Join us in this episode of Property Investory as we discuss Kulkarni’s Five Year Freedom Formula.Many investors find themselves time-poor and therefore think they need to dedicate time and energy they don’t have into their wealth creation— but not anymore! She’ll delve into the one thing that makes all the difference between getting an epic or a mediocre result, and how her program helps investors to focus on the bigger picture. If you’ve ever gotten caught up in FOMO, or felt you weren’t as in control of your investment journey as you would like, this is the episode— and the formula— for you.

Timestamps:
00:39 | Here’s What I Have— What Do I Do With It?
03:54 | All the Possible Permutations
07:10 | Make Good Choices
09:09 | The Big Ship of Wealth
11:50 | How COVID Changed This Case Study
13:58 | Here Are Your Numbers
19:50 | Don’t Hang Your Hat
23:10 | Select Your Frequency

Resources and Links:
Freedom Warrior

Transcript:
Salena Kulkarni:

[00:10:35] A lot of people come to me and they say, 'Salena, you don't understand, I'm really time-poor, I've got no time.' And my response is, 'That's okay. That's actually the first most common problem business owners have.' But I think if you have the right information and the right plan, it's not something that requires a heavy amount of time and energy.

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

 

I’m Tyrone Shum and in this episode we’re speaking with Amazon bestselling author, chartered accountant, and founder of the Freedom Warrior program, Salena Kulkarni. We delve into what her Five Year Freedom Formula is, how it works, and how it’s less of a plan and more about pulling back the curtain to unveil the best way to get to where you want to go.

Tyrone Shum:  

Kulkarni is passionate about anything and everything real estate, and her Freedom Formula is no different.

Salena Kulkarni:   

[00:00:39] The five year financial freedom formula is really the words that I've put together to make sense of how do you get from where you are, to where you want to be financially within five years. And there's really three components to that. And so the freedom formula, from my perspective is the framework that I use to help people understand what are the major pitfalls, and therefore what are the actions they have to take to get significant gains in a shorter period of time.

Tyrone Shum:   

[00:01:12] Perhaps today, what we wanted to do in this episode is to talk a little bit about part one, and in a future episode that we're planning, we'll probably talk about part two, and part three. Because to unpack these separate parts will require a little bit more time. And unfortunately, we don't have three or four hours to do that! So what we'll do is we'll probably discuss a little bit more about part one today, which is really the plan [of] the freedom formula, and also how strategically it works. 

  

[00:01:41] And I guess I'm going to be coming in from maybe as a client perspective. Because if anyone ever wants to work with you, and look at their situation to try and implement this strategy of a five year plan, they probably want to go, 'Okay, Salena, what do I need? What do you need from me to be able to put this together?' So maybe let's just start there, just pretend I'm coming to you and help me out with putting together a strategy, a plan to be able to help me plan out for the next few years.

Salena Kulkarni:   

[00:02:10] The reason that people talk to me and and really, the ultimate reason that everyone is in the investing game is, in my opinion, they're after three things. They want liquidity, they want the capacity to have enough money coming in from their investments that they can have the life that they want, they want leverage, they want to be able to take a few dollars and amplify them in a way that allows them to free up time. 

 

[00:02:42] A lot of people really are interested in this concept of legacy, which is really all about how you create wealth that will endure, so that you can have the influence that you want. Whether it's with your children, or maybe there's charities you care about, or causes that you care about, but it's about having wealth last. And so, to some degree, people want all of that, or some combination of that. And so the freedom formula is really about how do we deliver those three things. 

[00:03:12] And you're quite right, the starting point has to be around plan, and the business owners that I work with, often when they come to me, they have no plan. They don't really know why they're making various investment selections. They're sometimes getting sucked into FOMO, or fear of missing out or they're relying on advice which is really marketing, or they're just abdicating the decision making to somebody else. And so they're not really holding the reins and saying, 'This is my plan of how I'm going to get from year to year.' 

