4. Re-work your cash flow with contingency
Living off equity is one of the reasons people invest in properties. Many property investors have selected good growth properties and have been using the equity to cover expenses.
The potential issue with this is that we may get into a spending pattern that can be a bit out of control if we don’t pay attention to it. When property stops growing for a while and finance is hard to get, we may get into a negative cash flow position with no end in sight.
Many property investors told me that they couldn’t figure out where they have spent the money, but they only noticed that their money in the Line of Credit is disappearing faster than they anticipated.
Let’s face it, most of us only act when we really need to, so there is no need to beat yourself up if you haven’t taken the time to manage your cash flow carefully, but I do think this is the time to start doing it if you haven’t already done so.
To manage our cash flow, we need to be clear about our income and expenses, and make sure that income is greater than expenses if you want to have positive cash flow or any surplus. Because we always tend to spend what we make or more, we will need to treat the surplus almost like the highest priority expense, so that you guarantee to have it.
The Superannuation idea is to ‘force’ everyone to put aside money we can’t touch, because most of us cannot be relied upon to do so, especially when we have a family and the financial responsibility is divided between family members.
When responsibility is given to more than two people, no one is responsible; hence a group of two or more people looking after money will usually have little money left. Putting aside your surplus (or profit) before you pay any other expenses is probably the safest way to ensure positive cash flow, and you can always adjust your remaining expenses according to your income. It is not how much you earn; it is how much you can keep.