Baby steps...

I have recently taken my first small steps towards a bright new future.

After many years of doing what I love doing (a hobby turned in a business) and not worrying too much about the future, the time came to make some drastic changes.

Financial Independence is defined as being able to stop working and still have enough income to maintain a good lifestyle. Most people save all their lives towards a date they can "retire" on their savings, policies, pension or a combination of these.

I realised that my savings, policies and investments, though they soaked up a hefty portion of my income, would be hopelessly inadequate to ever retire and I would be forced to keep working until into my old age, unless I made some drastic changes.

My research covered many different options. Many books were read, seminars attended, educational DVD's and CD's bought and, I spoke to many successful people including those who retired early (some in their thirties without any inheritance nor lottery winfalls).

A clear pattern emerged... none of the successful people relied on traditional retirement systems (policies, pension, etc). All took their own future into their own hands and made it happen themselves.

It became clear to me that the "secret" to financial independence, is in fact no secret at all. Forget the Quick-Rich schemes.

The secret is acquiring assets which generate passive income. "Passive" means they are earning money for you, no matter what you are doing, and they keep earning money, every day, even after you retire.

The most attractive income-producing assets to own, and the easiest to acquire, is real estate, commonly known in SA as buying property. Specifically, buying property to keep for their rental income, the Buy To Let principle (BTL).

Buying and selling property (i.e. flipping property), is not very productive from a wealth creation perspective. The entry costs and exit costs are too high, plus inflation and taxes erode your profits.

With BTL property, you enjoy capital appreciation of the asset, plus you enjoy ongoing rental income which is keyed to inflation, as rental escalations increase your income far faster than the expenses increase.

To really make this worthwhile, one needs to purchase these BTL properties in a trust, which has huge advantages both in terms of taxes and asset protection. A trust costs less than R5000 to set up, but make sure you do it properly, through property trusts experts.

The best thing about buying property, it is the only investment you can buy using the bank's money. Imagine asking your banker for a loan to buy gold, or shares, or unit trusts... however every bank has an established Mortgage Loans section, as immovable property is sound surety for the bank, in other words the property you purchase acts as collateral for the bank, hence their willingness to loan hundreds of thousands (or millions) to us. This is the second "secret" to gaining financial independance, using Other People's Money (or OPM as it is known).

However, I digress... my next post will cover more detail about what to do and how to do it.