[00:03:54] And so part of having a plan is around— and I think this is what we were talking about earlier— is a plan is not a series, necessarily, of steps saying 'Do this, then do this, then do this.' From my perspective, a plan is about pulling back the curtain and showing people: Here are all the different possible permutations of opportunities that you can consider. If you take this course of action, here's where you'll be. If you take this course of action, here's where you'll be. 

 

[00:04:30] Because I think people often struggle to understand how taking on a particular group of investments now, what that will actually mean in five years' time. And I say this, and I very much want to come from a place of humility. I say this because I made all the big mistakes. I stepped on all the landmines and did it all the wrong way. And I'm really careful now that I always want to understand if I take on an investment, what are the implications over the next three, five years? 

[00:04:59] And so, what we're trying to achieve with the plan piece is giving people possibilities. Because I think, for you, Tyrone, if you said to me, 'Salena, here's my financial situation, here's what I've got to play with.' If I said, 'Well, here's one way you could play it Tyrone, here's another way, and here's another way.' But I could show you, maybe even from a numerical point of view, what the implications of those decisions might be in, say, five years’ time. 

[00:05:31] I don't need to try and convince you of which path is the right way, you will intuitively know. You know your risk profile, you know what's right for you. So the plan piece isn't around being prescriptive, it's around the idea of just understanding what all your options are.

Tyrone Shum:    

[00:05:50] That's what I love about what your framework and also what your expressions behind this is about, because it's giving us those options. And that's what I've loved working with you on as well, too, coming your boot camp, and meeting all your other fellow investors as well, too, and seeing what the possibilities are. Because ultimately, we want to make that choice. We're not expecting for someone to just hand it over to us on a silver platter, because we're quite intelligent people— hopefully we are— to be able to make those decisions. But also at the same time, we want that choice and freedom to choose, okay, if we go down that path, what are going to be the actual implications, what are going to be the outcomes that we want to achieve? And then make it based on a decision. 

[00:06:35] Obviously, this is not just a one kind of decision that we make between ourselves and yourself, it'd be a family decision with husband, wife, or, whoever your spouse, etc. And this is why I really love what you offer, because you can actually see and project, okay, if, say, for example, you choose option one. And it's supposed to take you, say, 20 years to do but you can bring it down to, say, five years, because we're doing X, Y, and Z. Or if you choose option two, because you've got a different risk profile, it might take you 10 years to do. So it's actually seeing that in future and planning it out is actually really, really helpful.

Salena Kulkarni:   

[00:07:10] I think you've hit the nail on the head. I think your ability to map out possibilities, and effectively decide how you're going to deploy your hard earned capital is really what makes the difference between someone who maybe gets a mediocre result, or someone who gets an epic result. 

[00:07:29] And I think the whole thing with plans is, I think often we go to wealth professionals and we're looking for them to tell us what to do. And I think, really what a plan should be about is being clear on where you are now, where you want to get to, and then having someone help you understand. Shine a light on, 'What are all my choices? What are all my options here?' So that you can make informed choices.

Tyrone Shum:   

[00:07:57] Totally. And I do want to add something as well, you mentioned earlier about business owners, mostly coming to approach you and work with you on this. And I think the reason why business owners are so attracted to this type of plan and programme is because they're quite busy running their own business. They don't necessarily have the time to be able to sit down and think about, 'How am I plan out my property portfolio? How am I going to plan out my investments?' Because their expectation isn't in that, and that's the reason why they seek expert advice behind that. 

 

[00:08:26] So I think it's actually really powerful. Because sometimes there are business owners— like myself— who have been running businesses for many years. But we get caught up with growing the business, running the business, and just realise: 'Hold on, what happens if I stop working? What happens if the business continues to grow, but then I don't have the time to be able to invest for long term?' 

[00:08:46] Because ultimately, we want passive income, don't we, to be able to live a lifestyle and enjoy the time that we have on this planet. So I think what's really good about what you offer in terms of your five year plan is to be able to put something together that can work alongside with a business, or someone who's earning quite a substantial amount of income whether it be from a corporate job, or whatever it is.

