This is a must read!
Steve McKnight has over $75 million in property currently under his care. He has trained thousands of people all around the world and Australia’s leading author on property investment. I have been incredibly privileged to have been trained and mentored by Steve, and have learned a phenomenal amount through his teaching and insights. In many ways, Budget Brilliance would not be in operation today were it not for the motivational training we received from Steve.
This is a transcribed interview that took place in late August, 2015. Read on and be prepared to be inspired, and possibly even challenged. Please share if you know someone else who might benefit from reading this article.
Matt: Thank you for agreeing to be interviewed on Budget Brilliance. Steve, you are a renowned public speaker, author of 5 books, property trainer, legendary investor and owner of www.propertyinvesting.com.
Could you give us an insight into your financial journey, perhaps a look into what you are working on currently and a snapshot of what gets you excited each day?
Steve: When I started investing in real estate in 1999, I came from a background where I used to sell my time as an accountant. I would work on selling my time in six-minute intervals. It was a priority for me, instead of selling my time in six-minute intervals, to find other sources of income that I could use to replace selling my time. I looked at variety of different things, and because I always liked the game of Monopoly, I ended up with a view of buying positive cash flow properties.
Between 1999 and 2003, I managed with my business partner at that time, David Bradley, to acquire enough properties that I didn’t have to work ever again, because the passive income from those properties was enough to replace the money I was earning as an accountant.
That started a phase of life which was a little bit unusual, because I was a 32-year old who was trying to figure out what they were going to do with the rest of their life. I was also struggling with issues of faith, as well as issues of significance. Because if you don’t have to work for money anymore, how do you find meaning in your life?
Between approximately 2003 and 2009, I tried a number of different ventures in the education space, training other people and doing some more real estate investing, as well as being on a bit of personal quest to find meaning in my life. Then, in 2009, I saw an opportunity to invest in the United States, whereas earlier when I started in 1999, I didn’t have a lot of money behind me.
In 2009, I had acquired a fair bit of wealth, so I went to the U.S. in the midst of a massive global recession and bought a lot more properties. That gave birth to the idea of setting up a managed investment fund, so that not only myself, but other people could also profit from the opportunity. Between 2012 and 2013, I raised $75 million to seed this fund.
This may be a long-winded way of answering the initial question you asked, but I’m being a good steward over the money that I’m entrusted to look after on behalf of other people in this fund that I set up. I’m pleased to report that it’s doing very well.
I’ve got my own investments that I bought over in the United States, and I have a number of philanthropic interests that I support and pursue with the money I make. Then I’ve got my family to look after, my wife and my kids. I just turned 43, so I’m still quite young. I’m looking forward to the future.
Matt: Thanks for your answer, Steve. I really appreciate it. Budget Brilliance is all about cutting down expenses and using the money saved to invest in growth producing assets. So my second question is: What do you see as the keys to establishing financial independence?
Steve: Budgeting, Matt, is a lot like dieting. People who are overweight, because they don’t have the self-discipline to eat a healthy diet, know they need to change, but don’t necessarily want to change. A diet is by its own nature a temporary thing. You go on a diet, you go off a diet, which is why dieting is difficult. It’s not until people embrace the idea of needing to change their lives permanently to get a permanent solution that the concept of dieting becomes redundant and the concept of, as Keith Cunningham put it, “standards.”
If people change their standard, deciding “I’m not going to eat sugar anymore,” it’s not a temporary thing, it’s a permanent thing. “I have a standard, a code of conduct, and that’s part of who I am, because it’s important to me.” It’s the same with budgeting. People will continue to spend to support a lifestyle that potentially might be beyond their means until such time they say they can’t do it anymore, or they’re forced to change, or they change voluntarily.
Good money management, successful investing and indeed, a path to future prosperity, must always start with this basic fundamental: “Spend less than you earn.” Because it doesn’t matter what you’re earning, if you’re always spending more, even with a salary of a million dollars a year, you’ll still end up poor, because you’re spending more than a million dollars a year.
A budgeting tool, a tool that instead of being a diet, which is seen as being undesirable, but a budgeting tool that is equipping and empowering, rather than seen as curtailing freedom and choices, then people will be seen as being predisposed to use it. The hallmark of a good budget to me, is understanding why the discipline is important (i.e. how is making a budget and living within your means going to allow you to live a more prosperous life), and then desiring to want to do something about it.
It’s knowing how is making a budget, and living within your means, going to allow you to live a more prosperous life, and then having the desire to do something about it. And unfortunately, a lot of people want the benefit from budgeting, but don’t want to contribute to discipline of budgeting.
Matt: You’re spot on Steve. I know countless people who have incomes in excess of one or two hundred thousand who are still unable to lock anything away for future saving or make more than the minimum mortgage payments.
