Farming is inconsistent.
Some years, you make money…others you don’t.
The theory goes, out of every six years, you’ll make money in four of those years and you’ll lose money in two of them. It’s all part of the game.
That’s why it’s so important to be clever with your money in the good years.
Instead of simply spending your profits on “stuff,” I’d rather you put that money to work…
- Earning interest
- Diversifying your assets and de-risking your farm
- Continuing to create wealth for decades to come
…So that you can sleep easy — even in the bad years — knowing you’re financially covered.
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Why financial freedom matters in the farming industry
Farming is one of the most volatile industries out there. When you’re as dependent on the weather as farmers are, there’s very little you can count on.
That’s why it’s so important to be smart with your profits during the good years.
When you get those good years, that’s not the time to spend…
It’s time to invest, invest, invest!
I recommend you take the money out of the business and do two things with it:
- Reinvest a portion back into the farm
- Invest the rest of the profits off the farm
Investing off the farm enables you to de-risk the whole situation.
Imagine if you had enough income coming in from outside the farm that it actually didn’t matter if you had a bad year on the farm…
Let’s say you owned your farm and had $2million invested off-farm. With an average return of 8%, you would receive $160K per year off your investable assets.
Thanks to the security that asset provides, the unpredictability of the farm wouldn’t bother you. You’d just be loving farming, you could still laugh and smile, and you wouldn’t really stress about what happens because you’d have enough assets off the farm to take care of you.
THAT’S what Procure Assets, the final step of the TOP Producers Model is all about.
Although this step falls under the Propel phase, which isn’t for everyone (click here to learn why), we think this is something EVERY farmer should pursue. We’re adamant that investing is a skill farmers really can’t miss.
Farming is too risky, in the end, to have all your eggs in one basket. It’s so important to diversify through off-farm investments.
Some of our farmers who have done this step really well make more money off their investments than their farms.
So what I invite you to do is allocate some time now to learn about how to procure assets. Don’t just have your farm as your only asset. Learn the skills to build your wealth.
Investing is a skill, just like anything else! Anyone can learn to do it…and do it well.
Let’s walk through the two most common off-farm investments you should consider, along with the pros and cons of each:
Off-Farm Asset #1: Property
The first way most farmers can grow wealth off the farm is through investing in residential real estate.
Real estate makes a great investment for a number of reasons…
First, you can create a lot of leverage, meaning you can borrow money to buy a house. Using the bank’s money to buy is a good option to have.
Let’s say you buy a $1million property and it grows at 5% per year. You’re making $50,000 per year…and because you’ve got leverage behind it, you won’t need to put up $1million upfront to purchase that asset.
The property market also gives you a certain amount of stability. In Australia, the property market has been very consistent, which is a nice balance to the unpredictability of farming.
There are a number of tax advantages to buying property as well, which can result in a significant cost savings. And property appears to be a finite resource, which makes it inherently valuable.
However, there are also a few cons to property investment…
It’s a high capital outlay. Although you can borrow money from the banks, you often need to put forward a sizeable chunk of money to purchase property.
It’s also a difficult asset to liquidate. There are usually fees of getting in and fees of getting out (typically about $100K to get in and out.) If you buy property and then want to liquidate quickly, it’s often hard and/or expensive to get your money back.
Finally, you have to consider maintenance and things going wrong with the house. You could buy a house that ends up needing lots of unforeseen work. For that reason, I say property isn’t a passive investment option. It can involve quite a bit of effort to maintain.
Off-Farm Asset #2: Shares
Personally, investing in shares is my favourite way to build wealth. There are a number of reasons for this…
First, you’re riding on the back of successful companies. This means it takes very little mental energy on your part. Someone else has to use their mental energy to grow the company…you just need to choose which companies to invest in.
It’s very cheap and easy to buy a share, especially compared to buying property.
Your returns can be high, particularly if you’re investing in US stocks. Returns are often significantly higher than the property market, if you know what you’re doing.
It’s also very easy to liquidate, which gives you a certain amount of freedom. In theory, I could sell my shares tomorrow and get my money back. That flexibility is really nice when you’re investing.
Investing in shares is also quite simple. It’s not simple to learn…but once you learn it, it’s simpler to pull it off than many other investment strategies.
The downsides to shares?
How the company performs is ultimately outside your control.
It’s difficult to find leverage, meaning banks are unlikely to loan you money to buy stocks. You’ll have to use your own money to invest.
There’s also quite a bit of volatility in the stock market. There are lots of ups and downs. Farmers are typically used to this volatility (and is one of the reasons farmers make such incredible stock investors) but it’s a point worth mentioning.
If you want to learn more about the shares market, I have three podcast episodes for you to get started. In each one, I interview Terry Tran, the investment guru I call “Australia’s Warren Buffet”, and the guy I trust to manage my own finances.
He’s the best person to teach everyday people about the shares market and he gives so much good insight on the podcast:
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Of course, investing isn’t just about money or becoming the richest person in the world.
It’s about security.
It’s about stability.
It’s about providing financial freedom for you and your family so you have the choice to live life however you choose.
Investing is a skill, just like farming. Even if you don’t know the first thing about investing right now, don’t worry — it’s something anyone can learn.
Go and engage the experts (some of whom I’ve mentioned in this blog post) and study their teachings. I promise, it will be an incredibly smart “investment” of your time.
Learn how to master the shares market…for free.
My good friend and investment guru Terry Tran created a training just for FOA called “How to Create REAL WEALTH Outside Your Farm Safely”.
What I love about Terry is that he teaches proven financial strategy…in plain English, no financial jargon included! During the free training, you’ll learn:
- The 4 critical areas to consistent high returns…safely
- How to get BIG RESULTS from small accounts (even if you’re starting from scratch)
- How to take control of your family’s financial future by getting 9 out of every 10 stock picks right
- And more!
If you’re even remotely curious about generating wealth off the farm, this training can’t be missed!