Anybody who owns property knows that maintenance is never-ending.
We have just been through the turmoil of replacing our roof, which gave me the opportunity to have a good chat to the tradies on the job.
One lovely young guy came up to me and said, "Love your house - what do you do?"
I told him that I write books showing people how to be wealthy. His eyes opened wide: "What's the secret?"
This is what I told him.
Becoming wealthy is simple - you need to continually increase your skills, which should increase your income. You also need to spend less than you earn, and invest the surplus wisely to allow compound interest work its magic.
Look at your fellow workers - they look like good people, but I can tell you they are not on the road to riches. Many of them smoke, a lot are heavily tattooed, and many have hotted up motor vehicles. All this is expenditure of no lasting value.
You have chosen a career in construction, which should give you a good income for life, but if you choose to stay on the tools, you may find yourself unable to work once you reach 65, as your body will be worn out.
This is why you should be increasing your skills with the aim of becoming a foreman, and then move up to the aim of having your own building company.
This will enable you to control your destiny, and generate enough assets to give you a prosperous life. Remember, it's the income you earn that will drive your wealth creation program and how much you get paid will depend on the skills you acquire.
Saving money at your age should not be difficult. Think about it - by the end of the year an average packet of cigarettes will probably cost $50.
So anyone who smokes a pack a day will be spending $18,250 a year. Fast forward 40 years - if the price of cigarettes increases by 2 per cent every year, the smoker will have "invested" $1.5 million in cigarettes.
If a non-smoker invested that $18,250 a year into a good share trust that averages 9 per cent a year, they should have $6.1 million in 40 years.
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A major factor in your success will be your ability to set and achieve goals. Goals help you focus on what you want, and keep you on track. Without goals your life will be all over the place: full of good intentions but no results.
As a young building worker you are perfectly placed to buy a rundown home in a good location and spend your spare time and skills in doing it up.
Sell it after a year or two, and you should make a nice tax-free capital gain, which could be the foundation for your next home. If that idea appeals, write down a goal today to buy your first home within five years.
Luckily, you don't smoke, but let's pretend you are a reformed smoker and invest the $50 a day you are now saving.
For this I suggest a RAIZ account, which has a great app to teach finance skills, and enables you to watch your savings grow.
Banking the equivalent of a pack of cigarettes a day should give you about $60,000 in three years. There's your house deposit.
Keep in mind too, that one of the reasons most people don't end up well off is because they follow the crowd.
Right now you're mixing with a great bunch of young blokes, but I'll bet that most them have no long-term goals or plans. You have to be the one who is different.
I ended my dissertation by giving him a copy of Making Money Made Simple. As I explained, making money is simple - you just need to follow some basic rules.
Noel answers your money questions
Question: You keep recommending making extra contributions to super, with the aim of getting a big superannuation balance when you retire, and have even given an example how a person could have a superannuation balance of $770,000 when they retired. That may be true, but you would still be at the mercy of market forces when you do retire.
In any event, I believe if an employee made no extra contributions, and relied on the employer contribution, the balance of retirement would be sufficient to receive the full age pension which is currently around $37,000 a year for a couple. You'd be hard pushed to earn $37,000 a year indexed from a superannuation balance of $770,000.
I know this may sound terrible, but I believe that whilst the pension continues on the same trajectory and you are on a low income, you are financially better off putting the minimum into super, enjoying the extra money whilst raising a family and going on a Government guaranteed financial source (pension) in retirement. Your thoughts?
Answer: What you say is correct in theory, but it is based on the premise that our current age pension system will continue at its present levels for many years into the foreseeable future. Given the bleak state of affairs that has been revealed in the national accounts, I think that's a very optimistic forecast. This is why I believe it's incumbent for people to become self-sufficient if at all possible.
Question: We have a SMSF. Each year our accountant asks that the fund pay us a pension. Usually, the minimum only. My husband is 76 years old and I am 75. My husband has his own company, still goes to work each day and gets a salary, which has been constant for some time. We do NOT need a pension so why do we have to pay a pension and deplete our money in the super fund when this is not necessary?
Answer: A fund in pension mode is required to pay a pension each year, but your accountant should have told you that you can commute your fund back to accumulation mode at any stage, in which case there is no requirement to withdraw a pension.
The disadvantage is that when you do that the fund will start to pay tax at 15% per annum from the first dollar earned. It's really a matter of doing the sums, and deciding whether you are better off to leave the fund in pension mode, and withdraw the minimum which has been reduced by 50 percent because of Covid 19, or go back to accumulation mode and suffer the tax in the fund.
Question: We understand the importance of keeping enough cash available so we are never forced to dump growth assets at a bad time. We are currently living off other savings and a part Centrelink pension until we are required to draw the mandatory pension. Then we will draw that from the cash account for as long as possible.
But how do we transfer funds into our cash account without selling shares at the lowest point of the market? Fortunately, our advisor had built up our cash accounts before the current crisis struck, but now?!
Answer: If you are in a normal retail superannuation fund, your money will be split between various components with names like cash and balanced. It's certainly important to retain a cash buffer, and move money progressively to the cash account if the share market is performing well.
Over a three to four year period this should work well. Once you decide to switch it's just a matter of asking your fund to move sufficient money from one component to the other.
Question: I have retired overseas so am no longer considered an Australian Resident for taxation purposes. However, I still own an apartment in Australia, which I am renting out.
I have owned the apartment for seven years and it has been rented out for two years. Unless the Australian property market turns around very quickly it will be sold at a loss.
Can you please advise me what my tax ramifications will be?
Answer: Julia Hartman of Bantacs says if the property is sold at a loss there are no tax problems and the capital loss can technically be carried forward to offset against future capital gains that are taxable in Australia.
But, if there is any capital gain, there is no right to a main residence exemption for any of the time of ownership and no 50 per cent CGT discount pro rata for the period of time you were a non-resident for tax purposes. If the apartment is worth more than $750,000 the purchaser is likely to withhold 12.5 per cent and send it to the ATO.
If this happens you would have to lodge an Australian tax return to get it back, which means doing a CGT calculation. It may be possible to apply to the ATO for a withholding exemption, but that would still involve doing the CGT calculation to show there is no gain to justify tax being withheld.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org