Steve: Perhaps now is a good time to tell you a quick story, Matt. I once knew a plastic surgeon who earned hundreds of thousands of dollars per annum. He lived in a great house, drove a nice car, had a beautiful wife, beautiful kids and was a real role model to me. He was saying to me that he knew a lot of people in his industry that had all the marks of wealth, but there was no substance behind it.
Because it didn’t matter how much they earned, they would always spend more. There was always something to spend that money on, and a lot of people use credit to do it. And so to me, it doesn’t matter if you’re a lowly paid employee or a highly paid employee. Until you’ve mastered the number one skill of wealth creation, which is to spend less than you earn and invest the difference, you’ll always be in the rat race.
How you go about identifying what you spend and what you earn is the skill and tool required for accountability to master that fundamental wealth creation habit. Some people are naturally good at it, and that’s fine, if you are. But if you’re not, you need some kind of reporting data collection methodology; otherwise you’ll fool yourself that things are going well, when they perhaps are not.
Matt: Are there any hidden areas you see that are bad spending nowadays that people should perhaps be looking towards cutting down a little bit further?
Steve: I wouldn’t feel comfortable making any kind of comment on how other people choose to spend their money. Because I think if you have earned the money, if you want to choose to spend it on beer, or if you want to spend it on cigarettes, or you want to spend it on gambling, or you want to give it to the little lost dogs home, or you want to pay off your mortgage, I think that’s entirely your choice as an adult, knowing that your choice will lead to consequences.
So what I would be spending my time and effort on is to encourage people that before they spend their money, they properly consider the consequences of what’s going to happen after they spend it.
I sometimes like to think of my dollars as foot soldiers. Every time I spend a dollar unwisely, it’s like I’m sending my little foot soldier to his death, versus when I spend money wisely, what my little foot soldier is doing is getting out there and conquering a new territory for me.
So the more money I’ve got, the bigger my army, the wiser I am with my army, the more territory I can conquer and control. The more territory I can conquer and control, the more control I have over my own life, and the more influence I have to be able to improve the lives of others.
Matt: That’s a really good visualization. If you are a person starting at life with just $10,000, perhaps a student or somebody migrating perhaps to this wonderful country, what would you advise them to do with that money?
Steve: I think $10,000 to me sounds like seed capital. And the question I would have is, “What vision does someone have for their life and how can that money be properly used or invested to bring that vision closer to reality?” A mentor of mine, Brenda Nichols once said to me, “There’s only two uses for money in life. To either get a life or to give a life.”
I’m, from time to time, mindful that money should be used to either improve my own life or to improve the lives of others. So, with that context, that $10,000 could either be used to improve your life or improve the life of others. What I would say is be careful about not spending it in a way that will not deliver a return for future prosperity.
A good principle to live by is to let the income from your investments fund your lifestyle and let the capital compound. If you’re using the capital, it’s a bit like cooking the golden goose for a roast goose, rather than living on the golden eggs. If people can use their money to buy golden geese and have a diet of golden eggs rather than roast goose, then they’ll do well in life.
Matt: That’s a wonderful answer. My next question is, what do you see is the biggest financial concern for Australians in the next 10 years?
Steve: Getting out of debt.
Matt: I agree.
Steve: I think we have a predisposition to spend money we haven’t yet earned, which is what debt is, and forget that we have got a future obligation to earn that money, pay tax on it and then whatever’s left, to repay debt. The more someone gets into debt, the less freedom they have. It’s a bit like selling themselves into modern day slavery.
And the notion of consuming today for money not yet earned is one of the root causes, in my belief, to so much unhappiness that households endure. I’m led to believe that one of the number one cause of divorce, aside from infidelity, is financial troubles. Financial troubles typically start when people spend more than they earn and when they have to find a way to repay that money or make ends meet, they can’t.
I have a saying that, “Cost equals sacrifice plus delayed gratification.” That if you want a better and brighter future, you got to pay the price, and that price is a component of sacrifice, what you’re going to give up and not want anymore. And delayed gratification, something that you want but you’re willing to wait for until you have the financial resources to pay for it.
I look at what people want to do and I say, “Are you willing to pay the price?” And in many cases, people want the outcome, but don’t want to pay the price, in the form of making sacrifices or delaying gratification. They want it now, and they’ll consume it now, and they’ll live with the consequences tomorrow, but they don’t understand what those consequences may be.
Matt: What advice would you give to a person earning $45,000 per year who has $5,000 on the credit card, a $15,000 car loan and would like to buy their first home? Would you advise them to consider selling the car to buy a more modest form of transport, repay the credit card and put together some form of a savings plan?
