Using the strategies in this book… “We are now saving more than $17,000 per year!”
P. Cookson, Property Investor, W.A.
HOW THE RICHEST AUSSIES REPAY
MASSIVE LOANS INCREDIBLY FAST,
SAVING HUGE SUMS OF MONEY AND
YEARS OF BEING IN DEBT.
BRODIE BROWN
Bcom Mktg Law; Dip. Fin & Mtg Mgmt; Cert IV Fin & Mtg Broking
MILLIONAIRE MORTGAGE SECRETS
Thank you for getting Millionaire Mortgage Secrets!
I wrote this book to inspire readers to GET CONTROL of their borrowing. If you have
questions about your mortgage or finances you can always get in touch.
HOW TO GET IN TOUCH
1300 303 304
www.bhbrown.com.au
enquiries@bhbrown.com.au
Brodie Brown is an Authorised Credit Representative (Credit Representative Number 499384) of Australian Finance Group (Australian
Credit Licence 389087). The Information provided by Brodie Brown is general in nature and does not take into consideration your
personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Brodie Brown is not
a financial adviser and is not liable for any loss caused due to negligence or otherwise arising from the use of, or reliance on, the
information provided directly or indirectly by him.
© Copyright 2020 Brodie Brown – ISSUE.08.05.2020
MILLIONAIRE MORTGAGE SECRETS
CONTENTS
INTRODUCTION2
CHAPTER 1: IS YOUR MORTGAGE A DEBT-TRAP?
5
CHAPTER 2: UNDERSTANDING WHERE YOUR MONEY GOES
19
CHAPTER 3: NOT ALL FINANCIAL ADVICE IS EQUAL
25
CHAPTER 4: THE RICH PLAY BY A DIFFERENT SET OF RULES
40
CHAPTER 5: THE 8 MONEY LAWS THE RICH OBEY AND THE REST DON’T
50
CHAPTER 6: STRUCTURES AND TOOLS TO CRUSH YOUR MORTGAGE
61
final words
71
CONTENTS
1
MILLIONAIRE MORTGAGE SECRETS
INTRODUCTION
Show me a wealthy person and I’ll show you well-managed debt. They go together like toast and
Vegemite.
This book gives you a firsthand insight into how the richest, smartest people in Australia deal
with money and debt. It’s a compilation of material taken from interviews with some seriously
wealthy people (and the clever people that help them become even wealthier), things I’ve learned
during my 20 years of experience in business dealing with the rich and uber rich, and the scores
of books and documents I’ve studied along the way so I can offer my clients the most suitable
advice.
Why should you read this?
We can all become wealthy, if we choose to do so. God knows it’s a hell of a lot better than being
broke and there’s plenty of money to go around. Nothing could be worse than spending your life
slogging away paying off a mortgage, trying to achieve the Australian Dream, only to find at 65 or
70 years old, you still haven’t made it. What could be worse than a reverse mortgage or selling
your home with far less equity than you need to enjoy your twilight years.
If retirement seems so far off in the future it has no impact on the way you choose to manage
your finance, then think for a moment what you could do with the free cash flow that would be
available to you if you didn’t have a loan with an interest charge to service every month.
INTRODUCTION
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MILLIONAIRE MORTGAGE SECRETS
What could you buy, where could you take the family, what risk could you take, what dream could
you fulfil sooner?
My aim is to give you insights, inspiration and practical tools so you can plan to own your home
in the shortest possible time. When you’re not servicing a home loan, you can invest and begin
to use your money to better your position in life. Sounds good, right?
Who is this book written for?
This book is written for those of you who open your banking app and see something like:
Turbo Booster Home Loan balance -$847,940.56 and you reach for the Quick-Eze. For those
who are considering making a commitment to a large debt like a home or investment loan. For
experienced borrowers who are humble enough to admit they should know more. Those that
want to improve their already solid financial understanding and position by getting some fresh
information. For those who want to financially expand, not contract. And for those who want to
keep learning and get further ahead.
If this sounds like you, read on.
INTRODUCTION
3
MILLIONAIRE MORTGAGE SECRETS
The ‘TERM LOAN’
is a wolf
dressed as a
golden retriever.
4
MILLIONAIRE MORTGAGE SECRETS
chapter
IS YOUR MORTGAGE
A DEBT-TRAP?
01
When it comes to money, we set ourselves up to lose. Or more specifically, the system sets the
uneducated borrower up to lose. Few borrowers have an understanding of what they’re getting
into when they borrow. We think we do, but actually, we don’t. Even the smartest people you’d
ever meet think they know more than they do.
What the banks don’t tell you
Lenders seldom offer any trustworthy advice on how to repay the loan you just took out. Why
would they? It’s in their interests NOT to. A quick doodle around a dozen bank and lender
websites and you’ll come across ineffective help like ‘make weekly or fortnightly repayments’,
‘use an offset account’ or ‘shop around for the lowest interest rate’. This advice is unhelpful and
makes bugger all difference to how rapidly a borrower can repay a loan. Paying fortnightly means
you make the equivalent of one extra repayment per year – Wowzers! Good luck crushing your
mortgage in 20 years with advice like that. If the loan is for 30 years, the loan is for 30 years,
irrespective of the frequency of repayments, unless you stipulate otherwise.
2019 saw successive cash rate cuts by the RBA. If you understand basic economic principles,
you know, among other things, that decreasing interest rates are a sign of a sluggish economy.
The same thing was happening around the globe and interest rates were widely predicted to
continue dropping. As a broker, the last thing I would suggest to my clients would be to lock in or
fix their mortgage interest rate in that kind of environment. I sent three emails to my database
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MILLIONAIRE MORTGAGE SECRETS
warning of the downsides to fixing at that time. What was worrying is the feedback I received
from customers who were choosing between me and a bank. According to many borrowers I
spoke to, banks were enthusiastically encouraging their potential and existing customers to fix
their home loan for two or more years at rates like 3.19%. In contrast, myself and good brokers
were saying the opposite thing - It didn’t make any sense to any lending expert I know to lock a
client into a fixed rate when there was a high chance the RBA would drop the cash rate again in
the short to medium term.
It’s a real shame we lost a few clients who were convinced to fix. At the time of writing, they
could have borrowed the money for 2.09% fixed for two years. On a $600,000 mortgage that’s
an interest cost saving of $12,900 and $5,500 off the principle balance during the fixed period.
I’m pleased to say not one of my clients made this mistake and they are richer for it. But this
highlights the dire need to educate ourselves about borrowing, money and economics if we are
to be successful in managing large debts like a mortgage. This is a basic, but useful example of
the urgent requirement for higher levels of financial education. So I’m chuffed you’re reading this
book!
The Royal Commission showed the systemic failures within the Big 4 banks. Home loans can
be mis-sold, too. As you’ll learn in this book, the humble home loan isn’t a simple product that
everyone can use, they’re actually quite complex. Very few people understand exactly how
they work, what all the terminology really means and lots of people stuff it up. Before you
borrow a cent, make sure you school yourself on home loans. Speak to your richest friends
about your plans. Surf and read good info on the Net. Keep reading this book. Get yourself an
independent mortgage broker with a good economic and finance brain who can be trusted to
give impeccable, specific advice that will help you repay the debt. Don’t be ignorant and lazy and
head straight to your current bank, find yourself a trusted adviser.
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MILLIONAIRE MORTGAGE SECRETS
How they get away with it
It would be naïve of us to point the finger at banks and lenders and blame them for keeping
us in debt for 25 years. Most borrowers put little effort into their financial education. Have you
personally read a book about finance or money or business in the last 12 months? Didn’t think
so. You can’t blame anyone else if you haven’t put in the effort to learn the rules of the game.
And this is one game you really want to be good at.
The average borrower is not interested in becoming educated in the practical handling of money
and this leaves them vulnerable to becoming a victim of the system. These people who were
convinced to fix loans only have themselves to blame and they’ll be wasting thousands of dollars
because they didn’t take responsibility for their financial education.
It’s not like money is some hideous purple, 18-tentacled monster, far from it. We can’t operate
commercially and trade without it. It’s just that most people don’t understand basic money
concepts like budgeting, frugal spending, saving, investing or managing debt. A client in the
market to borrow more than $1.5m for a new purchase kept sending me text messages asking
for the repayment for different amounts of money. Surely, if you’re about to borrow 1.5 million
bucks you can find a loan repayment calculator online and work this elementary stuff out
yourself, even if it’s just to double check what I’m saying!
How much are you really going to pay for your home? Like, really.
Banks sell ‘term loans’ where the loan is arranged in a way so the bank takes their profit on their
lending up front and leaves you to slog it out for the second half after they’ve recouped most of
their interest and absolved themselves from risk. If you as a borrower don’t know how the loan
‘product’ works, how can you learn how to use it properly? You want to learn how to sail, what
do you do? You get your skipper’s ticket, join a club, read up on weather and the rules of the
water, crew on a few yachts, get familiar with the ropes and continue to do so for months or
years until you know who’s got right of way on a starboard tack and can confidently navigate and
sail the open waters. But, in contrast do you (or anyone you know) spend any time honing your
finance skills?
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MILLIONAIRE MORTGAGE SECRETS
Emotion often gets in the way of smart financial decisions. And what’s a financial decision if
buying your home isn’t? We somehow forget about the cost of borrowing (interest and fees) and
duration of debt-time (a snazzy phrase I invented) and instead put all our effort and focus into
finding our dream home. We don’t stop to consider the true and total cost of borrowing and
instead just accept the monthly repayments and think short term.
Property shoppers spend hundreds of hours visiting home opens, checking out new areas,
scrolling through online real estate websites and talking to their mates about what they’ve been
up to. We talk endlessly about kitchens, bathrooms, gardens, pools, schools, views and transport.
But what about borrowing the money?
For every 100 hours choosing the property I’d guess most people spend around one hour learning
about how the finance is going to work. That’s why half of the country is struggling with mortgage
stress. Did you know we have the second highest level of household debt after Switzerland?
We don’t commit anywhere near the amount of time required to working out the true cost of
the property we want to live in or buy. When it comes to how much the property will cost, we
ignorantly consider only the price we agree with the seller. There’s no consideration given to the
interest cost that will be loaded onto the debt by the bank over the next 25–40 or more years.
Yep, some people have mortgages on their home (but not necessarily the same property) for
more than 40 years.
After spending six months shopping for a home, haggling with the agent and agreeing on a price,
typical borrowers freak out about not having finance in place and then go straight to the mob
they already know and for some weird reason trust – their bank. Only marginally better, they
might ask around for a decent mortgage broker and tell them they’ve bought a house for ‘x’ and
‘Help! I need a home loan by (insert date)!!’ I see this happen often, even with highly paid, smart
people.
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MILLIONAIRE MORTGAGE SECRETS
Some people might get a pre-approval for a certain amount they feel comfortable with, but even
then the discussions are about how much they can afford each month or how comfortable they’ll
be making the repayments of ‘x’ or whatever it is each month. But these discussions are based
on ‘feelings’ when we’re actually trying to solve a maths puzzle.
They’re talking about the wrong things.
The conversations we need to be having right up front, before we borrow, begin with ourselves,
our family and our special someones. We need to talk about our money first, not the money
we’re planning on borrowing from the bank.
Beware the term loan trap
The term loan is a wolf dressed as a golden retriever. Speak to anyone who’s 65 with a hefty
mortgage and I can tell you they feel like they’ve been bitten.
But, if you think about it, borrowers allow themselves to be ripped off by not paying enough
attention to the product they’re buying. We just go out and exchange our time for some money
but forget about the most important part – using it wisely. The wealthy are no smarter than
the rest of us necessarily, they just pay a shitload more attention to their money – earning it,
saving and investing it. Growing it. They know the game because they decided to learn how to
play. Most people sit on the sidelines wearing the team guernsey eating pies, drinking beer and
getting fat while they boo and hiss at how unfair the game is. While the rich folks are on the
pitch, socks up, lean, fit, sweaty, playing the game and giving the other team a hiding.
