All right! You have Decided that you have a retirement problem and you have Committed to the prospect of retiring when you want with the lifestyle you want through real estate. Those simple two steps put you out in front of probably 99% of the rest of the country. Our education gave us so much but it taught us to expect a job and expect income, but not to work for ourselves. Not to make decisions for ourselves. Our education taught us that doing it ourselves was simply too mysterious and difficult and so turned us to other issues, like how to take tests, apply for scholarships and later, interview for jobs.
Why do you want to be a [insert career here]?
What did you say when you went to your first job interview and they asked you why you that question? I’ll bet you had been taught a strategy for these interviews. “Always have a smile, the interviewer speaks 70% of the time, think about the possible questions beforehand, etc”. And you did what you were taught. You rehearsed the answer to that question. I said this:
“I want to be a doctor because I want to help people. I rode with the local ambulance service in my hometown and saw a tragedy: a person was digging a deep trench and the dirt collapsed on him. He was crushed from the abdomen down. I never would have guessed what the weight of that dirt would do to him. We brought him in to the ED and turned him over to the doctors. It was sad, but good to be able to have helped. While I have the utmost respect for the profession of Paramedicine, what I was disappointed with was that we (the paramedics) had to turn over care to the doctors. I wanted to be the one taking definitive care of the patient. That’s why I want to be a doctor.”
Every last word was the truth, filtered through the haze of many years, but you can be sure that I had that story memorized and ready to go when the inevitable question came up. I’ll bet you have a similar story.
You are a smart person, I know. You had a study strategy. You always went to the same local coffee shop and got those weird looks from the baristas when you ordered tea but there wasn’t a proper tea shop in town and so you ordered those tea bags that had been on the shelf for God knows how long and you sat down in that one well-worn corner with the coffee smell, opened your text book and read and read. You had a strategy for taking tests. Maybe you started by reading the multiple-choice answers first, then read the question. You then crossed off the answers you knew were for certain wrong, slowly coming to the correct answer. You had a strategy for applying for scholarships. You had a strategy for applying for jobs. You had a strategy for everything. Except retirement. Crazy. The one goal you had and the one thing you were doing all this studying for. And in that one single crucial respect, your education failed you.
Make Your Strategy
I said earlier that you are now ahead of 90% of the population, but you are probably thinking: “There are a lot of people in real estate already. How can I possibly make money, now that I’m here so late?” Great question. The easy answer is that there is money to be made no matter what market you are in. The better answer is why I started writing for you. This is a website for High Income Earners. There are a million other websites on how to Get Rich With Real Estate. Those who find those sites will inevitably ask, “How do I get started? I have no money.” Now, only 1% of the population even considered asking that question. But you are a High Income Earner. If your income is $100,000 a year, you are in the top 25% of earners. If it is $200,000, you are in the top 6% (US Census Bureau, 2014). You may even bring home more income. That means that you are in a select 0.006-0.025% of the population who has not only the motivation but the means to make it by my method. What a gift! How can you not use it?
Do you know what advice is given to those who ask how to get started in real estate with no money? “Use other people’s money.” Absolutely it can be done. But you have to get them to loan you the money. And then you need to pay them back. They want to know what you are doing with their money. You don’t have to do that because you are already ahead of the game.
Pay Yourself 10%
By now you have certainly read The Richest Man in Babylon that I suggested. You need to start taking that 10% and putting it to good use. Keep in mind that the advice in that book is for the general population. You have more income, but the same basic expenses. You should be able to keep 20%. I recommend that, if you can. I started at 12.7%. Maybe you are already super financially intelligent and you are giving that to your financial advisor. Here is the first thing he won’t like you to do: Take that money and don’t put it in stocks. Here is the next thing that he won’t like: Put that money into a savings account at the bank you intend to use most.
The first thing you need to do is to get your bank statement for the past three months. I’m going to warn you: this will be painful. Just take yourself back to that coffee shop corner and do it. Every last bit of income and expense needs to be written down and categorized. In a spreadsheet if you can wing it. What you need to do is to put down the item, whether expense or income¸ the amount, and the category. The categories will be important. I recommend restaurants (a big one for me, I confess, includes coffee shops), entertainment (includes hobbies and kids activities), alcohol, gas, repairs (whether house, car or otherwise), cash withdrawals, loan repayment, clothing, food (groceries), personal care (includes laundry, hair), health (gym, doctor, dentist), charity, investment, travel. There will be others. A rule of thumb is to think about whether each is a necessary expense or not. You should be able to look at that list and decide. Make it detailed but not too detailed or you can get bogged down deciding. Total it up, whether the expense was necessary or otherwise. Leave out the investments (many of you will have nothing here anyway because we are looking at take-home pay, and your employer will already have taken out all the investments you make – don’t worry, we will change that). Multiply the sum by 0.1. This is how much you need to cut. I did warn you it would be painful.
I recommend going back and forth with your spouse choosing which items or parts of them to remove. I focused on restaurants and was just about there. Our goal here is to free up enough room so that you can begin to pay yourself that money. Once you start this process it will get so much easier. Remember, this is a continual process, too. You will constantly have desires on things you want to buy but don’t need. Revisit this at least every year with your spouse.
Next, go to the bank. This is probably the bank you use for your paycheck and expenses. Open a savings account. This is important: the title on this account is Investments. Why is the title important? This will help you or your spouse to stay away from that account when you are wishing for a new boat or lawn mower or penny-farthing (don’t lie, you want one…you need one).
Here’s a line to memorize: “We don’t touch the Investments account unless it is for an Investment. Just look at the name of the account!” I know you are asking why a savings account: Yes, it is an ugly savings account. Don’t freak out about the 0.1% interest it will make. The money won’t be there for long, and you need it to stay liquid (easily accessible by you).
The friendly banker can next help you set up an ACH transfer. This is a bank term for an automatic transfer between accounts. Set it up to make your transfer from your checking account into your handy new savings account. It needs to be at least 10% of your take-home pay. Make sure you can still cover your monthly expenses. You never decrease or stop this transfer. If you are short, you find the money elsewhere. If you find this is a problem you need to go back to your bank statement and make more cuts. Maybe you need to do something drastic, but you are a high-income earner, you shouldn’t have too much trouble finding the margin.
And Now the Fun Part
You get to figure out how you will spend your new money! But I’m long-winded and it will have to wait for next time.