HAROLD'S WISDOM: PART 1 OF 3

Written by Louise Barnard, granddaughter of Harold Cornock

My grandfather was my first mentor, he said: “I will not give you money, I will teach you how to fish”.

My goal is to share with you the wisdom I was taught by my grandfather, Harold.

Harold Cornock was hailed “The Icon” of the Supermarket Industry in Australian newspaper reports. In the 60’s, Harold and his partner Norman Tieck built the largest privately owned supermarket chain in Australia, at that time. And, at one stage, it was the largest privately owned company in the southern hemisphere.

MY FIRST LESSON

FINANCIAL FREEDOM What does this mean?

My grandfather asked me: “What is the one thing that you can take away from someone, the thing that people want the most?” I had two weeks to think about my answer, but I was unsure about what he was looking for me to say.

Two weeks later, he told me the answer. “Freedom,” he stated. “You take away someone’s freedom, you put them in jail.” My grandfather went on to explain that people think that they want things, but actually what they want is freedom. People want a nice house, a nice car, a vacation home, overseas trips and things that make life comfortable. On the outside, this may appear to be freedom to the onlooker. But my grandfather said that most people are in the rat race to get these kinds of things. Someone will buy a house, but then want a larger house, a nicer car, a faster car. He explained to me that people think that they want these things. These things represent an appearance of freedom. But what people really want is actual freedom.

My grandfather’s definition of freedom started from a deeper, internal understanding. He wisely taught me that true freedom meant “Freedom to do what we want, when we want, and to have choices about how we live our lives.”

He explained to me that many people will acquire things and place themselves in a position of debt, in order to have the things that represent freedom. But actually, the debt creates enslavement, not the actual freedom that the person thought they were seeking.

He told me that financial freedom is the important goal. To be able to do whatever you want, whenever you want and have an abundance of money to be able to do that, is what freedom is.

Not the enslavement of debt.

My grandfather asked me, “Do you want to work for money, or do you want to get money to work for you? Do you want to still have a job when you are 45 or 50 and have to go to work every day to earn money? Look at the people that have to go to work every day, and decide if that is what you want?”

The answer is as obvious to me now as it was then. I wanted my own financial freedom. I did not want to have to go to work every day. I wanted to have freedom and choices. I wanted what he had. I knew that he had done this himself. He wanted to teach me how to create this for myself. I was ready to learn.

MY SECOND LESSON

ANYONE CAN DO IT But how could I possibly do this?

My grandfather suggested that I read “Think & Grow Rich” by Napoleon Hill. This was the life-changing book that helped me create my powerful affirmation, “Great financial abundance is coming to me now, easily and effortlessly.” I read and re-read this book every year for over 20 years, while I put into action “one day at a time” what I learned, until this affirmation became my reality.

When I started saying this affirmation to myself at a young age, I had no idea how this could ever be a reality for me. I told myself that this was true each day, even when all the evidence around me was to the contrary. I finished high school and started working in ski resorts. I was earning minimum wage working as a waitress, house-maid and a ski instructor. I had no college degree.

I could not see how financial freedom could possibly happen for me.

I remember thinking that it would very helpful if my grandfather could give me money. That would solve all my problems. I knew he had made many, many millions of dollars in the 60’s when there were almost no multi-millionaires. He was like the multi-billionaire of today’s times. But he was very wise and he made it very clear that he would not be giving me any money. He would teach me how to do it on my own. I had many lessons to learn.

He would teach me how to fish.

My grandfather would not be giving me money. He put the majority of his wealth into a foundation that would purchase medical equipment, build a maternity hospital in Africa, feed the homeless, help with the children’s hospice and many other projects. His foundation continues to do incredible work in the world today. My grandfather did not finish high school--he started at the bottom of the pile working in a grocery store. He had no savings. He came through the Depression as a child in a family of eight kids. They had very little; they slept at night with newspapers in between the blankets to add warmth.

He told me that if I started to save my money and stay out of debt that I could do what he had done. I believed him. He told me that the thing that made the difference was “one coffee a day”. He was the kid that saved the money and did not have the coffee or the milkshake.

If I could save that small amount every day, and eventually invest that money then that money would eventually be my nest egg. He told me that eventually I would have compounding on my side.

MY THIRD LESSON

COMPOUNDING GOOD & BAD DEBT

What do you mean?

My grandfather explained the difference between positive and negative compounding. If I saved money, created a nest egg and invested it, compounding would be on my side. Conversely, if I chose to use a credit card, have car debt or any other kind of bad debt, compounding would work the opposite way. I would become enslaved to debt. I knew my choice was easy. I wanted compounding to help me.

My grandfather explained that bad debt was any debt that I had to pay off. If I had to go to work and make the money to pay something off, then it was bad debt.

He said that credit card companies were not my friends, to stay away from them. If I did have a credit card, make sure the balance was paid off in full every month. He told me that if I did not have the money to pay cash for my car, then I should not have a car. He explained that if I used debt to pay for these things that the credit cards companies and the car loan companies were the ones that made the money, not me.

Good debt was debt that someone else was paying off.

If for example, I could buy a rental property and my tenant could pay off the full amount of all my mortgage and expenses then I could consider this good debt. He cautioned me to be incredibly careful anytime I agreed to go into any kind of debt. I would need to look at the worst-case scenarios and make sure I was prepared. He told me this was still risk, but it was educated risk. I would need to learn as much as I could to reduce any possible risk that could come my way, even if I was to take on good debt.

MY LAST LESSON

APPRECIATING / DEPRECIATING ASSETS

I thought assets were all the same?

My grandfather explained that an appreciating asset is something that will go up in value over time. Conversely, a depreciating asset is something that will go down in value over time.

He explained that if I purchased a rental property (at market value) that history would tell me that over a 10-20year period, this piece of real estate would go up in value. If I purchased a car, history would tell me that over a 10-20 year period, this car would most definitely go down in value.

Many years later I have a great example of how this works over time.

When I first met Mark, I encouraged him to make some radical changes. Mark had a fancy sports car and I passed on my grandfather’s advice to him. He would be wise to sell the fancy car and use the equity he had in this car to buy a rental property. This would also get him out of his car debt (bad debt). This was a very hard decision for Mark at that time.

The choice was simple, but not easy: Do I drive a very fancy sports car (depreciating asset), or sell it to make the sacrifice to buy a rental property (appreciating asset)? Mark purchased his first rental property in 1997 for $152,000 with a $12,000 down payment. For 15 years, this rental property received income that paid down the loan. When Mark sold the rental property 15 years later for $440,000 the property was almost paid off. All of the debt was paid for by the tenants, not by Mark (good debt). Mark came out of that deal with $350,000 in cash.

So, the choice 15 years later looked like this: Would Mark rather have a 15-year old car that depreciated and is almost worth nothing? Or would Mark rather have $350,000 in cash? In hindsight, this is a very easy choice.

Borrowing money on a depreciating asset like a car, is a great example of bad debt. It is bad debt because I have to both pay it off and, at the same time, the asset is depreciating.

Borrowing money on an appreciating asset like a rental property, is a great example of good debt. It’s good debt because someone else pays it off and, if history serves us, the value will go up over time.

NOTE: I was taught that it is important to remember that investing in real estate is a long-term strategy. History tells us that real estate will go up over the long term. I was told investing in the short term with real estate can be very risky. As long as I can afford the holding costs and keep the property for the long term then that will greatly reduce any possible risk. I have always been taught that investing in real estate is the slow and steady road to financial freedom.