The term loan is a tricky product that the banks have devised to allow the borrower to amortise
the cost of a property over most of their working life. They run up to 30 years at the outset but
really, most of us refinance every four years or so and often extend the term. So, the term can be
anywhere up to… your whole life.
You thought you were pretty clever to get such a bargain because you talked the owner of the
property down $50,000 off the asking price, but just wait until the bank takes that off you in the
next three years with the interest they charge you on the borrowing. Who’s the clever one now?
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MILLIONAIRE MORTGAGE SECRETS
How term loans work
Want to see something AMAZING? Introducing one of the very few products available in the
world today that quite literally allows the seller (banks) to print money. The 25 or 30-year term
loan allows lenders to lend money in a way that sets borrowers up to lose right from the start. Yep, I
said that. Why? Because they do.
Let me explain. When you borrow money for 30 years, the lender, bank or credit union
structures the loan and the repayments from the outset so that the majority of your repayment
for the first half of the loan is interest. That’s why when you borrow, for the first five or 10 years it
seems like paying off the loan will take an eternity. And it will. That’s what you signed up for if you
didn’t have a plan to crush the mortgage in, say, 15 years.
It’s a pretty clever trick, and basically puts the principle of compound interest into play against you.
What happens is the more principal you owe, e.g. in the early years of the loan, more interest is
calculated and therefore the more interest you have to pay, and on it goes until you’ve broken
the back of the principal which is not really until 20 years into the loan, when you’ve paid as
much principal as you’ve paid interest. You better believe it.
And the sad thing is, we allow banks to get the better of us because 90% of the population are
financially illiterate and don’t want to learn. If you’re reading and understanding this, then you’re
much closer than most people in this country to understanding how to manage your money to
win.
Often overlooked is that most borrowers refinance every four years or so, and guess what? They
extend the term back to 25 or 30-years to reduce the repayments. The result? The loan is never
paid off, they spend a lifetime in debt, never investing, never getting ahead and retire without a
nest egg. It’s a grim, but common situation I see.
The main problem here is not the loan per se, but how most borrowers fail to plan and manage
their money correctly. Again, this is the system, NOT the people. As Tony Robbins will SHOUT in
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MILLIONAIRE MORTGAGE SECRETS
his book Unshakeable a dozen times, ‘it’s not the people, it’s the system’. Today’s money lending
industry is not the legacy of any one individual or lender. For now, it’s just the way it is. Ellen
Brown’s Web of Debt is a fascinating but worrying read which covers this area in a lot more
detail.
The numbers don’t lie
I’m no mathematician, hell, I can hardly spell the word, but I can tell you after 18 years of
business, the numbers don’t lie. If you have any doubts, just keep on reading and look at these
calculations from the Australian Securities and Investment Commission (ASIC) website.
In my examples I’ve used the borrowed amount of $780,000 because that’s the average value
of my deals in 2019. I don’t talk about house prices or other costs like stamp duty, just the thing
which as a borrower you should be most focused on – the cost of borrowing. The essential
comparison below is based on $780,000 borrowed at 3.5%.
The 30-year term loan
n A borrower will pay more than $480,000 in interest (or bank profit) which is 62% of the
$780,000 borrowed.
n It will cost 2.14 x more to borrow over 30 years versus 15.
n In the first five years, 62% of the total amount you repay will be interest.
n In the first 10 years, 58% of your repayment is bank profit.
You will, quite literally be spinning your wheels going nowhere for the first 15 years.
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MILLIONAIRE MORTGAGE SECRETS
People with money don’t have mortgages for 30 years. It’s one of the many reasons why they
have money – they’re not perpetually servicing a loan! When they borrow, they smash the
loan out in the fastest time possible.
The 15-year term loan
n A borrower will pay $224,000 interest which is 29% of the total or less than half the money
a 30-year borrower will waste.
n They will save $256,000 which is a shitload of money. I can see you smiling there. Yes you
are.
n In the first five years, only 35% of the total repayment is interest.
n In the first 10 years, only 29% of the total repayment is interest.
By year 15, the smart people have paid the loan out and they’ve paid an average of only 22%
interest.
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MILLIONAIRE MORTGAGE SECRETS
Hoodwinked by advertising
What does every lender advertise like it’s the most critical, all-important aspect of borrowing?
Their ‘low’ interest rates. Rates, rates, rates. It’s all we ever hear about. Kill me now. We’re told
that having a low interest rate will somehow make our lives easier, save us untold thousands
of dollars and means we’re getting a cheap loan. Right? Wrong! This is a fallacy. Through crafty
advertising and ignorance, we’ve been blindsided and misled into shopping for a loan based on
the rate. A lower interest rate allows you to pay less for the money, sure, but the term of the loan
will make the biggest difference to the total amount you repay to the lender and the amount
you can invest to build a nest egg and financial security. Think of the wealth you could create if
instead of servicing a loan for 30 years, you made it your goal to pay the loan off in 20 years, then
begin investing and making money. To set it straight – instead of shopping for a low rate and
ignoring the term, you should be planning a much shorter term at a fair rate.
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I spoke to a dude who is high up at one of the major banks just the other day and suggested
to him they advertise 15-year loans which would save customers hundreds of thousands. He
replied, ‘But how would we make any money?’.
The real number that we should ALL be trying to reduce is the ONLY number we can control –
the number of years we’re in debt or Debt-Time.
The cheapest home loan is that which you pay the least amount of total interest on. The
cheapest loan is therefore that loan with the shortest possible term at any given interest rate. It can
be no other way. When rates go down, keep your repayment the same, pay more principal, save
a few years of debt-time. Get ahead. When you borrow, you want to be focused obsessively on
calculating the number of years in debt then total interest paid, and finally, the interest rate.
Here’s what I mean. A borrower could accept a 7% interest rate over a 15-year period and pay
basically the same interest as a borrower who borrows at 3.5% over 30 years!
Can you see how silly it is to have a home loan over 30 years? Can you begin to understand how
banks make billions upon billions of profit each year while most of their customers remain stuck
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MILLIONAIRE MORTGAGE SECRETS
on the debt treadmill, with bugger all spare cash and no investments?
Still don’t believe me?
Okay, keep reading. This information that follows could change your life forever if you choose to
do something about it.
An alternative reality
Being free of mortgage debt for 15 years, aside from the relative financial freedom, is also
psychologically extremely liberating. The hard-working people that I speak with, that may not
necessarily be rich but have paid off their loans are absolutely stoked to have gotten rid of
their mortgage.
But, let’s say you want to take it a step further, and be like the rich, wealthy people around town.
Not only do you pay off your mortgage in 15 years (which is actually very doable), you also
begin to invest in the stock market the money which would have previously been your
mortgage repayments.
According to Fidelity the average return of the Aussie stock market over the last 11 years or since
the GFC, has been 9.5%, so let’s give that a whirl. Even if we’re a percent or so out, it will still
highlight how goddam powerful paying off your home early and investing is, versus staying on
the debt treadmill for 30 or more years.
15 years of investing your 15-year mortgage repayment in the stock market
The monthly repayment on a $780,000 loan over 15 years at 3.5% is $5,580
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MILLIONAIRE MORTGAGE SECRETS
This is from the freely available ASIC Money Smart website, so it’s not like I’m magically making
this up.
Look at the graph.
Digest it.
It’s real.
If you invested that mortgage repayment into the market for 15 years, you’d have more than
$2,000,000 invested into the best performing companies on the Aussie Stock Market. PLUS you’d own
your home, whatever that might be worth. Sure, you’d have to pay tax on the profits, but that
means you’re making money!
When you see the results of compound interest working for us, not against us, we can
understand just how good a principle it is. And we begin to understand how and why the rich are
rich. They invest. They don’t spend their lives with their heads in the sand hoping that somehow,
someday, their mortgage will be repaid.
Money. Lots of it. It’s there for you to use, spend and accumulate but you simply can’t do it if you
are stuck on the debt treadmill for half your life. It’s impossible.
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I’m not licenced to give financial advice (here’s the non-advice warning: this is not financial advice,
I’m a finance broker advising on loans) and I’m not advocating the stock market as being the best
investment going around and that everyone should pay off their home loans and invest in the
stock market. I’ve used the example of the stock market because it’s easy to access and because
it’s one proven way of building a solid foundation of wealth and future financial peace
of mind, which is what this is really all about. If the economic shit hits the fan, that’s okay
because you don’t have to make mortgage repayments. You’ll be sitting pretty. In fact, you’ll
probably see it as a blessing as you could buy up assets when they’re on sale. You’ll be out
buying good merchandise (income producing assets) when they’re on sale which pretty much
sums up Warren Buffet’s and Charlie Munger’s investing strategy. But this is not investment
advice, remember?
The point you need to understand here is that there is a HUGE, FINANCIALLY DETRIMENTAL
COST to having a mortgage for 30 years. If you want to be wealthy, and we all should have that
goal for so many reasons, it serves no good purpose to ignorantly accept and blindly follow the
structure and term the bank offers.
Because most people you know are doing 25 or 30-year terms and their expenditure is such that
they take that long to pay the loan off, it doesn’t for one second mean it’s the right thing to do or
the only thing to do.
In fact, having a mortgage for more than 20 years is probably the biggest financial mistake anyone can
make. But bankers and even some mortgage brokers would have you believe that it has to be like
this. Well, actually, it doesn’t.
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Spenders, Spoilers,
Spring Cleaners
and Superstars.
Which one are you?
#TATIAPLIQUAM
18
MILLIONAIRE MORTGAGE SECRETS
chapter
02
UNDERSTANDING
WHERE YOUR MONEY GOES
A top couple I met with in the early months of my broking career, were telling me while seated
in their newly built patio and barbie area that they ‘didn’t know where their money went’. I asked
them about the patio and barbie. ‘Yeah we love it out here. Built it last year.’ – Me: ‘oh’ yeah, how
much did it cost you?’ – them: ‘aww’, I dunno, maybe forty or fifty grand’. Me: ‘oh’ yeah, cool. What
about the ski boat over there?’ – them: ‘aww’ mate we love that, doesn’t get that much use now
though since the kids have left home’. Me: ‘Cool. Nice 96inch plasma TV’ – them: ‘yeah’ it’s 5K
HDV-7 Holographic Quartz Laser. The latest’. Me: ‘and… you don’t know where your money goes?’
I don’t want to sound condescending, but these are the conversations I have on a regular basis
with most people out there who are keen to get ahead but don’t know what the hell they’re
doing wrong. I want to help people by giving them the tools and knowhow to get ahead.
The Four Aussie Financial Types
I’ve created the following financial personas based on the people I’ve met over the previous six
years. They don’t cover all types of Aussie financial personas, just the types I deal with and those
that come to me for guidance. Which one are you?
Spenders
People like this earn around $100,000–$150,000 combined, have a couple of kids that are not
dependent, some may or may not be at home. Everything they earn goes out the door.
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They have no savings and have been overspending their entire lives fuelling their lifestyles
by drawing the equity capital out of their homes. They have no investments. They have a bit of
super, but nothing substantial and they’ve earnt too much to expect anything much from the
Government in retirement. They aren’t interested in learning about money, so instead they spend their
time worrying about it. For these people, ignorance is not bliss.
The most common thing I hear from a Spender is, ‘We earn good money, but we just don’t know
where it goes!’
This is, sadly, the vast majority of Aussies so far as I can tell.