Steve: No, strangely, I think we would have to first spend the time and effort to try and help that person understand the consequences of the choices they’ve already made. There’s no point telling someone who’s morbidly obese that they shouldn’t eat at McDonalds. I think most people know that. Telling people not to eat at McDonalds or lecturing them on the poor choices they’re making will often lead people to feel guilty. People who feel guilty tend to then look to comfort, and it’s probably comfort that caused them to get into the problem in the first place. That gratification, “Oh, look, I’ve got a problem,” then “I’ll feel happy if I get a new car” or “I’ll feel happy if I buy the thing with my credit card.”
What we have to do before we try and cure the problem via budgeting, self-discipline and more, is to help the person to see that they’ve got a problem in the first place. Before I try to fix it, I would want to sit down with the person and say, “Tell me about your habits towards money; tell me about what have been the influences in your life that had helped you acquire the views and thoughts about money that you have?”
And then I ask, “What you think is going happen if you keep doing what you have done? Where’s your life going to end up five, 10 years from now?” Then I would say, “Where do you want your life to end up five or 10 years from now? What things do we need to stop, as in sacrifice? What things do we need to differ, as in delayed gratification? What new attitudes and actions do we need to import in replacement to those attitudes and actions that we’re going to export and no longer replicate?”
Matt: I can completely see what you mean by the importance of adding in that educational component as a fundamental first step before creating a budget.
I noticed in your book Millionaire that you stated that a teabag is like a cat and has 9 lives. Despite your millions in earned income I know of your generosity and I’ve met with people who speak of the sheer amounts of money that you have contributed to the charities that they work for. I also know of your reputation for frugal living and not using those ‘foot soldiers’, as you put it, unwisely. Could you give the Budget Brilliance audience a few money saving insights?
Steve: I’m not sure using a teabag nine times is my best tip for saving money. That was an example of a funny story, more so than a literal application of a money-saving technique. I think that I have a great benefit, which is having seen extremes of wealth. Growing up, my mother was someone that came from a background where they were more affluent, and my father came from a background where there was never enough money.
It doesn’t matter how much money they had, which was never very much, it was never enough. I remember my dad telling me the story of Sunday night dinner in their house was a meal of bread and drippings, because there wasn’t any other money to buy any other food, and my dad was a World War II baby.
I’ve seen this clash because mum and dad have alternate views about money, and I’ve seen the good things that money can do, and I’ve seen the bad things that money can do. I believe everyone has to make their own choices and way in the world, and money is a tool that can equip and empower people when used properly, and it can be a curse in the hands of someone who doesn’t know how to use it. In many ways, money is like fire. It can be used constructively, or it can burn and kill. What we need to do is not view money as good or bad. The Bible says, “It’s not money that’s the root of all evil, it’s the love of money.” It’s our attitudes towards money that dictate whether it becomes our master, or we make it our slave.
To that respect, any skill or tool a person acquires that allows them to be a better manager of money, any small step or big step that someone can take to make a more empowered decision – if they can invest in a course, if they can read a book, if they can simply have a conversation with people they admire about who are their influencers, and find out what their attitudes and actions are towards money, and understand this isn’t something that will be achieved in a month, that it’s a lifelong journey of trial and error – over the course of time, someone’s situation, no matter how dire, no matter how bad, can be turned around.
Tom Ziglar, son of the legendary Zig Ziglar, at a recent seminar I attended said, “If only people would try and keep trying, until they get results, then success is guaranteed.” And I apply that same philosophy. Today, we want to do minimal effort, to get maximum results. We live in a culture where we have a microwave solution to our problems. Put it in the microwave for 30 seconds on high and it should come out cooked, when in reality, these skills and attitudes that cause us to get into some financial distress have often taken one, two, five, 10, 15 or even 20 years of misuse to arrive at the destination that we find ourselves in.
It’s unrealistic to expect, in one month, you are going to make good a previous lifetime of poor financial decisions. But what everyone can do is make a commitment today that they will try to be better tomorrow. The acquisition of the skills and tools, attitudes and actions congruent with that desire to want to get a better and brighter financial future is the journey that you and I, and everyone listening to this recording or reading the transcript, is undergoing.
Matt: Steve I want to thank you for the absolute gold that you’ve shared with us today. I really want to thank you from the bottom of my heart.
Steve: Well my hope Matt, is that the wisdom that God has blessed me with in relation to money and money management, and wealth and wealth creation, the thoughts that I’ve shared on this recording would be like seed planted in people’s lives. I pray that people would take that seed and nurture it and water it, and that it would grow into a major blessing, for not only them, but for generations to come.
Matt: Well you’ve obviously got years and years of financial expertise and investing experience. The fruits of your labour are the PropertyInvesting.com community, the people who’ve completed the Property Apprenticeship training and those who have read your books. I think there is so much of a legacy that you’ve created for people that you will probably never fully see, but there are those like myself who have benefited tremendously from your knowledge and we highly appreciate it!
Steve: You’re welcome, Matt. Thanks for the chance to chat.
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