Salena Kulkarni:   

[00:09:09] I think what you're saying is very true. I think a lot of business owners fear the whole wealth-building conversation, partly because they don't have the bandwidth. They're already totally stressed out with running their businesses, and they just don't necessarily feel like they've got the energy to put towards wealth creation. 

[00:09:32] I think I might have mentioned this on a previous podcast, Tyrone, but I think the thing that I encourage people to understand about wealth is that the cadence around wealth-building is very different to the cadence and the intensity of energy required to run a business. When you run a business, there's a degree of hustle. You've got to be solving problems and giving heat and love and attention to your business every day. Otherwise it doesn't thrive. 

 

[00:10:00] Wealth is a slightly different beast. It's slower moving, it's almost like it's driving a big ship. And so the cadence of energy and attention that you need to give wealth-building is much less and much slower. So for those business owners who are very time-poor, I encourage them not to fear wealth-building. Wealth-building is about trying to get the minimum viable capital to get you the result you want, to put in the minimum viable effort to get the result you want. 

[00:10:35] A lot of people come to me and they say, 'Salena, you don't understand, I'm really time-poor, I've got no time.' And my response is, 'That's okay. That's actually the first most common problem business owners have.' But I think if you have the right information and the right plan, it's not something that requires a heavy amount of time and energy. It's really about making it a mental priority, and then creating a rhythm and a cadence around how you go about building that wealth. And it really just isn't that demanding at all.

Coming up after the break, Kulkarni shares a case study featuring a couple whose business and income seemed like it didn’t need a backup plan— until it did...

[00:13:33] And what they were looking for was they recognised they weren't very diversified. They saw that if something really did happen to their business, they would really be floundering. 

How they went from taking 24 years to achieve their goal to just a fraction of that...

[00:20:17] And what I've shown them is that if they did that, they can effectively shave their timeline down to about five and a half years. In five and a half years, they will hit their goals. 

She calls back to a strategy we’ve discussed previously, proving her well-roundedness in all things investment.

[00:23:24] You need to understand enough of what your options are, when it comes to strategies, in order to understand what strategies are a fit for you. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

Tyrone Shum:
Coming back, Kulkarni draws on a case study to demonstrate how the Freedom Formula can be applied to any and every investor.

Salena Kulkarni:   

[00:11:50] The case study that I have handy today is a couple whose names I've obviously changed. But basically, they ran a business that was very event-based. And the shock of COVID really stirred them up, it really put the wind up them in terms of worrying. Up until that point, they felt they had a very viable business and a very strong business. And they're back up and running now, but the business is limping severely. 

 

[00:12:26] And they've recognised that they didn't really have a plan B. They had been investing in property already. They had a reasonable investment property portfolio. In their investment properties, they had gross assets of $5.5 million, and debt of $1.8 million. And they were producing about $60,000 a year net income. So by all accounts, people would say, 'Wow, that's super successful.' 

[00:12:57] In terms of their overall financial situation, they had $450,000 sitting in an offset account, they had a home that they lived in that was worth $2 million and debt of $325,000. They had a borrowing capacity in terms of additional property that they could buy in the Australian market of about $1.5 million. Their capacity to save cash every year had been on average about $100,000. It did take a bit of a hit last year, but it was around that $100,000 mark. 

[00:13:33] And what they were looking for was they recognised they weren't very diversified. They saw that if something really did happen to their business, they would really be floundering. And ultimately what they would have to do is sell down the investments that they have. And you've probably heard me use the expression, 'Eat the cow.' 

[00:13:58] They wanted to understand, first of all, what are their options. And they told me that they needed about $200,000 per annum to support their future lifestyle. And not because they had a very extravagant lifestyle, but in a dream they wanted $50,000 a year that they would contribute to charities. They needed $100,000 to live. And they wanted to set aside $50,000 a year towards the family bank, for their kids and people around them. 

