It All Starts With The Right Mindset!

When I made the decision to retire from my job, I did not make this decision out of the blue.  It had been a work in progress for a little over a decade.  It was through hard work, discipline and perseverance that got me to the point in which I was able to decide whether I wanted stay at my job or retire from it.

For me, retirement (or financial freedom) came from rental properties.  I have read stories in which people have retired young and the different ways they did it.  Some did it by being extreme savers.  Some did it by accumulating stocks that pay out dividends.  Others did it with real estate and some did it by starting businesses.  Whatever the vehicle, they were all able to retire young because they not only created a plan but focused and took action on following it through to make it a reality.

Financial Plan

The very first time I thought about retiring young was when my flight coming back home from vacation was delayed.  During the layover my wife (girlfriend at the time) and I started walking around the airport trying to keep ourselves busy.  We stopped in front of a book store and on display in the front window was a new book out by some guy I had never heard of before.  The cover of the book was purple and it read, “Retire Young Retire Rich” by Robert Kiyosaki.

The book explained how balance statements and financial statements are so important to understand, not only for someone wanting to retire young, but for everyone in their everyday lives.  It also explains that understanding assets and liabilities are also very important.  That financial IQ, not academic IQ, is what someone needs to be able to control their lives and retire young if they want to.  More about balance statements, financial statements, assets, liabilities and financial IQ in future blogs, where I will spend time really going through each one in as much simple detail as possible.

“Retire Young Retire Rich” by Robert Kiyosaki also shadowed all of what my father had been telling me for so many years but never really thought much about it.  My father was (still is actually) very much into investing in real estate.  And Robert Kiyosaki explained that real estate was his preferred investment vehicle and he was able to retire young mainly on the positive cashflow his rental properties generate on a monthly basis.

It was this very book that gave me the realization that if I wanted to retire young, I needed to change my mindset.  It made me realize and understand all of what my father was telling me all these years.  It was like a light was switched on inside my head and from that day forward I never had another mindset other than the mindset I needed to become financially free.  Since I was somewhat comfortable with real estate investing because of my exposure to it from my father, I immediately began reading all the real estate books and articles I could read and attending any real estate seminars I could attend (these were above and beyond reading all the Rich Dad books from Robert Kiyosaki, which you can find at www.richdad.com).  I wanted to increase my financial IQ as well as my real estate IQ as much as I could because my next step would be to begin looking for revenue properties to purchase to begin my journey towards retiring young.

retire-young-retire-rich

Once I was comfortable with real estate and understood the lingo and how to find and analyze buildings, I began searching for my first rental property.  And when I was twenty-four years old I purchased my first revenue property.

My goal with this blog is to help you find your way to a sound financial situation.  Whether you want to create a plan that will enable you to save money, or invest in real estate or any other investment vehicle, or simply create a sustainable budget based on your situation.  Anyone can successfully do this no matter how much you make.  You just have to be honest with yourself and create a proper plan that will be a challenge but achievable within your own situation.  You do not want to create a plan that is unattainable because you are just setting yourself up for failure.  And no plan is the same because everyone is different and everyone has different financial situations they are starting from.  But what everyone has in common is the possibility to create a financial plan that works for themselves.  And another thing that is possible for everyone to achieve is early retirement, as long as you create a proper plan and take action.  Remember that the most important thing is not how much one makes, but how much one spends.  This is what eventually separates the people who are financially successful with the ability to retire early versus people who will have no choice but to work much longer if not for the rest of their lives and continuously be in unhealthy financial situations.

