 million. So you can start to see the longer you hold this property, the bigger the compound interest is, the bigger that snowball becomes. And so that's why I'm a buy hold guy. I just want to buy assets. I know for the first 10 years it's not going to shoot the lights out, but for the second 10 years it's going to be even more impressive. And by that third 10 years it's really the rent so high compared to what was rented when I first bought it. The asset value, I'm getting 4% on the actual 1.2 million, not the 600. And it starts to become real fun and really magical. So time is the secret sauce. We want to make sure we hold our properties and you want to make sure you're buying properties that have at least 66% land value. What does that mean? That means that if you've got a $100,000 house, well, let's call it a million dollar house, you want to make sure that the land value of that million dollars is at least 660 grand. So when you get a valuation, you can see what the build is. Make sure that's no more than 333,000 and the land component is 666,000. And that means that you, because the land's the only part that goes up, the building goes down in value. It depreciates the dirt is what it's all about. So you want to buy as much dirt near transport, shopping centers, schools, or the holy grail near water. That's where demand is high. Everyone wants to live near those four places, but unfortunately there's, they're not making any more dirt near those four style places.

What would you say to people that kind of, you know, are worried about where we are in the property cycle and they're not really interested in purchasing an investment property right now. Like, where does your head sit with that?

Yeah, I don't say anyone should be purchasing property whenever they don't feel comfortable. No way. If your intuition saying no, the market's a little bit toppy at the moment. Cool, chill out, relax, take a seat for a few years. But the bottom line here is if like no one has ever made a profit trying to time the market in terms of long term, you've got no one in the richest foreign people in the world who've actually made their millions because they timed the market perfectly. It's that time in the market. And if you're comfortable buying a property now, well, wait for the rates to go up, wait for this price prices to come off, 5%, 10%, whatever you think may happen and then execute. But you need to draw a line of sand. Say if prices haven't come down by this amount, which is what I'm thinking by this day, I've got to start to take action. So, yeah, price is always going to go up, always going to go down. It's irrelevant what the price is unless it's the day you're selling it. That's the only day the price matters.

To just keep holding it. But especially in retirement, if you're holding an investment property, especially if it's debt free and you've just got this income stream that continues to come in, it's not necessarily about selling that property then and there and cashing in on the asset. It is about that income stream continuing through.

Yep. And that's what I was saying with those clients who've not been able to spend all their money before they retire. Their house is debt free, they've got their super fund and then they've got two or three properties which are spinning off maybe $500 a week each, which is $1,500 a week. Let's say their mortgage repayments are $700 a week. That's $800 a week in passive income that they've got to chew through as well as their super balance. And then once they've finished spending all that, then they sell the Property and take another 2, 4, 500 cash. Chew through all that. I mean, there's just no chance that they can be spending all this. And I think the goal in life, and this is just my. I'm not saying it's the right mindset. The goal in life, I think, is to spend all your money before you die because it all goes back. Yeah, let's talk about kids. Like, everyone wants their kid to be a millionaire. This is what I'm doing for my kid. I've touched on this before. All you need to do. All I need to do and all I am doing is I'm investing $500 per month for my kid for 30 years. That's it. I'm putting $5 a month into an index fund or raise or bamboo these apps on your phone. You can download $500 a month, every month for 30 years. And on his 30th birthday, I'm going to give him his million dollars and I'm spending the rest, buddy. Give him free. However, if I was starting to think maybe I could hold out to his 40 rather than give him a million dollars on his 30th birthday. If I hold out on him on his 40th birthday, $500 a month over 40 years I would have invested about 240,000. Guess what check he'll be getting on his 40th birthday from me?

What is it? I bet it's big.

$3.1 million on his 30th birthday he can get a check for a meal or on his 40th birthday and get a check for 3.1.

Imagine that decision. Would you let him make the decision or would you make the decision for it?

I'm never going to tell him it exists because it's going to change the way he acts. I'm going to see where he's at 30 and I think if he needs a million it could be put to good use or whatever he wants to do with it. He can do anything with it.

Especially if it comes to him getting his own property which will have its own capital growth. Then again that's leveraged.

Imagine in 30 years that million dollars is like a 10% deposit. Probably would be.

Right?

Yeah, it could be. So it's just about giving him the choice but also giving me the guilt free aspect of being able to spend all the money I've acquired before I die. I think that's the ultimate challenge. And how much fun can you have? How many lives can you impact or donations can you make to worthy causes? So yeah, it's going to be fun.

So in order of kind of where you would put your money because we're talking about, okay, I'm going to be a millionaire by the time I retire. There's a couple of different ways to do it. We've talked about paying down debt, there's also investing in property. And then what else can we be doing?

So I mean some people like shares, some people like stocks, some people like to invest in the market so you don't have to be a stock picker. I mean Warren Buffett, Richard's kind of planets just said if I pass away I'll be saying to my family, all you need to do is put money into an index fund. What's an index fund? It's basically a basket of the top 200 stocks in Australia. So you don't own one BHP share, you own BHP, Rio Tinto, Wesfarmers, all the bank, the top 200 companies in Australia, you own shares in all of them. So there's no risk of one company going bankrupt and you're losing all your money. And so you invest in the index you can do that in the index for America, which is the top 500 companies in America, in Europe and as well as Asia. And so you're in a position there where you're investing into these ETFs or index funds and you're doing it regularly. Raise is the app that does that for you. Or Bamboo does it for Bitcoin, Ethere, Gold and silver. So I'd be definitely putting money into that. Now you've got some calculations for us here, Jess, where if you have your house in 15 years.