Spoilers
These are your higher earners. Doctors, legal people, small businesspeople and sole traders,
corporate types, highly paid people with a spending habit to match. These guys earn north of
$250,000 combined and have nothing to show for it. They’ve got some equity in their home but
no other real wealth. Their mortgage balances would make your jaw drop. They drive nice new
cars, holiday regularly and lavishly, they live in the best areas of town. They shop. They have
hefty credit card limits, often multiple accounts, often with large outstanding balances. They’re
called spoilers because they spoil themselves and their kids. They feel because they are highly paid
and ‘work hard’, they are entitled to spend like celebrities. A look at their Instagram page shows
an enviable lifestyle keeping up with the Joneses or even being the Joneses, but deep down
they’re stressed out of their eyeballs. They keep themselves extra busy driving their kids around
for sports, going here, going there, having ‘something on’ and never care to make the time to
address the horrid financial mess they’ve been sweeping under the rug for years.
The most common things I hear Spoilers say are: (laughing) ‘We make plenty of money, we’ll get
the mortgage under control at some point’, (laughing) ‘We’re going to Hawaii for our anniversary
then we’re back for a week and taking the kids to Bali, then school starts. It’s a really busy time.’
or, my favourite, ‘our novated lease ends next month so we’re busy trying to choose a new car as
it will be cheaper to buy a new one’. Hmmm. Okay.
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I love dealing with Spoilers as they’re positive people, but jeezus, do they make me tear my hair
out! They whinge because they think they’re always working, but the penny hasn’t dropped: they
could invest their money and in a relatively short amount of time reach a point where they can
wind back their hours and days, and eventually live off a fat passive income. When you go to
heaven, God gives us passive income. Maybe your kids earn a passive income? Maybe you should
make them work for it? Just a thought.
Spring Cleaners
These are my favourite group. These guys are organised. They’ve got plans and they are
committed to them. They are financially well educated, often self-educated, they pay for good
advice and think that’s one of the best investments they can make. These people pay off their
mortgages as if their lives depend on it. They actively manage their debt. They spend their time
looking for ways to invest their money, not spend it, or they save hard. They might have a side
hustle and they keep that money too. They are humble but they live well. Most of them are well
on track to a comfortable retirement with income from multiple sources. They’re loving life. They
don’t have much financial stress except wondering what to do with all their money.
Money has become more of a game they’ve learned to enjoy out of necessity. I’d say these
people earn upwards of $150,000 combined (but not always, sometimes less), in all types of
work. They keep the vast majority of what they earn because they crush their mortgages, save
and invest.
One younger dude I met recently, who was around 37 years old had invested more than
$300,000 outside of super, owned his $800,000 home outright, has half-paid an investment
property and goes on awesome fishing trips regularly. And he did this on a salary of $140,000.
Killing it.
Another older couple around the 55-year mark has paid their $1.5m home off, bought a block
in Margaret River, subdivided and built a second townhouse and now rent them out for around
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$90,000 per year. Plus, they have way more than $500,000 invested, excluding super. All their
retirement income is set up and ready to go without needing to touch their super.
I LOVE dealing with these people!
Superstars
Finally, up where the air is thin, we have the millionaires and multi-millionaires. When I deal with
these people, I’m quickly introduced to their accountant and other advisers. They make and
invest huge sums of money. They drive old Mercs and Beemers. They don’t like spending money
but at the weekends they might fire up their own jet-powered helicopters or planes and fly them
to their wineries ‘down south’. Their houses are old but in the most expensive areas. They work
their arses off, in fact their work is their life. These people own large businesses, law practices,
professional services firms, sit on boards and shoot the breeze with their head honcho pals.
They don’t do long lunches because they’ve got more work to do. They carry little or no nondeductible debt and if they do, it’s for a reason. They employ lots of people. They teach you
lots of interesting stuff and say things you don’t quite understand. They are the nicest, most
hospitable and interesting people you’re likely to meet, notwithstanding their intimidating riches.
You might know some of their surnames but most of them stay well clear of the limelight. They’re
unrecognisable on the street and leave the flashy clothes and the ostentatious name brand
accoutrements to the Spoilers. It’s rare territory. It’s these Superstars from whom I’ve learned
much about money.
Every success story starts with a plan
So, where do you sit? If you’re a Superstar or Spring Cleaner, keep up the good work. If you’re a
Spender or Spoiler and you want to crush your mortgage and set yourself up, it’s time to make
some changes.
Some dude much smarter than me suggested ‘if you fail to plan, you plan to fail’ and when it
comes to borrowing and managing your money this is as relevant as it could ever be. Show me
someone who has bought a business without a plan and I’ll show you a failure.
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If you haven’t got a clear picture of your money, and a plan of what you want to achieve, you will
likely remain on the debt treadmill for good. Specifically, you’ll need to cover off:
n Education – How can you become ‘money smart’ and deal with the debts you have or are
going to have?
n Financial goals – What are they and do they align with your life goals?
n Plan – What is your financial plan to achieve your financial and life goals?
n Income – How much are you earning now, how can you increase it? Can you safeguard
against it decreasing? How can you secure it even when you’re not ‘at work’?
n Spending – Where is your money going? Why don’t you have more of what you’ve earned
invested?
n Interest – How much are you paying vs. how much you’re earning?
I bet most of you reading this didn’t get to step two, and if you did, you didn’t write it down. And
what’s a goal if it isn’t written down? There’s a massive difference in outcome when you think of
a vague mental idea, versus a written plan to keep it out there in front of you. So, get yourself a
whiteboard and shove it in your pantry or start scribbling on the fridge door.
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Sadly, most of Australia’s
middle class is
broke because they are
financially uneducated.
#TATIAPLIQUAM
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chapter
NOT ALL FINANCIAL
ADVICE IS EQUAL
03
If you want to become good at anything, cricket, tennis, parenting, cooking, golf, bridge, painting,
what’s the first thing you must do? You know this: surround yourself with people who are already
good at it.
The money and debt game is no different.
Ask yourself:
n How successful and wealthy is your accountant?
n How successful and wealthy is your financial planner?
n How successful and wealthy are your friends?
n How successful and wealthy are your family, parents, partner, spouse, soulmate?
Who of these people have you been taking advice on your finances from?
If you answered something like ‘not very’ when you asked yourself the above questions, and you
take advice from them, is it really any wonder that you’re not out there slaying the bank at their
own game like the folks with the million dollar views and million dollar mansions, which, by the
way, they have no debt on.
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Far from your average finance broker
As you read this, I’m writing 3.9 times the amount of business that the average broker in Western
Australia writes with an average deal value 2.45 times the average in W.A. I’m in the top 3%
of brokers nationally. The broker mentors that guide me are flat out the two most successful
people in finance in the State. This is not a brag fest, I’m just letting you know that I’m not some
dude plodding along with so much time on his hands that I can afford to write this book. This
book was written burning midnight oil.
There’s only three things I know a lot about: property, finance and business. I started in
residential real estate sales in London way back in 2003 in the busiest real estate office in the UK.
We were doing a million quid of fees EACH WEEK.
That was a mad house for a few years and so bloody stressful I had to bail. One of my customers
tracked me down a month later while I was snowboarding in Austria thinking of what to do next.
These guys were starting a ‘complimentary currency’ start up. Think bitcoin. I was out and about
as their business development manager and all-rounder learning all there is to know about high
finance, currencies and banking. Who needs a commerce degree (which by the way I have), to get
yourself into a fintech start-up? The Silicon Valley corporate types hadn’t quite invented the word
yet but that’s what it was. Remember the internet had only been around for eight or nine years.
Two years and tonnes of financial learning later, and we had run out of money, which is just a
touch ironic as it was the credit-based money system we were challenging.
All this time I’d been learning about financing, refinancing, money management to fund
businesses, business, contracts, negotiation, how to be ripped off, how to pay someone and get
nothing in return. This was the baptism of fire, and I didn’t mind that I wasn’t in the city making
mega bucks trading shares because this was the best business and ‘life learning’ anyone could
possibly have. A number of years ago when Bitcoin gained notoriety I remember thinking how
that could have been me albeit with a proper complimentary currency, not a get rich quick
scheme. But we were 10 years too early. A lot in life is about timing.
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Down but not out and still in London hoping to stick around till I had the UK citizenship and
passport (the key to working in Europe) I took a call from a headhunter looking to fill a senior real
estate sales role in a posh North London suburb. I said yes. All I needed was a year and I’d be a
UK citizen. Maybe the only UK citizen who was actually born in Geraldton, WA.
I went from nowhere to number five salesman in the area. Which put me ahead of 100 other
local guys and girls who were more afraid of the phone than me. I’d do a lot of work for
developers by getting them in front of the best stock before it came onto the market. Despite
being in my mid-twenties I had a knack for spotting an opportunity. I made friends, did some
side deals and kept on learning.
After getting my UK citizenship I departed to Japan the following week. It blew my mind. The food,
the countryside, the snow, the hospitality, the people, did I mention the food? There was no way I
was leaving a day sooner than I had to. I taught snowboarding, worked at hotels in the ski resorts
there and taught English at Berlitz in Hiroshima. I even left the country to renew my visa and
went back again!
Back in Perth in 2009 with another season of snowboarding over and I get an email from an old
school friend saying he’s coming back to Perth from London and would I like to start a business
with him? Why the hell not? I was not yet 30, no kids, no unmanageable debts and keen as ever
to get back into business properly.
We started out attempting to secure the Australasian distribution rights to a large and hugely
popular Brazilian cosmetics company with the idea of creating an online shop. Crazy idea. We
spent thousands building a web shop, importing samples and testing them on every woman and
man we could find who wanted to look younger (all of us!) but after months of hard work and
much money invested the mob in Brazil said ‘they didn’t think the online retail idea was going to
work’. We were demoralised and thought we had it wrong. Funny to look back now, after 10 more
years with the internet to realise just how wrong the Brazilian company had it and how right we
could have been. Selling beauty products online – a gold mine I didn’t get to dig.
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Picking ourselves up, we went in search of an opportunity. Nearly a decade being exposed to
fashions overseas had shown us that thongs, the thing for your feet, were, well, a bit bogan. We
wanted to create a summer shoe for guys.
The big break
Three years of really hard graft (I took 48 flights in a 52-week period and was staying in hostels or
1-star accommodation to save money) we had finally gotten ourselves to the point where we had
sales in David Jones, dozens of boutiques in Australia, a distributor in Singapore and two seasons
of good sales in Nordstrom which is the crème de la crème of US department stores. We had
ramped up from making men’s espadrilles to a fully developed line of kangaroo leather sneakers.
They were awesome. Months on the road, lots of coffee, lots of credit card spending, lots and
lots of hustling and meetings and we were finally thrown the lifeline we desperately needed: an
investment deal for $600,000 from a London retail investment company. That was just to get us
started in year one.
My business partner and I were stoked. We stayed in a hotel for the first time, and we didn’t have
to pay. We had two of the most respected people in fashion footwear globally working with us
in a factory in Portugal. We went to fancy and expensive restaurants and the investors paid like
they were buying us an $8 banh mi. I remember jumping around in the hotel room doing fist
pumps and I’m not ashamed to say I had a little tear in my eye. It was a dream come true. Then
the nightmare started…
You don’t need to know the details but basically the investors wrongly thought that they were
buying a share in the business and control of the business with that. That’s not what seed capital
investing is all about. Their job is to provide capital, contacts, introductions, facilitate, guide,
support and advise. NOT control. I spun out. My business partner spun out. We were being
micro-managed. We had brought the company from idea to this point and now we were being
told what to do. We ate humble pie for a little while and gently pushed back but we were getting
rolled and to make things worse I was being undermined by my business partner.
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Next thing I know, we’re summoned by one of the investors to breakfast at the posh hotel in
Porto where we were signing off on samples and designs. ‘Look, we’ve had a think and decided
this is not the right investment for us right now.’ Whaaaaaat? I looked at the dude across the
table and said, ‘You’re fucking kidding me right?’ It was basically like being kicked out of your own
home. Having your baby taken from you. The worst feeling ever.
