Why A Wealth Stocktake is Critical During Lockdown

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The whole country seems to be falling in and out of lockdown, and the reality is that the income interruption ranges from mild through to devastating.

But any which way you cut it, if you’re not thinking about your Plan B or if you don’t have a Plan B in place, you might find yourself in some serious hot water in the years ahead.

So, I want to unpack some of the things you should consider during these lockdown periods.

Do You Really Have Immunity?

After living in a bubble for the last 12 months, Canberra has also run out of luck, and we have gone into another lockdown.

I can’t complain because the reality is that we have had a bubble existence here – we have been relatively untouched, and everyone has carried on business as usual. But, I’m reminded that, as we went into lockdown for the first time in over a year, nobody is unaffected by these lockdowns – whether it’s mentally, physically or financially.

Over the last few months, I have spoken to various business owners. Most of them are on an even keel, and they’ll come out of this experience slightly limping.

Other business owners have been relatively untouched. However, regardless of how successful their businesses are, they have felt mentally derailed by the idea that there could have been some major catastrophe that would have massively interrupted their income.

They have realised that they don’t have enough cash reserves to carry them for a good while.

So, despite feeling some kind of immunity to all of this, you may want to start formulating what your next step could be.

A Client Story

I want to share a specific story about one of my clients because it’s one of the most common stories I have heard – not so much about his personal situation but how he has reacted to the lockdowns and how his businesses have been impacted.

He moved to Australia around 18 years ago and worked incredibly hard to educate himself and pull together a series of businesses. He has done extremely well over the last five to ten years in terms of building half a dozen viable business locations.

Unfortunately, when the COVID-19 pandemic hit, he seemed to be in the epicentre of the areas that would come in and out of lockdown.

Even though he was able to keep his head above water, he put himself in a situation where he was losing sleep at the end of the day. He realised that he had all of his feet in one camp in terms of those businesses and wasn’t particularly diversified when it came to other investments.

He was acutely aware that at some point, he wasn’t going to be able to sustain too many more lockdowns and come through it unscathed.

Our paths crossed at a time where he needed to establish a better Plan B.

In defence of people who run businesses, I understand that it’s super hard to diversify your investments – especially if you’re already investing all your time and energy into your business.

So, I want to explain how you can make small tweaks to the efforts you put towards your investing endeavours to possibly change the trajectory of the path you’re currently on and move towards developing a viable Plan B.

Where Are You Financially?

I see many business owners who are time-poor and mentally drained to the extent that the last thing they feel like doing is assessing their overall financial position. But, one of the most important pieces of the puzzle is your capacity to regularly do a stocktake of where you are financially.

What investments do you have in play? What does your personal balance sheet look like?

If you were to exclude the home you live in (in other words, you have no intention of moving), take your total asset base, be it shares or property, and subtract any outstanding debt that relates to your portfolio, then that gives you your net asset position.

Do you have a good understanding of what the values are of those properties in today’s market?

I never cease to be surprised by the number of people who hold relatively large property portfolios, and they have no clue of how much those properties are worth or even how much debt is owed against each property.

I have an unfair advantage because I have my head stuck in the investing world all the time, but I do think that you need to have enough familiarity with what you have and what is happening on the debt front.

So, a financial stocktake is about assessing what you have and then putting that data into some kind of tool, like a Word Document or a Google Sheet, that you can use as a starting point to establish where you are at.

Inside the Freedom Warrior programme, I have a wealth portal that I share with my clients that allows them to plug all of their information in at once. It essentially draws information for your superannuation fund, bank accounts, and other income sources like property investments.

That portal connects to a tool called RP data, which gives you valuations of your property in real-time.

So, the great thing about this tool is that it shows you what your balance sheet looks like in real-time, which gives you a macro view of whether or not you’re tracking in the right direction. And that snapshot or wealth stocktake is the ultimate starting point for developing a viable Plan B.

How Are Your Assets Performing?

The next layer, after establishing what you have, is finding out how your assets are performing.

In Australia and New Zealand, we tend to rush into conversations about gross returns and forget to consider the expenses. But what I’m encouraging you to do is run a profit and loss for your investments, just as you would for your business.

Do you know, after expenses, how much income or cash you are generating from your portfolio free and clear before tax? And then, when you have that number, you can assess whether you’re happy about the income you’re generating compared to the net asset base that you have.

For most people I speak to, their net rate of return or return on investment is usually somewhere between minus 1% or maybe 1.5% to 2% – and that shocks them because they haven’t tracked that number and had no idea how bad it was.

A lot of the literature and marketing in our space tells us if we just hang on long enough, then we’ll get where we want to go. But, if you’re reading this and you’re young enough to digest the idea that it’s not too late to change paths and change the trajectory of those numbers, then you’re in good company.

So, the first thing you need to do is a wealth stocktake and establish where you’re at financially. Then do your profit and loss just like you would with your business.

We’re so much more brutal about what we expect from our businesses. So many people I speak to have the finger on the pulse of where money flows in their business. They know exactly what percentage of their income they’re spending on payroll and materials and their average profitability per week and per quarter.

But when it comes to their personal finances, they just simply have no idea. So figuring that out is a great starting point.

Making Calculated Decisions for Your Asset Base

Once you’ve established whether or not you’re happy with the profitability of your asset base, you can start to make decisions about how to move forward. One of the things that go hand in hand with that is taking control of your own decision making.

If you’re in some kind of lockdown right now and you’re trying to find ways to make things easier, the last thing you want to do is put yourself in a situation where you’re forced to sell down your assets to navigate the circumstances and create enough of a buffer.

A dear friend of mine, who I’ve encouraged into many investments, ended up doing quite well with his investment portfolio. But, because of the nature of the business he runs, he made a fairly smart decision, in hindsight, to sell a couple of assets just before the COVID-19 pandemic settled in. And that gave him a great cash buffer to navigate what would otherwise have been a horrific 18 months.

It’s not the ideal outcome, but there will always be situations where you have to sell an asset to get yourself out of hot water.

However, as part of your strategy, it’s not the option that I would recommend because if you’re trying to create wealth that endures, building your assets to a point where you can just sell them down or live off them kind of flies in the face of that.

So I just wanted to raise that as a point to flag – you may have to sell your properties to survive, but it shouldn’t be part of your overall investment strategy.

Looking at What Alternative Options are Available for You

Going into lockdowns and facing so much economic turbulence and uncertainty should be the starting point for having conversations about what other opportunities are out there.

I certainly advocate for the fact that there has never been a better time in history to be looking at alternative options when it comes to investing that could give you a level of insulation against future turbulence.

So that regardless of what happens, whether the market goes up, down, or sideways, whether you have a continuous flow of business or whether you suffer from massive business interruption, you put yourself in a situation where that secondary passive income is what gives you that sleep at night factor.

Final Thoughts

Find a tool to create a snapshot of your balance sheet. Do a financial stocktake of what you have. Dissect how you feel about it. And then start formulating how to move forward.

Better yet, make it a diary appointment and have a look at it every six months. It doesn’t take a lot of time – it simply just takes some bandwidth and some mindfulness.

Even just even recognising that it’s time to put your finger on the pulse is going to immediately separate you from what most business owners do, which is turn a blind eye to it until it’s too late.

If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.

Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!

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