Ed McKnight: The 'Can I Invest' Test

Investing isn’t always easy, and while you may think you can afford to buy a new house or investment property, can you really? 

Ed McKnight recommends that before you take on those payments, try living with the decreased income before taking on that debt. 

He joined Jack Tame to delve deeper into the ‘Can I Invest’ Test. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack team podcast
from News Talks, that'd be It's.

Speaker 2 (00:12):
Called the can I invest Test, the questions you should
be asking yourself before any significant purchase that might get
you into more debt than you had anticipated. Ed McKnight
from Obi's Partners is here with the details this morning.

Speaker 3 (00:24):
Hey, Ed, oh Jack, nice to talk to you.

Speaker 2 (00:28):
Yeah, nice to be speaking with you. So when would
the can I invest test be appropriate to be used?

Speaker 3 (00:35):
So we often use this with a lot of our clients.
So we're thinking about buying an investment property, and especially
today with the high interest rates that we've seen, the
rent for your investment property might not cover all of
your costs, and so you might have one hundred dollars
a week top up that you've got to make to
an investment property. So if we're ever dealing with a
client or a couple who's saying, look, i'm not sure

(00:57):
if we can afford that, we always say, well, before
you take on any debt, why don't you just try
for the next three months setting aside that one hundred,
one hundred and fifty dollars a week whatever it happens
to be, and automatically transfer that to a separate account
and just make sure you really can afford that. And
then if you can do that for three months and

(01:17):
you've seen the money pile up in your account, great,
You've proven to yourself that you really can invest. And
I think this applies not just with investment properties, but
with all types of investing. If I think about myself
when I recently bought my first time after buying investment properties,
so many years I was renting. And then when you
go buy a house, often you know, with all of

(01:39):
your costs, your rates, insurance, you're paying a big mortgage,
you end up paying more than you did in rent.
Now that's okay, But like most kiwis, you grab it
old blow, you turn it over, you've got the back
of it. You find a mortgage calculator and you do
some quick sums, and you look at your partner or
yourself in the mirror. If you're single, and you say,
could I afford that year? She'll be roight?

Speaker 2 (02:02):
Yeah, I think all right, Yeah. I think it's such
a smart idea to actually not just wait three months,
but to really purposefully put that money aside into a
different account, because often people just say well, you know,
even if they're running a budget, that'll I spend this
monch this week and this much on that. But actually,
once you are like experiencing you know, less less money

(02:28):
for other things because you're putting that money in a
different account expendable income, then all of a sudden you
have a much better flavor for whether or not you
could wear the additional storms, you know, like, for example,
if you had an investment property and it didn't have
tenants for a few months, so something like that could
come up, it could cause a real shock otherwise.

Speaker 3 (02:46):
And the other thing I have a place I find
it really useful is if you're thinking about I'm doing
a higher purchase, say you want to buy a new Count,
or you want to buy a new car and you've
got to take out a loan for it. It's really
easy to think about, Wow, my life's going to be
so good once I've bought that car. My life's going
to be so much better once I've got that Count.
But I often call those kinds of expenditure bubblegum debt

(03:07):
because just like bubblegum, you pop that in your mouth
and you're like, oh, it tastes lovely. Lovely and sweet.
I love this, But then the trouble with bubblegum is
that after you've tewed it for a while, it starts
to get really yuck and you don't like it anymore.
And what I often see with car debts or higher purchases.
It's great at the start, you love having that new
thing you wanted to buy. But with debt it's the bubblegum.

(03:29):
You can't spit out because you have to keep making
that payment again and again and again until you've paid
that off. And with the can I invest test, all
was saying is try seeing what life is like, because
you might find that actually we don't like having to
put aside one hundred bucks or ninety bucks a week
for that car payment. We can't really afford that. Well,

(03:50):
it's better to know before you take out that debt,
until waiting until after you've got it and you think, okay,
we bought that new car, but actually it's lost value
because we drove it off the lot and we don't
really like this car payment.

Speaker 2 (04:03):
Yeah, one hundred percent, you're speak my language of their
things really good advice. In fact, my thing is unless
there are you know, extreme circumstances, and I realized I'm
probably speaking of privilege here. You never want to go
into debt for a car. That's my car, is no
an investment. Thank you so much. I appreciate your time.
Evening Night from Obi's Partners.

Speaker 1 (04:23):
For more from Saturday Morning with Jack Tame, listen live
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