The fall out, emotionally and financially was epic. I was the scapegoat. Blamed for being hard to
control, too direct with my words and opinions, I had offended the ego and precious taste of one
of the investors by saying one of his suggestions ‘wasn’t my cup of tea’. He was a Pom, I thought
that was a fairly gentle way of saying that his taste was awful. But he must have known what I
was really thinking. I learnt business and life lessons that most of us never get to learn but I was
destroyed. My business partner who had really become my best mate hated me. He blamed me.
I didn’t think it was all my fault, and I certainly will never be so desperate to forsake my principles
to save a deal, a business or anything for that matter.
So I’m in the wilderness now. Broke, tens of thousands of credit card debt. Money owed to
friends and family. No business. No best mate. It was awful.
Back on the property bike
I flew back to Perth in March 2014 knowing one thing – I’ve got to make some money and repay
my debts quick smart. I needed cash. I needed to sell property again.
The real estate market in Perth was tanking so I jumped on a plane to Melbourne and
interviewed with a bunch of large firms over there doing corporate off-plan investment property
sales.
I wasn’t exactly pumped about being a battery chicken working for a multinational behemoth
flogging off shoeboxes in towers in central Melbourne. A headhunter got in touch and told me
there was a boutique firm who needed ‘an entrepreneurial type’ to help grow their investment
business. The owner was smart, experienced and a funny bastard. They were selling a couple of
investments per week and the cash flow was solid. I was in.
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We went great guns for the first 18 months. I worked my guts out with accountants and clients
tailoring property investments for people who didn’t understand the principles of property
investing or property in general. Most of these people are just happy being busy looking after
their family and getting a wage. I felt sorry for them in a way. They didn’t know and generally
didn’t want to learn about investing, money, tax rules, borrowing, anything. I’d go out and offer
up a customised plan to help them get ahead financially. A couple of months ago I spoke to one
of my clients who has become a good mate of mine and he told me they’re up at least $150,000
in three years and asked, ‘Do you know where I can buy another property that does the same
thing?’. I love helping people to make money and making friends while doing so.
After years of business success and making my own investing and money mistakes, not to
mention reading every business book known to man, including the four-inch thick Security
Analysis by Benjamin Graham (who Warren Buffet studied under at Columbia University) it’s the
best feeling to share that knowledge and help others get ahead financially.
Another fork in the road
Mid-2016 and the press turned nasty. They were against apartments, claiming that all
apartments were a bad thing. Full stop. Clearly none of them have travelled overseas or taken
note of the housing stock in Sydney. The public was not smart enough to differentiate between
the soulless (and disgraceful) towers being built in Southbank, Southgate, the CBD and South
Yarra compared to the smaller, sought after blocks of units in Hawthorn, Collingwood, Richmond,
Carlton and so on.
Good luck buying a cracking apartment with a car park in any of those areas for what my clients
were paying a few years ago. Don’t listen to the press.
After years and years in property I know when a market is softening. JP Morgan did a study about
15 years ago on property markets and found that the one critical factor underpinning a strong
market is, guess what? Confidence.
When people start saying they’re ‘going to wait’, or they’ll ‘stay where they are’ or ‘I’m just too
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busy’ I know the market is about to slide. You just get a feeling. Since August 2014 till today I
have been plugged into the Aussie real estate market at the socket. I talk to literally hundreds of
people each week. If I told you the exact number you wouldn’t believe me, but I guess it’s easily
more than 200 people each week.
So, here’s me in late 2016 whipping the telephone looking for people to sit down with and,
well, I’m stuck in the office. If you’re in sales and you’re in the office, you’re going backwards.
We needed something else to improve the financial lives of customers if they weren’t confident
enough to invest in property.
The hidden problem
I meditated. It dawned on me there had been a consistent pattern with the clients I’d been
meeting for the last 15 months. They had purchased property in the Eastern Suburbs of
Melbourne 15–20 years ago and were now living in properties worth anywhere from $600k
to well over a million dollars. Without knowing it at the time, they’d become rich from buying
residential property in the fastest growing city in Australia.
But they were anything but rich.
They’d made a hideous mistake over those 15 odd years. Funding their lifestyle, their kid’s
schooling, holidays, throwaway gadgets and cars by sucking the equity out of their homes.
A dreadful situation.
These guys were in their mid-forties to early fifties looking at me like I could somehow refund all
the money they’d blown. Then magically help them own the investment property they should
have bought 10 years ago. Many people in this position struggle to refinance their homes, let
alone purchase a second piece of real estate.
‘What the hell are we going to do to help these people?’ I asked my business partner. They are
the meat and potatoes of Australia. We called them the broke middle class. They earn decent
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enough money, yet they spend more than they earn and live off their equity when they run out of
income. They are sceptical of financial advice, don’t want to pay a professional to advise them
for some reason and are, well, ignorant of their finances. We called this apathy. In a way it was
almost as if they were just blindly hoping that things will work out okay.
It’s a sad state of affairs but this is the situation that most Aussie borrowers find themselves in
now. The beautiful years of rapid asset price growth are behind us for the time being, the music
has stopped and they don’t have a chair to sit on. You know the expression the only person
standing wears when the music stops, right?
The sympathy wore off as I realised I was going to go broke myself if I couldn’t make a sale. We
hustled. Around February 2016 we met with a super switched on finance nerd who was on an
anti-bank and anti-debt crusade. It was refreshing. His company helps his clients get ahead with
a money management program and a couple of loans that were specifically designed to work for
property investors. We thought it was an awesome solution so I promptly swatted for a month
or so and gained my Certificate IV in Mortgage and Finance Broking.
Now, I could do three things:
1. If a client needed a reality check and a restraint between them and their money so they can
begin to get control of their home loan, I could help them do that.
2. If a client had or was interested in purchasing an investment property and their principal
mortgage was around half of the amount of their investment property loan, I could (and still
can) get their non-deductible debt down to a minimum 0.25% above the RBA cash rate (at
the time of writing) and balance this with a higher rate on the investment portion. Sounds
illegal, right? Wrong. I’ve got the product ruling from the ATO to prove it. Providing the
structure is used to assist in paying down mortgage debt (which everyone needs to do) as
opposed to maximising tax benefit, then we can consider it. Any naysayers who reckon this
is a scam should stop reading this now and go back to their boring, bank-designed debttrap mortgages because this book is not for you.
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3. If a client was in a perfect financial position and wanted to own another property, I had a
personally selected and tailored solution for that, too.
What came over me exactly, I’m not so sure. Now I had the qualifications to match the
experience and felt I could make a huge difference to my clients financial wellbeing. In doing
so, I uncovered exactly how unfair the money lending and banking industry can be. It’s quite
frightening when you know how it works. I became obsessed by helping people get control of
their mortgages and rid them of bad debt. I wasn’t shy when it came to the tough conversations
on client’s finances and that began to set me well apart from the competition.
Lessons from Dad
Let me tell you about my old man. I’m proud of him, he’s a solid dude. The son of a sign writer in
Geraldton, he grew up doing it pretty tough. It wasn’t poverty but they weren’t well off. Far from
it. Dad had no desire to live like that. Although he didn’t finish high school he went straight to
work as a storeman. Shortly after that, at…. the NAB. He thought that if he wanted to make good
money, he had to surround himself with it. True enough. And because he didn’t have any of his
own, he had to use other people’s! As he tells it, every Friday, the life insurance guys (this was in
the late 60s) would come in and cash these MASSIVE cheques. He found out they were selling life
insurance, whatever that was. So, here’s this 20-year-old kid out interviewing with any company
he could find. AMP turned him down, but National Mutual gave him a chance. He later went on to
sell around $56million of life insurance, became top underwriter and earned himself the nickname
‘The Legend’. Fully self-taught through self-education books and records (yep, records), he learnt all
he could about money and sales and business. He tells these awesome stories about motivating
himself listening to Red Motley (who coined the phrase ‘nothing happens until someone sells
something’) on the record player when things were tough. And it was never easy. Ask him what he
did differently and he’ll tell you he simply ‘knocked on more doors than anyone else’.
Fast forward 40 years and this bloke, with no education past year 11 has bought and sold literally
dozens of businesses, properties, listed a company on the stock market, and flying helicopters is
his hobby.
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He has invested, worked, invested more. He could’ve stopped working years ago but kept at it
because he found he loved the game so much, he didn’t want to. And besides, he is ‘The Legend’.
I’m telling you this because it’s important for you to know I’ve been like a sponge absorbing
information and learning from him since before I could walk or talk. It’s in the blood. When I
advise my clients on their borrowing and finance, (not financial products), I’m analysing their
situation through the lens that only wealthy and successful businesspeople have. Does your
broker have mentors with the same sort of personal multimillion-dollar success as mine do?
Does your finance broker analyse your situation from every financial angle or are they just going
through the motions, giving you plain vanilla when you really need double choc peppermint
marshmallow? In other words, are they just giving you the same recommendations they give
everyone because they aren’t interested in the business, tax, accounting and finance nitty gritty
to point you in the right direction? Hell yes, I’m proud of my old man, and he deserves that. I just
have to remind you that this isn’t about my pride in Dad as a businessman and legend, it’s the
HUGE advantage that’s given me and by extension, my clients because they get the wisdom that
a massively successful dude has accumulated in close to 60 years of doing business. And guess
what, my clients get this at no extra cost.
Is your broker earning a salary at a bank and getting paid a wage, whether they help you succeed
or not? I’m not trying to bag your current adviser, far from it. What I’m trying to do here is get you
thinking about WHO is giving you advice on the largest debt you’re ever likely to take on.
You should realise that if you’re using a broker - especially at a bank, a small one man band, a
bank mobile lender or someone at one of the major franchises, you must have enough financial
knowledge of your own to know whether they are able to help achieve your goals and if the
advice they are giving is suitable for your specific requirements. The centrepiece legislation for
the mortgage broking industry is that we give the client a solution that is ‘not unsuitable’. It’s
lack of specificity means there is the real chance that while the loan product or solution that a
borrower accepts, while ‘not unsuitable’ may not be specifically tailored to your situation and
personal objectives. Please don’t choose your broker or adviser based only on how well you get
along. It’s your responsibility to understand borrowing enough to know whether the broker is
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offering a solution that’s better than ‘not unsuitable’ because mediocre advice yields mediocre
results.
Bad advice can cost you
Let me tell you about Darren and Rachael (not their real names) who are clients in Melbourne.
Total champions. Here’s the scenario:
Two income family, two dependent children, both of them less than 45-years-old. They own
two properties in growing suburbs not far from the Melbourne CBD and in the corridor of the
enormous development and growth that is happening to the west. Things were looking good
with their work, both houses they own were worth substantially more than what they paid.
The investment property has never been vacant, ever. They are getting tax benefits. The
property is growing steadily in value. As I like to say, ‘it’s working’. They owe (only) $340,000 on
their non-deductible side and $650,000 on the investment side. Bloody beautiful set up going
on here as they’ve got $250,000 income and all the tax to pay that goes with that and hey, who
wouldn’t like to pay less tax? The investment is not actually costing them anything. There’s no
impact on their cash flow at all.
I called their accountant. Three times as I like to do. I need to know the details. Anyway, the
accountant is very happy with the setup, they can afford, it, there’s no financial stress or duress
or anything, it’s looking really good to me. I’m stoked for them because they’ve bought well and
in years to come, they’ll reap the rewards of the seeds they’ve sown. But actually, they won’t.
Here’s why:
Wait for it… the property had seemingly ‘stopped going up’! Well no shit! What do you think it
would do? Just go up and up and up and suddenly be worth $3m?! If it were like that, we’d all
be driving Bentleys and sipping Sangria on our very own private beaches. This isn’t a property
investment book (but I do have one in me) but it needs to be said that in a market nothing goes
up or down forever, in a linear pattern. It’s impossible.
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My idea here, with the full blessing of their accountant (remember I can’t give financial advice
but I will consult with your professionals who can), was a simple restructure with a product that
allows me to dial down their non-deductible debt to 0.75% and dial up their deductible to 4.75%
(at the time of writing) with the overarching goal of paying off the $340,000 they owed on their
home in five years (totally doable) and then turning their attention to their investment debt
and have it all cleared out in the next 15 years. I do believe firmly in paying off your investment
properties if you have no other value-adding strategy and plan to keep the asset. If you buy it,
you should pay for it. 100% realistic and achievable.
