Issue #27 - Don't fall into these 9 money traps, and how to fix them. Also, Bitcoin and BOC rate cuts affecting Real Estate Investors

Read time: 3 minutes

Only a few days left in the beautiful country that is Venezuela. 

Being here gives me a ton of perspective about how the world works. I have one thought in particular as it relates to Bitcoin, in section 2. 

Aside from that, I have a request. I love responses and dialogue with readers, but I want to ask for more "contributions" from the audience.

Many of my readers include mentors, family, colleagues and friends much smarter than I. They have a wealth of knowledge to share and I’m fortunate enough to have learned from each of them along the way. 

I believe there is something to be learned from everyone. And so I'd like to ask everyone I know, and those new subscribers as well: if anything inspires you, ideas you might have at the front of your mind, whether it be finance, a personal story (names will always be anonymous of course), business related, etc, please feel free to share.

I could feature one contribution each week that will not only help contributors via writing to collect their own thoughts, but distribute them to others that may find wisdom in it as well. I know I will.

Helping even one person, makes it all worth it.

1. Personal Finance

9 bad money habits that keep people broke and how to break free of them - number 8 is the most critical. 

(I posted this to LinkedIn but since many of my email contacts don't use social media, I want to share again here.)

(1) Paying yourself last

→ We are always in a race against our own expenses. We sprint to pay the mortgage, utility bill, and luxurious over priced car payment - but we sit on our ass and pay ourself last. If we don’t prioritize ourselves first, we will never have enough left over to save. Start saving at least 10% of your pay cheque before you spend a dime anywhere else. If you can't afford to pay yourself 10%, you need to rework your priorities asap.

(2) Using debt for everything

→  Stop using credit cards for stuff you can't afford. Unless you can pay for the thing outright in cash, you shouldn’t be using debt (exceptions are healthcare, education, and property).

(3) No emergency fund

→ Save up 3-6 months of living expenses as a rainy-day fund in case of emergency.

(4) Not knowing what your income and expenses are:

→  Map out exactly what your cash flow is, scrub your credit card statements for erroneous subscriptions, and know where your dollars are going (download my monthly budget template).

(5) Increasing spending at the same pace as your income.

→ It is way too easy to ramp up spending as you make more money. But this lifestyle inflation will destroy your chances of building a real retirement portfolio. Instead, maintain your previous spending level and direct the extra income towards savings and investments.

(6) Focusing purely on saving

→ You can only save so much. Instead focus as well on increasing income.

(7) Paying too much tax

→ There are plenty of legal ways to save money on taxes. Operate a business, use tax free investment accounts, track tax deductible expenses, etc.

(8) Waiting too long to invest

→ Inflation is wealth destroyer and every day that you’re not investing you are sentencing your money to death. Once you’ve got your emergency fund, and paid off your high-interest-rate debt, there is no reason why you shouldn’t start investing.

(9) Not setting financial goals

→ Without goals, you don’t have any direction,  and you’ll find yourself lost. Create a plan, check in as you go, and course correct as needed.

Do you have any money mistakes to share and how to fix? Let me know.

2. Bitcoin

Some of you know that I am in favour of Bitcoin. Why? 

1. You can't kill Bitcoin - decentralized nodes make it impossible.
2. Protection against countries debasing their currency. There will never be more than 21 million. One BTC will always be = One BTC. 
3. With the arrival of Bitcoin ETFs - it is now a legitimate financial instrument. People are "getting off 0" as wealth managers around the world expose clients to the sector. This will play a major role in it's widespread investment profile.
4. Most importantly - if you have BTC, no one, no where can tell you what the fuck you can do with it. 

I simply cannot stand the premise of our system; that if a person spends their time, sweat, and tears to earn money to live, someone playing god has ultimate say over what happens to your money (time spent).

As I watch my cousin-in-law run his two Mitsubishi dealerships, he can't send money from Venezuela to his international suppliers because there is no SWIFT system here.

Instead, he uses Binance, a crypto exchange, to send hundreds of thousands of dollars - instantly - to his network abroad. 

Talk about amazing. Not only does he have to be a good entrepreneur, but dealing with the currency limitations in a country with a worthless currency and strict USD controls using a crypto exchange and watching him do it in real time is epic.

And so this is why I like Bitcoin. 

You can walk across a border with money in your mind that no one can confiscate, ever.

Now, I will never personally recommend that someone buys BTC, but I think after 16 years of existence, a $1 Trillion market cap, it's worth paying some attention. The only thing I do recommend is to take some time to learn more.

Start with this book: The Bitcoin Standard by Saifedean Ammous.

One day, it will be common place. Like the internet, 99.99% of people don't know how data (emails/face time/whatsapp audio, etc) magically appears across the world in real time nor question the infrastructure underneath the hood.

It simply is.

So too is BTC.

3. Real Estate

Everyone hoped for a surge in Real Estate activity after the Bank of Canada cut rates from 5.0% to 4.75%. 

But it feels like just the opposite has happened. Would be sellers seem to be holding tight on the expectation that the central banks will drop rates further this year, and therefore are waiting for a better time to sell.

Still, real estate provider Altus Group recently ran a survey and expects bid/ask spreads to tighten as the forecast for future rate cuts looks like more of a certainty, which should drive more transaction volumes. 

In the meantime, with cap rates moving higher and deal activity lagging, the focus has turned to enhancing NOI, increasing rents and lowering expenses creatively to drive higher income.

As great as it would be to do a lot of deals, most for-sale assets are still overpriced in our opinion. Therefore, will be patient with our acquisition activity and maintain our diligent underwriting criteria.

Remember, most of your return is locked in based on the price you pay up front.

Investing in a deal today by forecasting a 150 basis point compression in cap rates 5 years hence to make a proforma look good is not an investment strategy.

Don't get caught here folks. You simply overpaid.

1 Quote

Comparison is the thief of joy

- President Theodore Roosevelt

This quote was contributed by one of my good friends. Thank you, Sam. 

A Question

Are you positive, negative, or neutral on Bitcoin? 

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Thank you

Eddie Gudewill, CFA
 

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