[00:14:33] So they were pretty well thought through, and they were the three kind of high level bullet points that we established as the starting point for 'Here's what we want.' So really, in terms of a starting point, with this concept of Freedom Formula, it's really saying, 'Well, here are all your numbers.' 

[00:14:53] So when I look at their numbers, the first thing I see is, okay that they've got an average household age of 52. And the current combined average household income at the moment is about $330,000. Their net return on investment in their property portfolio was 1.62%, meaning the $60,000 that they earn as a percentage of their net investments. And so that was pretty typical. The average in Australia and New Zealand is somewhere between one and two and a half percent as the net cash return. And so from that they're earning $60,000. And they're telling me they want $200,000. So they've got a shortfall of $140,000. 

Tyrone Shum:   

[00:15:38] What's interesting is that with the portfolio of $5.5 million of asset value, they're only $60,000 from that. And you got to yourself, 'Why would people be wanting to hold property that generates such low income?' And it just boggles me. I'm thinking we would have to work so hard to build a portfolio and only get such a small income.

[00:16:01] I think the reality is that the Australian, New Zealand property market is absolutely awesome for building your pot of honey, building your capital base. And if you look at it from that perspective, it's to build capital. It is notoriously bad for cash flow. Unless you want to aspire to hold many multiples of millions of dollars worth of property, it's very hard to create an income stream from property that you can live off. 

[00:16:35] And maybe we can cover this in another episode, the three parts of the wealth game. The first part is you've got to build capital. And so there is no better vehicle, hands down, than traditional property. Because if you think about how much money you can put in and how you can leverage money with the banks, it's very easy for anyone. Property in some regards, is the great equaliser. Someone can come to this country as a migrant, or can start their property investing journey very late in life. And provided they buy well, they can create a property portfolio that has a net value of multiple millions in 10 [or] 20 years very easily. Maybe sooner if they've bought really well. But you need a starting point. 

 

[00:17:25] So yes, it isn't a great income stream. But it's still a really important part of the puzzle. And that's why I don't want to dismiss Australian and New Zealand real estate, because it's super important. It's just at some point in your journey, like these guys here, they're now entering another phase of going, 'Well, we need cash. We're not getting it from our property portfolio. What else could we do?' 

 

[00:17:51] And the interesting starting point for these guys was they've got a capacity to save of $100,000 a year. I was able to run the numbers through a very simple calculator that I've built, which showed them. And it's a simple graph, it says, 'You guys want $200,000, That's going to need to go up every year in line with CPI. You're currently earning $60,000, from your property portfolio. If I took that dividend that you have every year, and I didn't do anything other than pay down debt on your property portfolio, and I allowed for the rising value of that property over time, I could see that in roughly 24 years, [you are] going to hit [your] goal.' That is when their indexed required income was going to intersect with the income coming from the property portfolio.

Tyrone Shum:   

[00:18:46] That's a long time. And by then, they'd probably be saying, 'What's the point?' I'd be probably close to being dead.

Salena Kulkarni:   

[00:18:53] I think this is the thing that people don't fully understand. And I really want to qualify what I've said upfront by saying it's not that this is set in stone. Could it be faster, slower? Who knows yet? Maybe. It's just meant to give them a flavour of how far away that endgame is for them. 

[00:19:12] And then once I've done that, then we just start to play and I say, 'Okay, well, what if we took the $450,000 lump sum that you've got sitting in your offset account that's earning you nothing really, and then took your dividends every year. And let's say we put those into alternative investments. Everyone's worried about the deals, don't worry about what the deals are. But let's say we put them into alternative property investments where you could earn eight to 12% consistently, net returns per annum cash flow. And, I think for the purpose of the exercise, let's say 10%.' 