Can I tell you what they did? One of their mates, who is definitely not wealthy, got in their ear and
suggested they should sell their property. Darren told me that they ‘were feeling a bit stressed
out’ by it. By what? By the thought they owed the bank? It’s going to be okay! This intelligent
couple, who after seeing amazing growth in their home were smart enough to buy another, had
been talked into selling their future retirement fund or hand-me-down to their kids because a
fool, who is not wealthy and knows nothing about making money, told them they should sell.
So, what happened? They sold the investment property at the bottom of the market making a
small profit which they blew on a holiday. They paid capital gains tax. They cheated themselves
out of what could have been the cornerstone of a self-sufficient, fully funded retirement plan that
they owned, controlled and could drive past and see. They caved in, succumbing to misleading
advice given by someone who is not wealthy and made an irrational, emotional decision without
going back to the maths or discussing the matter in a pragmatic way with a wealthy mentor or
adviser.
Property investment isn’t what Scott Pape might recommend but please remember he is
barefoot and drives a ute, so is he really the person to listen to when it comes to getting rich? I
can’t answer that question for you, but I would suggest reading one of his books to pick up some
knowledge on managing your money and see what you get out of it. If you don’t believe property
can create wealth, just count the number of people in the BRW Rich 200 who are heavily involved
in property. What do you think Frank Lowy did? Build property and lease it. He just went BIG.
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One option we have to create financial security is buying property and leasing it. You might not
become a billionaire property tycoon, but buying, leasing and holding property is an option we
have available if it suits our situation.
Don’t lose sight of the bigger picture
Anyway, here’s me, cheesed off because this otherwise switched on bloke has gone and done
a really dumb thing. Am I pissed off about losing the deal? Not at all. He’s referred me to his
mates– I figure If I give terrific advice and service I will get a return eventually. I’m pissed off
because he probably cheated himself and his family out of hundreds of thousands in retirement
funding and had a tried and true strategy in place which he abandoned when things became
uncomfortable. It’s when we’re out of our comfort zone that good things begin to happen. Change is
happening. Wealth and money are happening!
I called the Old Man as I do. ‘Mate, can I get your advice on something?’ And on I went. ‘So, what
would you have done?’ I ask.
After asking a barrage of questions:
‘Well mate, that’s a no-brainer if you ask me’
Me, ‘What, keep both, move out and rent?’
Dad, ‘Yeah mate, why not? I mean, they probably just needed to tighten their belts. But if they
did move out and rent for a few years, they get to keep both assets, both of them are generating
income and going up in value, they’ve got two lots of tax benefits, and really, if you think about it,
a lot less stress than when you have to pay your own bloody mortgage.’ And he goes on, ‘I mean
I know the missus would have a few things to say about it in the short term, it’s her nest, but
long term she’d have loved the outcome because they could have no debt, and a neat little asset
pumping out passive income. Once they got that sorted out, which they would, they can begin to
relax a little bit. It just takes a little bit of time and sometimes you can’t really see what’s going on
as you’re going through the day-to-day. We forget why we do things after they’ve been done. We
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lose sight of the big picture way too easily’.
Wisdom. This book is about how rich people pay off massive loans fast, so here comes a free
idea from someone who’s done it a dozen times: You can get a tenant and the tax man to do it
for you!
When you’re explaining your situation to your current broker or the drone at the bank, you
should wonder who do they workshop your scenario with? The person sitting next to them or
someone who is financially successful? Do they even care enough to workshop it?
Don’t get me wrong, I don’t know the exact numbers for how leasing out both homes and taking
a lease on another would play out. That’s not for me to work out. The point is that there are
options and we should consider all of them before making big moves.
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The rich drive
the least expensive car
their ego
can afford
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chapter
04
THE RICH PLAY BY
A DIFFERENT SET OF RULES
I’m lucky enough to have mentors in high places who I often turn to for advice, guidance and
to sound out ideas. In this chapter I’m going to share some of the valuable insights I’ve learned
from them.
Mike, corporate accountant to billionaires
Let’s call him Mike. For privacy reasons I can’t actually give you his full name but he is a Partner
at Deloittes which is where you would go for accounting if you were a billionaire mining magnate,
property tycoon or had an immense amount of family wealth with all the convoluted and
complex structures to manage.
Mike is an accounting genius and school friend of mine. When I interviewed him for this book
recently, I asked him how the mega-wealthy clients he is entrusted to advise manage their
borrowing.
According to him, they always borrow for income producing purposes and seldom for buying a
property for non-income producing purposes. ‘They’re incredibly strategic when they borrow, they
have a complete plan outlining how they will cover the debt and how long it will take to pay it off…’
They take a vastly different approach to money than everyone else. They have a different brain
chemistry. Their world is unrelatable, quite incredible, really. The billionaires I deal with drive a
harder bargain on our fees than the multi-millionaires, they’re way more focused on earning,
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cash flow and debt than they are on saving’. With the insane amount of new money coming
into the system every single minute, why would anyone be relying on savings for their future
source of wealth? That’s a depreciating asset!
‘Many of them will pay $10m, $20m in cash for their primary residence – I don’t see many of
them borrow much to buy their homes. They will borrow, sure, but they don’t borrow a lot,
relatively speaking. It’s not a smart way to use debt. They typically borrow to buy businesses and
investments only. Not cars or toys, or things like that. It’s funny, dealing with extremely wealthy
clients – they are humble beyond their means as opposed to living beyond their means.’
Living this phrase will make you wealthy.
Get this for a pearl of wisdom, Mike went on to say that they ‘drive the least expensive cars
their egos can afford’, and if they’re driving a super car, ‘they really aren’t that rich, certainly not
mega-rich. These guys don’t drive flashy cars, they watch every dollar. They’re not tight with their
money, but they’re not loose, if that makes sense. For a lot of them, their biggest expense is
philanthropy’.
Are you picking up what I’m putting down here, dear reader? If you really, really want to be really,
really rich, following some of Mike’s observations is probably a good place to start.
The Urban Accountant and Adviser to the Wealthy
Another friend in finance, good operator, adviser to wealthy businesspeople and property
investors is a top-level accountant and business adviser based in a very well-heeled part of
Perth. To respect his clients, he’s asked for anonymity. He owns and runs a burgeoning firm
that’s focused on legal tax minimisation strategies that have saved his clients untold millions in
the 15 or more years he’s been a well-respected accountant and tax adviser.
‘Rich people generally don’t take on much “dead interest” and they’re generally very reluctant to
take on debt unless it’s for “growth or income producing assets”’. Sage words right there.
Take notes.
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We talked at length about some of the other common character traits his ultra-rich clients have
and it was a mirror of what I’ve seen over the years and what I heard from Mike.
‘They’re experts at cash flow management for a start. They know the rules of the game. It’s
almost like they have an expectation they will prosper. It’s a practice, I suppose, a habit.’ So, these
people are continually reinforcing their position of continued prosperity by positive thinking?
‘Well not exactly mate, it’s not wishful thinking on their part. Usually we see two incomes,
both upskilled, a plan for the future that I help them refine or implement and then hold them
accountable to, and they paint that picture early on.’
We talked about ‘flash money’, cars, expensive holidays and lavish lifestyles, then he cut me off.
‘Stuff the Joneses! The reality is their Instagram, or whatever, masks the stress they are under
trying to manage their expensive lifestyle. They look like they’re having a good time but on the
inside they aren’t. They’re financially stressed out.’
A damn good bloke to talk to, actually. His clients are more ‘relatable’ than Mike’s in the sense
that Mike looks after people who are so loaded they fly to their own islands in their own private
jets and generally do stuff which is so ‘far out’ the rest of us simply can’t get our heads around
it. For this reason, his clients face more of the same kind of challenges that my own clients face
and we’ve built up a very nice professional relationship over the years. He’s also the dude I pick
up the phone to straight away when I think a client is getting suspect advice from their current
accountant or finance people. In fact, almost a year ago now I called him to double-check my
thinking on a borrowing/securitisation/tax question I had. Basically, I thought my client was
getting a bum steer by his current accountant, so I told him the scenario and he says, ‘No mate,
the accountant’s got it arse about’ were his exact words. Of course, it’s hard to break up a client/
accountant relationship but I did recommend the client get a second opinion. What happened?
Last month I followed up with that same client, as I do, and the accountant has totally cocked up
the payroll tax so now he’s paying a penalty of $20,000 to the ATO and has a tax bill of more than
$120,000!! The lesson: be very careful how you choose your advisers and if you have any doubt – get
an adviser to double check the adviser.
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We can’t all afford to pay for this much advice, but you catch my drift. I was told his wealthy clients all
have a ‘team who structure their affairs for them, usually based around tax advantages’. He went on
to say, but told me not to tell you ‘don’t trust the advice that banks give, they often get it wrong, more
than likely because it’s not in their interest to get it right…’ I didn’t just tell you what he said, okay.
Finally, but very importantly he went on to say that many people get so carried away by the
excitement of buying a property they ‘forget to get the right advice up front’. I bet many of you reading
this can relate to that.
What sort of conversations are you having with your advisers? Does your finance broker have
these sorts of conversations with you?
Accountants have a unique take on money. If there’s one label that businesspeople and
entrepreneurs like me might give accountants, it’s that they are too conservative when it
comes to the risk taking or ‘money making’ side of the equation as opposed to the ‘money and
tax saving’ side which accountants can be especially good at. There’s nothing wrong with this
(who doesn’t like to pay the minimum amount of tax legally) but it’s important we also listen to
advisers who proactively help people improve their financial position.
Dad, Self-taught Business Legend
Don’t listen to advice about your money from people who are not wealthy. When they start talking, you
should stare off into space and just act like you’re listening. Yep, I said it again. If you’re looking for
advice, ONLY listen to those with deep pockets, heaps off assets and money magnetism. Wallace
Wattles and Napoleon Hill both touch on this magnetising effect in their books and you’ll know it
when you feel it.
Sitting down over a few glasses of wine, I basically interviewed the Old Man on how he managed
his debt obligations over the years, from humble bank teller to marine industry mogul, he had
tonnes of useful information to share.
One of the key points we always came back to was how he never focused on paying less tax,
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he was always focused on increasing income. ‘I don’t mind paying my fair share of tax, it means
I’m making money, plus you never pay a dollar in the dollar tax, and even the deductions for
depreciation and so on have all got to be accounted for when the asset is sold...’ What he means
is this: If you are working hard to earn more, even with more tax to pay, you’re going to make
more money. And he knows the rules intimately. What he doesn’t know, he picks up the phone
and asks the question from one of his advisers.
But what about debt, specifically? ‘Well mate, I only borrowed if the thing I was buying was going
to give me some sort of return that would far exceed the cost of the loan and it made sense.
When we bought our homes, we always had a large amount of equity in the purchase from other
assets and investments. We never took on huge mortgages without a short-term repayment
strategy in place at the outset.’ Meaning whenever he took on debt he had a strategy in place.
See the recurring theme here?
He goes on: ‘I mean, I got myself into a couple of tight spots in my 20s when I overextended and
had all sorts of things going on and I didn’t want to get into that situation again. We still use debt
when we need to but it’s always short-term, or we’re using equity capital.’ He goes on to tell me
he owes a ‘bit’ but it’s only 25% geared on the family home and it will cost him more in capital
gains to repay the debt all at once than it will to repay the loan over the next few years from
(passive) income being pumped out by assets bought decades ago. He knows the options, he
knows the rules, he’s got a plan.
