Financial Education: Real Estate Investing 101 — Mindset (Final Part)
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After the last article, as usual, got some nice messages and got some not-so nice messages about my thoughts and processes. Particularly, about a number I shared — net worth.
Real wealth is measured by TIME. TIME, not the amount of money.
The logic behind the math is simple. Here’s a quick illustration:
If you have an average monthly household expense of $5,000 and are worth $1,000,000, the moment you stop having income coming in, you have 200 months left in your wealth. Of course, we are discounting any additional monthly funds you may have through your personal effort or government support here. Those tend to be eroded by inflation anyway. 200 months = shy of 17 years. No wonder so many people are wondering if they will outlive their ‘retirement’.
Now, if you are worth $5,000,000 and your average monthly household expense is $25,000 (as they often are for people at that level), you have 200 months left in your wealth. Neither calculations have taken inflation into consideration.
Most people, upon first glance, would think that $5,000,000 should last much longer. It could not be further from the truth. At the end of the day, it has nothing to do with how much you make but how much you keep. This is the main reason why, while learning about real estate investing strategies is essential, learning about asset and income protection is the true mark of financial education. I’ve seen way too many people that buy properties for the sake of buying them only to end up broke, even less happy than those without a property portfolio, and have more day to day headaches from attempting to self-manage everything.
This is why I’m forever pro-cashflow. Don’t let anybody else tell you any different.
The logic once again is simple: would you buy a business knowing that it’ll be losing money every month, and ‘will most likely’ increase in value over time? I’m sure most (if not all) would say “hell no!”. Yet, somehow, when investing in real estate, people are willing to gamble.
With that said, cashflow is also what pays the bills so that we can have options. Option to physically live better — better houses, better/more nutritious foods, better/safer vehicles, better vacations/more quality time. Option to mentally and emotionally live better — not having to cave into office politics or kow-tow to a tyrant boss for a paycheck; being able to put common money troubles to rest — household bills, supporting our children and/or our aging parents adequately; resources to treat ourselves to proper outlets to release stress — gym memberships, spa, vacation retreats, etc. I know many people have said this before, but the first time I heard it was from a friend’s mom: If it’s something money can solve, you don’t really have a problem. That was a ridiculously giant ah-ha moment for me.
The knowledge and application to create cashflow is the beginning step to create a better and stronger financial future. There’s a saying in Chinese: Wealth does not last beyond three generations. That’s mainly because, when passing down money and wealth without the knowledge and skills to sustain it, most of us would end up spending more than making.
If one of your reasons why you want to embark on increasing your financial intelligence is to leave the legacy, let me do you a solid: put your children through financial education as well. It really shouldn’t be any different than passing down good knowledge, wisdom and habits like personal hygiene or treating others with respect. The sad truth is, that’s not what our education system focuses on. NONE. Okay, maybe I have not traveled around the world and personally witnessed every education system myself yet. However, I’ve certainly seen enough of an example from having met and taught people from every continent in the last 8 years. That has got me a general sense that ALL traditional school systems continue to train us to end up being employees.
The word employee typically comes with this formula:
Then what? As stated in Part 2, this is how the formula typically completes:
4. Buy liabilities — house(s) & cars
5. Pay bills
6. Work so you can keep buying liabilities and pay your bills
7. Retire and maybe have some resources to enjoy life a bit
8. Bid the world and our loved ones good bye
Is this the formula you’re trapped in? I know I was.
If that formula rattled you in anyway, now is your chance to revisit the vision board you’ve created yourself. Fears and doubts will creep in from time to time. However, as the saying goes: Courage is not the absence of fear, but rather the judgement that something else is more important than it. (Too many renditions to quote one person.) This is also why I focus on the word COURAGE and personally despise the word FEARLESS. As it’s humanly and physiologically impossible. Besides, we need fear. We want the fear — to keep us sharp, to keep us alert and to keep us on the course of evolution. Change truly is the only constant in life.
At this point, I’d invite you to watch a few more episodes of My Daily Dose with Tim. More specifically, Season 1, episodes 21–28.
Should you feel the urge to share your vision board with me, you can email it (take a picture) to [email protected]. I’m always so happy when people share the visions of their lives with me. Maybe we can even have to conversation about it!
At this point, while it seems like this is the ‘final’ part on finding/defining your true purpose, just know that there will be times when we reference back to this 3-parter as we move along. Our whys, our purposes and our values of existence are like our physical shell — they age, mature and evolve. After all, the only constant we know is change.
I just really wish that we all choose to change for the better! That’s why, one of my biggest WHYs these days is to spread financial education in hopes to help others create better lives. I had the good fortune so far to alter my own and many other people’s lives, and I believe that this work will continue. I’m the boy in this short video ??
(Written partly in the air and completed in Cincinnati, OH.)
Written By: Tim Tsai