Yeah, we had an example of a client that had a $500,000 loan, $9,000 a month in income and $5,000 a month in expenses. Now, by running the program, they're projected to be debt through debt free after 13 years. And so they've saved themselves, you know, around $160,000 in interest just by paying their loan off that soon, which is awesome. That's like a really good number. But if you take it the next step, you say, okay, they know the loan they were on, they would have paid it off in 30 years. Right, we've paid it off in 13. So what we want to ask is, what can you do with your income and your additional cash flow for the next 17 years? And what does that look like? So we put that into another snazzy little calculator of ours. And if we did a really conservative return rate of 4% a year, which is like really nothing like that, is not much at all. Sorry, almost four then. Don't mind me. Just got really excited about the numbers. And if we said that this client is going to invest just 75% of their additional cash flow, not even all of the additional which they were paying into their home. So they were used to using up all their additional cash flow to pay down debt. We're saying, give yourself a little lifestyle bump. You've got 25% increase in your cash flow. The rest of that money, 75% is going into ETF, like things like that. So any sort of investment and then from there, at a 4% return after 30 years, they're going to have $887,000 in cash sitting in about, in their shares. So it's like the. And that's just on a 4%. If you jump that up to an 8%, which is a more aggressive kind of return, that's $1.3 million in cash sitting in a bank account. If they actually were going home and wanted to invest 100% of their additional cash flow, which they're used Anyway, that have $1.75 million sitting in their bank account after 30 years. So they'd be debt free on their home, $1.75 million in the bank and their income hasn't changed at all. But nothing else has changed except that they're using their money properly, they're investing their money wisely. Yeah.

So imagine that like you've now got a recipe to be guaranteed $1.7 million or $1.1 million. Whatever it is, it's a million dollars. So you pay your house off with us in 15 years and a lot of you guys are on track for a lot faster than that. But we're saying it takes you 15 years to pay off your house. And then for the next 15 years, rather than you just blowing all that extra income on lifestyle, you say, okay, I'm going to get a 25% bump up in my lifestyle, but the other 75% I'm going to invest into an index fund which is that ASX 200 or the top five stocks in the US regardless of what it is, on average over the last 40 years that's returned 7%. But we're only saying you're getting a 4% return because for whatever reason we want to be worst case scenario at the time the 30 loan would have been paid off. With the bank that you with before you joined us, you will have your house paid off and another million dollars in assets. Plus you super. Tell me how you're going to blow through all that in retirement.

Yeah, seriously, like, it's incredible. And I think, I think like the kind of the basis of what we're trying to say is it's not, you know, these are a couple of different formats of doing it, but it's about the consistency and it's about getting your money working for you. It's about investing in debt or investing in property or investing in shares. And the numbers we're looking at here doesn't have to be huge returns. We're Talking about a 4% return on your investment property or 4% return on investments in shares, which you probably get a bit more than that anyway. Averaged out. Yeah. So it's like we're not talking about huge numbers here, but it's just about consistently putting your additional cash flow into a place where it's going to be working for you. Your money sitting in a savings account is worthless. Like it's worthless. Like it's actually depreciating in value with, with, you know, you know what I mean? So it's just not yeah. With inflation. So it's just not. It's not doing anything for you.

Yeah. It's like one of my mentors, a guy called Robert Kiyosaki, wrote a book called Rich Dad, Poor Dad, Phenomenal. First ever.

And so, first book he made me read when I was 21, and I remember it so distinctly, it was fantastic.

So he says, and I laugh every time I say. He goes, savers are losers. Savers are losers. I said, why is that? Well, because if you've got money in your savings account, when the banks are paying you 0.1%, it's not even keeping up with inflation. At 3%, you're actually losing 3% every year. Your money's getting worthless, or not worthless, worth less by 3% of you. So you need to be. I said, what you're doing right now with your money in the home loan, it's working for you. It's saving you interest, which means it's making you interest. But you also need to be investing in other assets, not just your home. That's not an asset that doesn't produce income. So you should be investing into other assets. And some people like property, some people like shares, some people like crypto. Regardless, you should be investing now, not waiting to your debt free. Because that price of that property, when you debt free, it's like Jess said, It's gone from 600 to 820. If you're waiting, you're just paying more money.

Yeah. And I think as well, it's about keeping the money invested. So that relates to everything. Like if you've got debt and you're paying it down, you're not taking it back out again. If you've got an investment property, you're holding it for the long term, not just a couple of years, and trying to flip it, not just a year and trying to time the market perfectly. We're talking, you know, 10, 20, 30 years. That's when the real numbers start to blow out. And that's the same with an investment fund or, you know, anything like that, shares. If you keep that money invested, you're earning interest on your interest on your interest. And that's the compound interest, which we've talked about before. That's the real power. So keeping your. Making sure you're doing it regularly and making sure you're keeping the money invested. And that's how you'll be a millionaire by the time you retire.

Yeah. It's so simple. 500amonth, bang. You're good.

Yeah. So a lot of people say, oh, I don't have $500 a month or everybody has $500 a month if you pay yourself first. If you do that and you say that's the priority. I want to be a media. By the time I retire, I've got $500 to spare and you just cut out your Uber eats for the.

For the month and you pay the. And for those clients out there who want us to set this up for them, we can actually have 500amonth come out of your mortgage account every month to go into an investment, whether it be raise or bamboo or an index fund or Vanguard etf. All these different sort of investment options. If you want to set that up, we can have the $5 a month direct debit on autopilot. You have to worry about. Think about you've got the 500amonth. Like Jess said, you've got to pay yourself first. That 500 dol per month is the number one thing that comes out of your income. Then you live with what's left.

Yep, absolutely. So we're all going to be millionaires by the time we retire. I like it.

Amen. Power to the people. Preach. Awesome.

Thanks for that, Scott. That's great. We'll chat again soon.

Ciao.