What about borrowing for cars and toys? ‘I’ve always had a nice car, Bro, but they are the first
things to go if we ever needed more money. I broke your mum’s heart once because we had to
sell a little Mercedes SL early on. That was hard, but it was a case of the “business or the car”. It
was a short-term thing, but we had to do it. I mean, it hurts to think of all the nice cars we’ve had
to sell over the years! Now when we buy a car, we weigh up the cost of “putting it on the drip”
and what we could do with the cash. If we can get a better return on the money by investing
or need it elsewhere, and we can write off the debt on the car, then we might borrow it, but
otherwise when I buy a toy like “the chopper”, I mean, I used money we had “won” from a mining
float, so in that sense it didn’t cost me anything.’ It’s worth telling you that Mum and Dad get
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around in cars that are more than 10 years old and while they have been talking about buying a
new car for years, they haven’t done so because ‘they’re worth more to us than anyone else’ and
‘there’s nothing wrong with them’. Bank that tip right there, and remember it next time you’re
considering buying a new car when your existing one works well enough. And for the record,
don’t ever buy a new car, even with cheap finance, it’s win/lose and you’re the loser. Do the
maths.
I remember moving around a fair bit when I was a kid, in fact, by the time I’d finished university,
we had moved a total of six times and only two of those properties we actually owned. The first
home he built and sold, the second ‘home’ was part of 20 townhouses he co-developed, the next
two were ‘renters’, the next we owned, then back into a renter, then they moved into another
house they’d built after I’d left home. Quizzing Dad about this, he told me that the ‘money was
needed elsewhere’ and it made a lot more financial sense to keep the businesses and the assets
than to keep the family home. ‘I like to hang on to assets, I don’t like selling those sorts of things.
If we hang on to the businesses and the cash flow, we’ll be okay. We can buy another house
tomorrow, so I never worried about that’.
For the rich, there’s almost an emotional detachment to the family home, it’s just a place to live.
They’re more concerned with building income and cash flow, than ‘owning’ a home to live in.
Robert Kiyosaki touches on this in Rich Dad, Poor Dad (which my rich dad has never read) and
it makes a lot of sense. Your money should be invested into making more money way before it
is being used to buy toys. Your investments should be buying the toys. Your home is not an
investment, despite what you might think, and isn’t unless it is generating income. Your home
is your home and your job is to repay any outstanding debt on the home as rapidly as possible. Then
start using your precious hard-earned to invest. ‘Your home provides utility, a place to live and nothing
else’. Warren Buffet said that, not me. It’s not financial security in any way, especially if you have a
large outstanding mortgage.
Now Dad’s in his late 70s’ and still as active and as busy physically and commercially as ever, and
with no need to work another day in his life. ‘You’ve got to keep on moving, mate! You can’t have
the money sitting in the bank doing nothing, you’ve got to use it!’ Spoken like the legend he is
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and completely in line with every money expert you should be listening to. Visionary inventor
Henry Ford who was worth USD$200 billion in today’s equivalent, says of money ‘it’s like your body
– use it or lose it’ and continues, ‘banks are a place to store money for short periods of time’. If
you’re in business, you should read his book My Life and Work, it’s fascinating. Funny how they
don’t talk about saving, ever, they talk about ‘investing’. But the whole currency depreciation
problem we face is for another book or for you to educate yourself on. One thing The Old Man
won’t be doing in ‘retirement’ is servicing a dead-end mortgage.
Financial Adviser in a Top Firm
Enter Chris, who is a Director of an established and much-respected tax and finance advisory.
Chris is a good mate and another person who I call to get advice from time to time when I reckon
a client’s current adviser has got it ‘arse about’. What makes Chris different from ‘The Accountants’
is that he’s working with one of Perth’s premier accounting firms as a financial adviser. So he,
(like all planners should be in my opinion) works in a holistic way with clients to achieve pre-set
financial goals. Not many planners can say they do this and it’s why I listen to what Chris has to
say. Oh, and he’s been at it for more than 15 years and is wealthy in his own right.
‘Most of our structures aim in the first instance to pay off or heavily reduce any bad debt. There’s
no magic formula and certainly no one-size-fits-all solution. We want to see our clients “pay
themselves first” which I think is the term Robert Kiyosaki or whoever it was said.’ What does he
mean, I hear you say? Paying yourself first is exactly that: when your employer pays you,
you don’t go out and blow it on stuff (pay someone else) you pay off your bad debt, invest
or save the money.
What struck me when speaking to Chris was the number of people he deals with that had large
chunks of bad or non-deductible debt. They were doing the right thing by having a strategy to
pay it down quick smart, but to be honest, the super-wealthy people I deal with did everything
back-to-front. Many of them rented, sometimes hopping from property to property to the
chagrin of their wife while they invested and built their businesses, to the point where they could
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buy their dream home mostly in cash. It’s called delayed gratification and is a cornerstone trait
of successful businesspeople. For the laypeople it means sacrificing short-term frivolous spending
for the sake of a long-term goal that when reached will mean they can blow their dough on as
many frivolities as they wish.
Chris and I talked for ages and I’m repeating what I’ve already repeated (for you to read and read
and absorb), so here are the nuts and bolts:
1. Start with clear objectives – what are you trying to achieve, exactly?
2. Make a plan that focuses on reaching those objectives.
3. Break that plan down into achievable, easy to manage steps.
4. Commit to the plan.
5. Set up and automate as much as you can, focusing on ‘paying yourself first’ (your
mortgage!).
6. Monitor.
7. Adjust accordingly with the economy and markets.
Sounds simple enough. Perhaps you need help to make the above happen? If it’s good enough
for the rich to ask for help, why don’t you?
Asking him to summarise some of the things the wealthiest of his clients do (and they are
super-wealthy) he’s quick to respond: ‘They think differently, I mean their psychology is different.
Everything they do is supercharged. They always do the maths up front, seek advice, want to
know the details and see the maths before they decide on an asset purchase or sale. They know
what their position will be in 10 or 15 years because there is so much certainty around their
calculations from the outset.’ Pretty cool huh? A bit different to taking out a huge loan against a
house for 30 years and ‘seeing how it goes’ or ‘hoping to have paid it off by the time we retire’ like
many people say.
Making only the minimum repayments on a non-deductible property loan for 30 years is flat out
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ridiculous and equals you being broke.
‘Lots of people talk it up, like they’re going to pay off their loan ahead of time or whatever but
few of them do. Talk is so easy. Buying the property is easy. It’s the planning and commitment
that’s the hard bit. Anyone can buy a house, or investment property and everyone wants to be
clear of bad debt but so few people actually reach that goal because they didn’t have the plan
really well laid out from the beginning, and if they did, they didn’t stick to it or no-one held them
accountable.’
‘It’s really sad that there’s a certain arrogance some people have about not needing money
advice or think they can manage their own money without assistance, but the reality is I never
see really wealthy folks going it alone. Don’t get me wrong, they are effectively managing their
own money, it’s just they’ve got a team around them showing them where the boundaries are,
what is and isn’t possible. All these guys know their stuff, they’re interested in their money – how
to earn, save, invest, double or triple it.’
What Chris says echoes one of the themes I’ve seen amongst the ‘Spenders and Spoilers’
that will always remain battlers. They don’t trust anyone with their money because they don’t have
enough knowledge to know who to trust. As much as lack of trust may pervade the people who
are reluctant to pay for good advice or are ‘just happy with the way things are’ there is also the
problem of the financial ‘dirt’ they’ve been sweeping under the rug for years upon years.
Often there’s a sense of embarrassment and I think people sometimes don’t even want to get
past the initial interview with me and move towards a refinance because the dirt is so thick. If only
they knew that they’ve got nothing to lose and everything to gain by allowing someone else to
have a go at cleaning up their mess, or at least setting them in the right direction. I categorically
never view even the most financially messy clients with any disdain or any such negative feeling.
Matter of fact, I love nothing more than moving Spenders or Spoilers to Spring Cleaners.
Good advice is not the preserve of the wealthy. It should be and is available to everyone. That
could start with reading a few books about money and beginning to take an active interest in your
own finances.
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Treat yourself
like a
business
#TATIAPLIQUAM
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chapter
05
THE 8 MONEY LAWS
THE RICH OBEY AND THE REST DON’T
So, what sets the rich apart from the rest? The following 8 Money Laws, that’s what. They are
explained in detail below and listed in order of importance – and they are the difference between
making light work of your mortgage and spending a lifetime spinning your financial wheels.
1. Education
Rich, wealthy people are continually educating themselves any way they can and any way that
suits them. What I mean is some of the people I’ve observed voraciously devour the right
sorts of newspapers and magazines, some surf around on YouTube looking for snippets of
useful information. Some are always at a seminar or workshop, always going to see and hear
someone who has already done it so that they might pick up on new information they can use
to get the edge. You can’t go past books and audiobooks. According to Thomas Corley who
authored Change Your Habits, Change Your Life, in five years researching close to 200 millionaires
he discovered on average they spend at least 30 minutes each day reading. Usually bios of
successful people, self-help or history. There’s nothing to be ashamed of by reading self-help
books if the result is a fat bank balance! Podcasts were also hugely popular. (Listen to what Mark
Bouris has to say. He’s loaded and a solid Aussie dude.) Wealthy people have become extremely
interested in finance out of necessity. They’ve turned finance into a subject of study they aim
to master during their lifetime. Show me a rich person and I’ll show you a voracious reader.
Watching or reading interviews with smart, wealthy people, they all say they spend their evenings
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reading – books. If it’s been done before, there’s a book written about it. So, go read some
books.
Every wealthy client I have the pleasure of dealing with always knows their stuff and if they don’t,
they want to know what they missed. They know the rules, they know how money works, they
read and read and read about business and money. They can read balance sheets as fast as they
read novels. Most of them are self-taught.
2. Work ethic and upskilling
The rich don’t sit there and moan that they’re only earning so much and don’t have enough
money to repay debt any faster. Every single wealthy person I have dealt with over the years, my
wealthy clients and even the people who advise them (they’re rich too) work six or seven days
a week. And yes, I work seven days or until I can work no more. Importantly, we’re not talking
about eight-hour days, more like 10–14 hours days. An extra two hours a day doesn’t sound
like much but the cumulative effect is staggering. That’s an extra 12 hours per week or 600 plus
hours per year (12 x 52 = 624). That’s around 15 extra (38-hour) weeks of work done in a calendar
year. Is it any wonder why they get ahead?
It’s not just consistent hard work that pays dividends for them, it’s a constant upward
movement in income. They don’t just take a job, count the clock and take their pay cheque.
They aspire to work at the best companies, they stay late, go the extra mile, do things that aren’t
asked of them and through education and manoeuvring, work their way up the chain so they get
closer to the top where lots of money is divided up amongst only a few people.
3. Treat yourself like a business
Focus on income and expenses, and the profit will take care of itself. The profit being greatly
amplified mortgage repayment and years wiped off your debt-time.
I love this concept because it’s so concise and easy to understand. Good businesspeople
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examine their balance sheet and P&L obsessively. You should too. Assets and profits are the
columns you’re growing. With this focus on increasing, you must also be focused on decreasing
your spending and (for most people) liabilities. They go hand in hand and have equal importance.
Kerry Stokes’ biography will make you feel like you’ve been on easy street for most of your life
and will have you taking up second jobs and working at the weekend. This bloke had bugger all
in the way of schooling and a rough upbringing but is now a billionaire and one of the country’s
wealthiest people. He exemplifies all the characteristics we’ve touched on in this book. During an
interview with Neil Mitchell on 3AW a few years back Stokes was asked, ‘You’re a very generous
philanthropist but I hear you’re tight with the dollar, is that right?’ to which he responded, ‘Always.
I hope so, yes. I never let myself buy things that I really want. I don’t ever want to be in a position
where I take things for granted… I drive a 14-year-old BMW and everyone says I should buy a
new one. It’s a good car, I don’t see a reason to buy a new one’. If you’re feeling hard done by that
you’re not driving a snazzy new car, take it from one of Australia’s wealthiest people that the car
you’re driving now is just fine and like Mr. Stokes, you should be focused on earning more income
and reducing unnecessary expenditure in every way you possibly can. Please remember that
this bloke gets around in his own private jet, owns Channel 7, the West newspaper and bunch
of other massive companies, so if an old car is okay for him, it’s okay for you, too. Ain’t that right,
Barefoot?
