Hi, Peter Jones, author, property investor, ex-chartered surveyor.
In this series of videos I’m thinking about lessons from 2008 with a slight pivot from this video onwards because we’re going to think about things which I learned in 2008 which have been very much reinforced in 2020 and probably with a more of a business and property twist than the previous videos.
One of the big lessons which I learnt in 2008 and which has been reaffirmed in 2020 is the requirement of having available cash.
Now, cash isn’t always going to save you from every situation but in a business sense and in a property sense if you have cash available when the bad times hit you’ll probably, depending upon what’s happening, going to be more likely to be able to continue trading and trading through the bad times.
I remember I was listening to Rob Moore, the co-founder of progressive property, he was talking about this. Hd was recommending that, in his experience that, one should probably have something like a year’s worth of cash tucked away just in case, rainy day money.
Now I realise that for many of us that’s quite a big ask. Most people apparently are only one paycheck away from bankruptcy so it’s imperative I think no matter what you’re doing no matter what business you’re in whether you’re self-employed or whether you work for somebody else that you have that rainy day money set aside.
Again I realise it’s a bit like big ask for many of us if we’re basically living to our means if our paycheck really only covers our costs or even maybe it doesn’t even cover our costs or maybe month by months we go into debt. If that is the case then obviously that’s an issue to address anyway.
But assuming that you may have some kind of a surplus and if you’ve already started in property hopefully you’ve got cash flow already coming from your properties think about how much you can save.
Saving up a year’s worth of cash probably isn’t realistic for most people at the beginning and it’s going to take time to build that level of cash anyway but perhaps you can start by just saving a month’s worth of cash and then maybe two months and build up to three months and that will make a big difference not just in terms of what could happen and how you can keep trading but also psychologically just the relief of knowing you’ve got the security there should anything happen.
Now of course there’s disciple required for this because you need to stop spending as much maybe or you need to earn more or maybe a combination of the two and it’d be a good idea probably to sit down and plan how you can actually do this and how long it would actually take say to save up three months money.
Now is that three months of personal cash or is that three months of cash for the business? And the answer is yes, I’d probably start with three months of personal cash so that if anything happened you know that you can support yourself for at least three months and then build it to a point where you know that if anything happened you could cover the business for three months.
I don’t know how long that will take by the way that might take you six months it might take you are year it might take you two years I just don’t know but whatever it is it’s worth doing. When you get to three months then it’d be worth getting to six months and then if you can eventually take Rob’s advice and get to a year then that would be great as well.
Of course one of the things which I’m very aware of is that if you have a lot of money tied up then there’s the opportunity cost of using that money. That’s the big dilemma which I think we have as entrepreneurs and as property investors. If you had a year’s worth of money and enough to cover you all of your personal costs and enough to cover all the costs of the business for a year that’s a lot of money to be tied up. Would it not be better to invest that and actually get more income from it?
Well again you know we can go around in circles on this because I would say yes that’s probably a good idea as well but the reality is somewhere in between the two there’s usually a balance and it’s probably something like this, when you’ve got your three months or six months or hopefully ideally at some point in the future however long it that is your years worth of money then I would suggest that you do invest it but you invest in something which is very liquid so that you can access it. Or if it’s a year’s worth of money maybe you have three months very liquid, as in cash, then maybe you have another three months worth which is perhaps in something which is giving a slightly higher return but is still relatively liquid but not as liquid as ready cash, and maybe the other six months is something in it isn’t something which gives an even higher return and is even less liquid but you could get it on six months notice, for example.
So there would be ways to actually use it and to make sure that it’s still earning otherwise that’s a waste but still be there available for when you need it.
So big lesson from 2008 and reinforced by 2020 because at the moment we don’t know where we’re going with this we don’t know how long we’re going to be in lockdown we don’t know what the economy is going to be like when we come out of lockdown. Having cash set aside just in case makes a massive, massive difference.
For us as property investors, for example, one of the problems which we’re possibly facing in the moment is tenants not able to pay rent. Well if tenants can’t pay rent you might be tempted to go for a mortgage holiday but the reality is that the mortgage holiday although it’s not going to affect your credit score I’ve already seen on Facebook that brokers are suggesting that lenders may look at you and think well if you needed to have a mortgage holiday two or three or six months ago we can’t lend to you now because you’re not a good risk.
So we need to take all this into account. If you’ve got the cash behind you then you wouldn’t have to worry about that or participate in anything like that.
Anyway just throwing it out there is an idea having cash. Having cash. Cash is king. If you’ve got cash you can survive most things. Not everything unfortunately because of the current crisis is more of a health crisis than a financial crisis but in terms of your business, in terms of paying your bills, in terms of keeping yourself supported, your family supported having cash is absolutely crucial.
Until next time, here’s to successful property investing.
(ex) Chartered Surveyor, author and property investor
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