[00:19:50] And here's the interesting part. I'm not telling them to touch their property portfolio here, it's a fairly conservative starting point. Don't touch your property portfolio here, let it carry on. You're not having to refinance, you're not having to access that capital, let's just take the cash you've got sitting around doing nothing, and the cash that you'll earn over the next five years. And what I've shown them is that if they did that, they can effectively shave their timeline down to about five and a half years. In five and a half years, they will hit their goals. 

[00:20:27] Again, the purpose of the exercise isn't to hang your hat on it and say, 'Well, that's what's going to happen.' It's just meant to give you a flavour of 'If I play with my numbers, what happens?' And so your freedom formula you start to see is really about saying, 'What can I live with? What are all the different permutations of how I can play with what I have?' 

 

[00:20:50] So if you're someone who's a newbie investor, this is not the right point for you to be looking at this. This is for people who've maybe got some runs on the board, they've got some capital and some equity. And now they're just saying, 'How do I fast track it? I've done the hard yards, I've got my capital in place, what do I do next?' So yeah, the freedom formula is about saying there isn't one size that fits all. It's about how do you play with the numbers you have to get the outcome that you want?

Tyrone Shum:   

[00:21:19] Absolutely. And I love that. That's the beauty about having a plan that gives you different options. Because a lot of times when you're going to see maybe a financial planner and stuff, they only come back to you with one plan based on what your goals are, and what you really want to achieve. And that one plan is usually pretty prescriptive. And there's not much that you can do much more than that. And they usually recommend their investments as well, and so forth, too. 

[00:21:43] Whereas what I love about what you're showing to people is that, okay, these are the various options, these are possibly what you could do, and then see which one suits you. And more than likely, if people want to actually go down the fast track lane, they want to be able to achieve their goals much sooner, they probably want to go the shorter lane rather than wait 20 plus years, which is what we talked about. It's a really, really conservative path.

Salena Kulkarni:   

[00:22:09] I think people want to understand, 'How do I get where I want to go without rocking the boat too much?' Nobody wants to take radical action to hit their financial goals. I think in our part of the world, because there's so much information out there, I think we have a great mistrust of people trying to direct us and tell us what to do. So I think, really, this is about saying you stay in control, you make the decisions, you decide the what, when and where. But the formula is about playing and working out how do we marry your risk profile with what's available in the market, and give you some options.

Tyrone Shum:    

[00:22:53] Love it, love it. And I guess once they've had a look and go, okay, given maybe all the details that you would need to be able to formulate a plan for them, because it's gonna be very much personalised in their current situation. What would happen next in that scenario?

Salena Kulkarni:   

[00:23:10] Once you understand roughly what your formula looks like, the components of the plan are, number one, you need a mixing desk. I call it a million dollar mixing desk. You need to understand enough of what your options are, when it comes to strategies, in order to understand what strategies are a fit for you. Do you know which strategies are going to help you get to your goal? Do you have the knowledge and understanding of the strategies that fit your risk profile and what you're trying to achieve? Do you get what will help you get the best traction with your wealth building? Do you understand the implications of different paths? And are you making informed decisions about remaining in the driver's seat? So having a mixing desk— and I call it a million dollar mixing desk— is really just being able to take all the strategies out there, all the permutations of possible and set it to the frequency and the levels that suit you. 

[00:24:11] And then the other part of the plan is really saying from a baseline capital point of view, do you know how much capital you need, or you want, to build that passive income stream that's going to give you the lifestyle you want? Maybe after playing with your numbers, you go, look, I'm not quite at the capital level I want to be at. So I'm going to give it another couple of years and then I'm going to revisit. 

[00:24:33] Do you know how hard your capital should be working for you? We've got pretty high expectations, in this country anyway, about the sort of growth that we want on our portfolio, but unfortunately, we're hanging our hat on a rising market. So at what point do you say, 'No, that's enough. That's enough baseline capital.'? So from my perspective, the plan Is is about education. And it's also a simple math problem if you like.

Thank you to Salena Kulkarni, our guest on this special episode of Property Investory.