Rich people have complete control of their spending and their cash flow. They have transcended
‘envelopes’ or ‘buckets’ or whatever incarnation of the same budgeting theme you’ve come
across over the years. They’re beyond that. Through discipline, self-education and practice,
they’ve moved this vital money skill to second nature, habitually good money practices.
There is no ‘impulse spending’ there is no ‘oh, I deserve it’, there is no $100 brunches. I went to
breakfast recently with a hugely successful businessman and good friend, (with a passive income
of $5,500 each day of the year) and he scoffed ‘that’s obscene!’ when he caught the price of
bacon waffles at the semi-fancy café we were at. What I found funnier, though, was why he was
late: he had driven around and around the block for at least five minutes to find a park where he
didn’t have to pay. Me: ‘Mate why don’t you just park out front and pay a few bucks for parking?’ –
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him: ‘I object to paying for parking on a Sunday!’. Bear in mind though, that this same guy retains
a staff of three just to manage his money and he pays them well, without any objections. Fuck – if
it works for him and his boat is bigger than most houses, being frugal (but not tight) might just
work for you!
When you look at the habits of people like this, it’s easy to understand how they can manage to
pay off massive debts in short periods of time. You can do it too.
4. T
urn money into a game. Make it fun. Make it challenging. Learn the rules and play
to win.
Wealthy people light up when they talk about money. It’s not taboo. They want to tell you how
they’re tackling this or that problem. Some Spring Cleaners I dealt with recently on a huge
refinance of three properties blew me away when the Mrs jumped in and claimed they would
refinance net of their $350,000 offset (this means they were going to chuck ALL their $350,000
of savings into repaying their mortgage… in one go!). ‘Let’s give ourselves a challenge. It’ll be a
bit tight but let’s make it hard for ourselves.’ Her exact words. What they did was chuck all their
savings into repayment of their debt leaving them with no cash reserves, only their income to
survive on. Unbelievable. Her eyes were lit up and excited. Game on.
Making power moves also serves to keep you on track – there’s no way out. You either take care
of every dollar, or you miss mortgage repayments. Money is just a game, it should be fun and
challenging and in many ways being here in Australia we’re privileged to be able to get involved,
whichever walk of life we come from. What challenge could you set yourself today that if you did
it, would solve your money or debt problems forever?
5. Get the right advice from the right people
Stop taking advice from friends who don’t know any more than you. People talk so much rubbish
when it comes to money. Everyone has an opinion. A bit like diets. Few people know what they’re
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really talking about, really. Pick your advisers after you have educated yourself to a sufficient level
where you can begin to smell the B.S. For example, if you have a tax question and half a brain,
you can Google your way to the ATO website and then read up on tax laws for your situation,
then you can ask the right financial person to enlighten you further, clarify the finer details
and relate the law to your situation. I took a call from my accountant the other day asking me
about some payments I’d made. I can’t go into detail but basically, the way I had it set up, those
payments, while being a legitimate and considerable expense, were not claimable expenses.
Alarm bells! We discussed a workaround and now I’ve got a structure in place that takes care of
me and the Taxman. Happy days.
The same must be said of your mortgage structure and the advice you took to set it up. Did the
bank arrange your loan for you? Chances are they’ve got you set up sub-optimally. By that I mean
you’ve got leaks or wastage. How about these ones: You’ve got an offset but you spend it all; you
redraw but you pay $50 per redraw because you don’t know the limits and have the incorrect
loan product; your pay goes into your current account, you spend and pay your bills on the credit
card then make the minimum monthly repayment on the loan and credit card; you have all your
loans on P&I because you got sold the lowest rate, but the structure means you’re not tackling
your home loan first. If any of these arrangements sound familiar, you’ve been set up to lose and
need to make a change – TODAY.
Adrian, a client and now good mate, took out an investment loan with a major bank a few years
before we met. Did they dig deep enough into his finances to suggest the offset account as
an effective place to keep his gigantic bonuses? No. He had $700,000 sitting in a high interest
savings account with another bank while he paid higher interest on the loan, the principal of
which would have been negated if he had the cash in the offset. Could be that the broker was
protecting her trailing commission? Hmmm… This is not specific financial advice right here.
This is mortgage advice: how to pay-off-your-mortgage-fast type of advice. This kind of bad
advice (no advice equals bad advice in my book) is what holds people back from reaching their
financial goals. Adrian was a bit naughty for taking his eye off the ball and he’s smart enough to
know better, but the bank broker should have suggested he speak to his accountant about the
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most effective place to keep his bonuses and followed up, after all, the lender will make about
$600,000 in interest from the loan, so how about some service and sound advice in return?! Take
note that you might be liable to pay tax on interest earned on savings (Adrian pays the top rate
of tax) but do not pay tax on interest saved. It’s impossible. The maths doesn’t lie – interest saved
equals interest earned but there’s no tax to pay when interest is saved. But there probably will
be when you earn it. Again, not financial advice just basic maths concepts you must learn and
understand.
6. Do the maths
Crucial to the success of any business or individual is mathematical evaluation of any opportunity
or spend. What I mean is before making a financial move, however big or small, they do their
maths.
Let’s relate this to the simple, but often daunting task of repaying your mortgage in the shortest
possible time.
Let’s say you’re five years into an $800,000 mortgage with a 30-year term.
Assumptions: interest rate of 4%, principal and interest repayments, income = $117,000 after tax
(roughly $180,000 before tax), couple with two kids, PAYG employees.
If you’re making the minimum repayment of $3,820, by the time five years comes around, things
are looking like you’ve been ripped off properly. And you have been. Then you read Millionaire
Mortgage Secrets and as a family, decide things must change. You’re going to repay the loan
entirely in 12 more years.
Five years into the loan:
n Interest paid = $152,740
n Principal repaid = $75,500 (this is real!!)
n Amount owing = $724,500
You’ve hardly made any progress considering you’ve been extorted for $152,740 so far.
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You’ve had a gutful.
You drill down into your bank statements, cut out the impulse spending on plastic toys, fine
dining and junk and realise you can get by on $52,000 for all expenses excluding the mortgage.
Every other dollar is going to go towards repaying the loan.
$52,000 is $4,300 per month.
Dividing $117,000 by 12 gives you $9,750 after-tax to play with.
Therefore, you’ve got $5,450 to pay into your mortgage each month. Are you picking up what I’m
putting down?
What happens? Plug this into the freely available mortgage calculator on ASIC’s website and you
get a loan that will (all things being equal) be repaid in around 15 years. BOOM. You’ve saved 10
years of debt-time and a staggering $182,000 of interest costs. WHOA.
How much better is it knowing the road ahead BEFORE you start your journey? Pretty damn
good – I can tell you from firsthand experience. You’ve just freed up half of your income to enjoy
and invest with no mortgage stress for the rest of your life, if that’s what you choose to do.
You might go to the ASIC site and do the maths for your situation right now, and check mine at
the same time. Just don’t have too much fun now, you hear!
For all you home buyers and new loan takers out there, what if we did the calculations BEFORE
we took the loan out? The assumptions remain the same, but you do the maths and determine
from the first payment that every spare dollar is going to be used to repay the loan.
The result is unbelievable – you would save an extra $90,000 and be out of debt three years
sooner. Doesn’t sound like much but repaying $5,400 per month for three years is $194,400.
Almost TOO HUGE to believe.
‘The numbers don’t lie’ as a rich friend says to me often. You should ALWAYS do the maths before
you take out a loan of any size.
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7. Set goals, make a plan and commit to it
Want to be a Superstar or Spring Cleaner? The secret is having goals and a clear method of
achieving them, then staying the course. By the time you’re a Superstar much of what you’re
doing financially, from what I’ve witnessed in dealing with these people, is done almost like it’s
second nature. A lot of it is in their head and they just operate from a place of prosperity and
possibility. But you’re not a Superstar yet, SO, you need to WRITE IT DOWN and STICK TO IT.
If you fail to plan, you plan to fail, as the saying goes (Churchill apparently) and nowhere is this
more relevant than planning your finances.
Clearly set out your financial goals in line with your life goals. Give your plans the respect they
deserve and allow adequate time to develop them in detail. Get yourself a sexy, shiny, silvercovered book if that makes you more excited about writing things down. The more detail, the
more specific they are, the better.
It’s not enough to say ‘I want to pay my mortgage off in 20 years’ and leave it at that. You must
do the maths, add, subtract, divide, multiply and arrive at something in writing that reads like ‘we
are going to make a loan repayment of $2,500 per fortnight and will increase our repayments in
line with interest rates so we repay the loan in 20 years. To achieve this, we will……’ And on you
go. Down to the nitty gritty, down to the unforeseen circumstance. Down to the what if’s and
especially, you need to articulate the WHY. Why DO you want to live a mortgage-free life?
Read 7 Habits of Highly Effective People if you need to learn more about goal setting. This book
you’re reading isn’t about goals, it’s about crushing your mortgage but you must know that every
single millionaire, except trust fund babies, have made firm, clear, concise plans and stuck to
them until the goal is reached. Without fail.
I believe in what I’m writing so much because I’ve done it a number of times and been blown
away by the results. Putting aside the financial stuff for a second, a couple of years back, I
organised an endurance road cycling event for Movember. It was based around this concept that
us kooky Lycra-wearing cyclists call Everesting. A cyclist rides up and down a hill until they reach
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the height of Mt. Everest in accumulated vertical metres. That’s 8,848 vertical metres. It sounds
like a dumb idea, unless you ‘get it’. I went onto complete 10,020 metres.
While pondering how the hell to do the ride and not ride home in an ambulance, I knew I needed
to lose weight and get wickedly fit. The fit part I understood – just do a shitload of similar riding
for months and the adrenalin and encouragement will take care of the rest on the day. What was
freaking me out was the weight loss. Partly because I only had to lose 7kg, which sounds odd but
it was roughly 8% of my body weight and I’m not overweight to begin with. PLUS, I love food and
beer, usually at the same time. The weight loss was the challenge.
The plan I made was more like a science experiment and started with untold hours reading
about weight loss for endurance athletes. I bought calipers to measure my body fat. I bought
scales which I have never before owned. I kept a food diary and logged everything. EVERYTHING.
I did the maths. I counted calories in AND out. Four weeks into the training plan and I was
beginning to question my calculations. I was holding onto the love handles – small, but handles
they were. Cheeky things jiggling at me obnoxiously when I walked. Thing is, so much study and
time had gone into the planning there was nothing I could do but stick to the plan. There was
nothing I didn’t know. There was nothing I wasn’t doing. So, after a little whinging, stick to the
plan I did.
Sure enough, a week or so later, the weight started to fall off. It literally started falling right off me.
I continued as planned for another month and by the time I was at the starting line I weighed
in at 73kg. I was mad lean. My sister thought I had some sort of disease and called Mum. Mum
called me and did what mums do.
The crew and I were all fit and light and we smashed it, totally crushed it, raising more than
$25,000 for the cause. What struck me about the preparation was the detail the other boys
had gone to. One of them an airline pilot, one a web developer, one a teacher, one a mechanic.
These guys had gone right down to the most minute detail in Excel spreadsheets which made
my handwritten scribbles look amateurish. My point here is simple: anyone can make a plan and
commit to it. Even a handwritten, but detailed plan will get you the result.
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Setting goals, planning and sticking to them will lead to success. It’s an immutable law. It’s actually
impossible not to succeed or get very close to your goals IF you make the right plan, write it
down and follow through.
Get a whiteboard and get it out in front of you so everyone, even the kids can see.
Take the stress out of your life by understanding this law as all the wealthiest people in
Australia do.