I highlight real estate often simply because this is my preferred investment vehicle.  I find there is no other investment like it.  You can see it, you can touch it, you can manage it the way you want, and you have complete control over it and what happens with it.  Real estate is the complete opposite of paper investments such as stocks, mutual funds and such vehicles of that nature.  And the reasons are simple.  You cannot see it, you certainly can not touch it and by far you certainly have absolutely no control over it.  Do not get me wrong, people have made quite a bit of money with stocks and other paper assets (someone by the name of Warren Buffet comes to mind!).  But I like something you can put your hands on and have pretty much complete control over.  And one other pretty nice advantage of real estate is how you can actually buy property without using your own money, basically eliminating much of the financial risk.  Using other people’s money (or OPM) is the greatest advantage about buying property as banks give you the money to buy the property and the tenants pay your mortgage while giving you the chance to reap the benefits such as cashflow, equity and appreciation.

multifamily-properties 3d blue stock chart

In short, cashflow is the money left over after you have paid your property’s expenses, your mortgage and any other expenses you incur.  The idea is to manage your property to the point in which this cashflow becomes positive.  Once you have positive cashflow coming from your revenue property, you are making money using other people’s money.  Generate enough positive cashflow to cover your personal expenses and you are financially free, eliminating the need of relying on a job to live.  Remember, cashflow is freedom.  More on cashflow in future blogs.

Other benefits from having tenants pay your mortgage is that you take advantage of equity and appreciation.  Appreciation is the increase in value of your property from the time you made the purchase.  And this is in terms of equity.  Equity is the money available on the property once the mortgage is paid.  This means that every time you pay your mortgage, the amount of capital you pay back is creating equity in your property.  You can say this is similar to putting money away every month.  Only difference is that this money is being created using other people’s money, not yours.  And this equity can be used to buy other properties using the same principles as above, where you get a bank loan and tenants pay your mortgage while creating cashflow and equity for you.  More on all these terms in future blogs.

jenga-blocks

There is much more to know about real estate but this is essentially how it works.  And it is amazing.  When you can grow your revenue properties to a point in which the cashflow generated from them is positive enough to live off of, the feeling of not relying on a job anymore is the nicest feeling you will ever have.  It simply opens up so much freedom for you to do what you want and when you want that you will realize life as an employee really sucks.  But the normal mindset in today’s world is that having a job is a normal and obligated way of life.  And this mindset starts from when we are very young and in school.

Now, do not get me wrong, school is very important.  But I strongly believe that schools do not get anyone ready for real life except for preparing students to become employees.  They teach you nothing (or almost nothing) about finance and budget control, which become the most important things someone needs to know to become financially stable.  Remember that school can get you the high paying job, but without financial intelligence a high paying job leads to higher expenses which render a high paid employee no richer than an ordinary employee making a regular salary who is financially intelligent and in control of their budget.  And in these cases the ordinary employee making a regular salary and who is financially intelligent is actually richer than the high paid employee who is financially unstable.

You see, that high paid employee is making a good salary and all, but spends money on many liabilities.  These can be in many shapes and sizes such as big homes, expensive cars, lavish vacations, televisions, smart phones and tablets, etc.  Why are these called liabilities?  Because they take money out of your pocket every month.  So these high paid employees fill their lives with all these liabilities and get caught up in their expensive lifestyles that they need to keep working to keep it up or they can potentially lose everything because they need that job to pay for their lifestyle.  Liabilities do not pay for themselves, you pay for them!

And this is where the ordinary employee being paid a regular salary who has financial intelligence is richer than the high paid employee with no financial intelligence.  With their money they create a budget and follow it while investing the excess in assets such as real estate.  Why is real estate considered an asset?  Because it puts money into your pocket every month.  While the high paid employee is buying liabilities the ordinary employee is buying assets.  Soon those assets will start putting money into the pocket of the ordinary employee, in the form of cashflow.  Once this cashflow is positive enough that it pays for their personal expenses, the ordinary employee is free from working a job.  All the while, the high paid employee still needs to work as they have no assets that pay for their personal expenses so they are relying solely on their high salary.  These people will keep on working for a very long time, while the ordinary employee will be able to retire much before.

assets-vs-liabilities2-e1408448710224-1

This is a general idea of how financial life really works.  The idea is to control what you spend and how you use your money.  It has nothing to do with how much you make.  The sooner you start controlling your spending and how you use your money, the sooner you will be able to see the benefits your life will experience.  And it all starts with the right mindset!

The Freedom Spinner

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s