No goal, no plans, no joy.
8. Have someone hold you accountable
Do you have a budgeting app? Bet it doesn’t work, hey? Apps, books, education, best intentions
and planning will only get you so far.
You need to find someone who you can trust to hold you accountable. Share your plan with
them, all the details. Organise to meet with them regularly. Take them out for coffee and
compare your current position to the plan. Scott Pape suggests the dinner and glass of wine
thing – basically making boring money talk bearable – and that can work well. Find a financial
expert to do it for and with you. We can all do with help in this area.
Schedule a time, sit down, go through the spreadsheet and the bank statements and analyse
your progress. It must be done. You can’t get away from accurately reconciling your position
relative to your plan. Remember, the numbers don’t lie.
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Do you really want your
cashflow tied up servicing
a loan for most of your
working life?
#TATIAPLIQUAM
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chapter
06
STRUCTURES AND
TOOLS TO CRUSH YOUR MORTGAGE
There’s no one-size-fits-all solution to successful mortgage management.
If you understand the money and borrowing concepts covered in this book already, you’re going
to make much better progress than you will if you keep on going through the motions, making
the minimum repayment and perhaps making an extra repayment here and there.
The difference between strategy and structure.
A loan structure is how the loan is set up. Strategy is what you do with the structure to make it
work and maximise the effectiveness of it.
For example:
The Structure – Income is paid directly into the loan account, you spend from your credit card,
then repay the credit card at the end of the month by redrawing from the loan account.
The Strategy – In an Excel spreadsheet, you calculate your after-tax income, tally up nondiscretionary and discretionary expenses and figure out exactly the minimum required to cover
costs and live a little – to the dollar. You deduct one from the other leaving you with ‘x’. That is
your loan repayment (it must be greater than the minimum repayment). You take a loan with free
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redraw and no minimum so when you do overspend, you may redraw and cover the expense
without penalty.
Just remember, despite a commerce degree, mortgage broking qualifications and a couple of
decades of business experience, I’m not ‘licenced’ to give financial advice or tell you how to use
your cash in the bank or recommend financial products. I’m a mortgage and finance expert, not
a financial planner. Call or email me for more information on how these structures apply to your
particular situation.
SIX mortgage-destroying structures you MUST absolutely consider to free yourself
from bad debt TODAY!
All of these structures begin with a strategy in place which has been developed after you have
agreed and set goals and made your plan. Not before! For example: Are you planning on keeping
your current home as a rental property and buying another to live in? Then you must get advice
to determine if paying off your loan instead of growing your offset is the right thing to do.
Critical to a successful outcome is understanding your income and your expenditure precisely.
What are your wants? What are your needs? Do you and the rest of your family know the
difference? Many don’t. Does the novated lease work for you, or for the leasing company and
underwriter? What would it take to pay off your loan in 18 years?
Look at your finances, ask questions, get answers, get interested. Make shit happen.
1. Credit card spend and clear
There is nothing wrong with this structure if you prefer to spend on a credit card and can
manage your money well. Hundreds of my clients use it effectively. I can see the anti-credit card
readers cringe. You know what? I don’t like credit cards (I have one that sits in my office drawer
with a $0 balance). Actually, if I meet a client whose spending is unchecked and the balances are
never paid in full, my first objective is to get them paid off and cut in two.
HOWEVER, they can provide a useful tool for those who can use them, not get used by them.
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Why it works:
n Your entire income minus your expenses becomes the mortgage repayment
n Every dollar is maximised because you’re saving interest on every dollar in your possession
for the longest possible time
n You have one place that records all your transactions
n Money is available to redraw if necessary
n Usually attracts no fees as there is no offset or package
n Might be able to access the lowest interest rates on the market
n It’s simple and relatively easy to manage.
Important:
n You must find a credit card with more than a month of interest free
n You must find a card with minimum fees
n You must be disciplined
n Call me before you go right ahead and set this up, it requires planning.
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2. Functional loan account and debit card
This is my go-to favourite way to structure a loan, especially for people who are mad keen to
crush their mortgage. What you get is a streamlined and efficient loan/banking system and
total focus on driving the balance of your loan down. The secret is in the active management
and focus it provides as there’s a limit in place – redrawable balance – plus you can track your
outstanding balance and interest rate regularly because you’re always in the loan account. Half
the problem people have with home loans is that they don’t know the rate, the balance and how
they’re tracking (does this sound like your superannuation?). That problem is alleviated with this
structure because you’re ‘in it’ every day or week, at least. It’s a shame more lenders don’t offer
this level of flexibility with their products. Call me to find out which do.
Why it works:
n Turns the loan account into a bank account
n Similar to the credit card structure above but you have no credit card – less danger of
overspending
n Can usually be set up at the lowest interest rates with no fees
n Single place to manage your money – provides focus
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n Have seen it work well for Spenders who want to move to the Spring Cleaner category
n Can redraw funds in an emergency.
Important:
n Only a small handful of non-major lenders permit this level of flexibility with their loan
accounts – contact me to find out which lenders are offering this right now
n You will need to create and stick to a budget
n This isn’t a magic bullet, normal money rules apply
n Call me before you go right ahead and set this up, it requires planning.
3. Loan Reducer
This is a slightly more complex structure that works well for a small set of people who own an
investment property and a home. Before you get excited, contact me directly and between you,
me and your tax adviser, we can decide if this is the right structure for you.
How it works:
You cross-collateralise your home and investment debt with a company that offers the pivot
loan or ‘Loan Reducer’ loan. The debt is grouped together. The mortgage manager (the company
offering the loan) creates two separate loan splits for the home and investment with the home
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loan being set at something like 0.5% above the RBA cash rate. To offset this loss of interest
income, the interest rate on the investment property is set at a maximum level, up to, say,
5.5% (whatever it is at the time) to get an average interest rate that is commercially viable for
the lender, i.e. 4% or whatever the going rate is. I say work for the lender, because usually this
loan is paid out in far less time than your usual 30-year term loan. But like any structure, this
is not just about the rate. Remember what we discussed – this is about achieving your goals. If
paying off your non-deductible debt quickly to the detriment of repaying your investment loan is
satisfactory to you, then this can work.
Important:
You need to speak to me first and very soon after your accountant to make sure this will work
and everyone’s happy with the ATO Product Ruling. There’s much more to know about this
structure, so please call me to discuss if this is the right strategy for you.
4. Offset with calculated repayment
This is a very simple structure, but you need to do your homework up front. You need to work
out what repayment must be made to clear the loan in the given time frame.
What you’re doing is creating a figure that must be paid each week or fortnight or month, usually
in line with your pay cycle so that you can repay the loan in a set amount of time. That’s the
goal, come hell or high water. You set a repayment with the lender that comes out of the offset
account that, if maintained, will eliminate your loan in the agreed time frame. Got it?
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Why it works:
n You’re forcing yourself to commit to a repayment that directly equates to your goal
n You must refinance for the same term or less if you can – affordability and servicing
permitting
n You can cut up the credit cards
n You have the flexibility of an offset account if you would like to spend from there or your
plan is to buy another property in the future and leave the current home as an investment.
But that’s another strategy altogether…
Important:
Like it or not, offset accounts come at a cost – usually a higher rate and a package fee. Banks put
penalties on people who want to reduce their interest costs. As if banks weren’t already making
enough money…
5. Calculated repayments, envelopes and a cash diet
Similar to the above but avoiding any fees and possibly a higher interest rate because there’s
no offset account. You calculate the required repayment to extinguish the loan in a set amount
of time. That is what’s paid into the loan account at a minimum. Every other dollar goes into
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separate debit cards for other expenses. There’s no savings account, as such – I’d argue that
until you own your home outright, you do not have any savings. Redraw from the loan account
for emergencies. The overpayment is basically your savings.
As mentioned earlier, I can’t give financial advice and use of cash in redraw might constitute that.
But it’s a simple concept to understand and it is part of my job as a finance broker to explain how
loans work. This isn’t a book about the envelope idea or buckets or whatever you want to call
them – it doesn’t matter if you call them accounts or pots or places.
The budgeting and separating principle remains the same – it works and is how anyone who
struggles to manage their money could be managing their money. In my opinion, it’s a good
way for everyone to manage their money until they transcend and good money management
becomes habit. If you’re shit with your money, consider this kind of rigid structure and don’t beat
yourself up if you don’t get it straight away.
Why it works:
n Super simple
n Effective
n Low-cost
n Can be fun – turn it into a game
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n Active money management – the rich person’s habit
n Lots of focus. Hey, you might even reach your goals!
n Involves time and energy and that’s exactly what money likes.
Important:
n You will ideally manage your repayments on a weekly basis to maintain as much money in
the loan account as possible
n Must use a loan account with free redraw which will give you flexibility to make extra
repayments and redraw if required
n You must ensure the loan account functions in a way to permit this structure
n I’m not telling you what to do with your money here, this is one way to manage loan
repayments, save interest and pay the loan off faster. How you divide and use your money
in the buckets is your responsibility
n Call me before you go right ahead and set this up, it requires planning.
6. Money management program
Some of my clients have had terrific experiences with this and it’s perfect for those people who
have reached the point where they can say to themselves honestly, ‘We suck at managing our
money and above all, we want to get rid of this bloody mortgage and become financially secure.
Can’t someone else handle it?’
Call me if you want to know the details on exactly how this works, but in essence we’re
implementing the Single Loan Structure, then saving you from yourself. A third party manages
the repayments (not me) and helps you manage your spending and holds you accountable.
You have a gatekeeper between you and your money. Yep, a gatekeeper. And believe me, many
people need it but can’t admit that they’re shit with their money. Do you need to find someone
who is reliable to help you take care of it?
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Why this works:
n Very effective way of reducing debt
n Inexpensive way to get help managing your money for the life of the loan
n Turns frugality into a game
n Brings in a mediator so less blaming or arguments
n You’re held accountable
n Heaps better than My Budget for repaying your loan and way cheaper, plus you’re still
involved and not on full autopilot.
Important:
n Borrowers need to be on board with the plan
n The results are only as good as you are
n It’s only as effective as you are committed – you have full access and can redraw your
overpayment
n If you’re already up the shit, you might be too far gone to get out of it
n Call me to discuss this option in more detail.
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FINAL WORDS
None of the millionaires I deal with have 30-year mortgages. It just doesn’t come into it. One of the
wealthiest told me that a 30-year loan is ‘a dumb idea’. You can start with the 30-year term to make
the loan ‘affordable’ as the bank’s ‘calculators’ won’t accept many of us on really short terms, but
you should not be planning to have that loan in your life for 30 years, or anywhere near it.
When you buy a home with a mortgage, you’re actually ‘buying money’ to buy a home, not buying a
home. An important difference that too few understand. Ask yourself again, do you want your cash
flow tied up servicing a loan for half of your working life? Or would you prefer to pay out the loan in
15 or 20 years then spend the rest of your life buying assets and investing?
Here’s a few sage words I know to be true, that have changed my financial life:
Whatever you focus on grows, so focus on your money and watch the equity take care of itself.
Money loves hard work and energy – you won’t get anywhere if you just cruise along on autopilot.
FINAL WORDS
71
Brodie Brown
Bcom Mktg Law; Dip. Fin & Mtg Mgmt; Cert IV Fin & Mtg Broking
Brodie Brown is not your average mortgage broker. In an 18-year career
that stretches from high profile property sales in London’s busiest sales
office to fintech and fashion start-ups, property investment and finance
broking, he’s amassed a detailed working knowledge of finance and
business which is underpinned by one very important element – credit.
He brings broad perspective, deep experience, and impressive
knowledge to his client’s mortgage and finance challenges. It wouldn’t
matter if his client is an academic or astronaut, manager or millionaire,
the service is the same and he’s behind them every step of way. Forward
but always professional, he calls it as he sees it and will be your most
staunch and dependable ally whether you owe $500,000 or $5m.