Pay Yourself First
The first part for me was learning, number one, I needed to pay myself first. Number two, what it meant. I always thought, “I get a paycheck. That paycheck’s mine. I’m paying myself first.” In fact, no. When you get your paycheck, there’s already money going out to your mortgage or your rent or the car payment or your utility bills, your internet, your cell phone. All of that money is already spent. It’s already going somewhere else. You are getting it in and then it’s going out. You’re basically living paycheck to paycheck. When you’re paying yourself first, you’re saying, “I’m going to pay myself.” Here’s my opinion. Work your way up to 10%. Even if it’s 1% of your income, 2%, 5%, work your way up to where you’re making saving 10%. That’s saving, putting it in your pocket or in a savings account where you are saving. It’s something that you’re able to make money, grow that enough so you’re paying yourself first. You have investment money, not just stock away, which is an emergency fund. I absolutely would say to do that. On top of the emergency fund, paying yourself first then you can go out and buy investments.
Increase Your Income – The Snowball Effect
Along with paying yourself first, it’s all about having money that you can then buy investments. Instead of using that money to buy a car, use that money to buy a house and that house pays for the car. It’s so much easier to buy a property when you have money saved up. It’s so much easier to buy faster when you are making more money.
Increasing your income is absolutely something that everybody must do. Figure out any way to increase your income wholeheartedly. On top of that, what I would also suggest is that investing in real estate, it’s not a sprint. It’s going to take time. It’s going to take time for you to get your first property. Even if it takes twelve months or eighteen months, however long it’s going to take, it’s going to be that much closer to you buying the first property. When you have that first property, and I suggest with all my students, “Buy a property that you make $200 a month or more in passive income coming in. When you do that, you can cover all the expenses, any surprise things that come up.” Once you get that first property that’s bringing in $200 a month, then you can save that money on top of what you’re currently saving and then use the next one to buy another one.
It’s like a snowball. You start with $200 a month income coming in from one property. The next property is going to come faster and the next property is going to come faster. I bought one property one year. Next year I bought another property. The year after that, I bought two properties and I bought three and four. It kept being a bigger and bigger snowball.
Control Your Expenses
There’s a key difference between cutting expenses and controlling. Let’s say somebody loves to get coffee every single morning. They love to go to Starbucks. Cutting that out might not be the number one thing that you need to do. You may need to figure out a way to make more money. I know Robert Kiyosaki says, “Don’t do that thing where you cut out something that you want. Try to make more money so that you can pay for that,” which I completely or wholeheartedly agree with. Here’s the reason I say control your expenses. There are things that you might not even know you’re paying on an expense that comes out.
When you’re looking at controlling your expenses, look at the things that you maybe don’t need. If you have cable, cable is really expensive or maybe your cell phone bill. Look at your expenses to lower the amount of money coming out so then you can save more money. For me, for six years, I only had one vacation that I ever took. This is the time when I started buying properties to what I had enough money coming in to replace my income. For six years, I literally sacrificed every bit of everything. My in-laws said, “We’re going to go to Disney. Do you want to come?” I made my wife say no because that’s $2,000 that I could go toward putting another house or buy another house.
For six years, I sacrificed so hard so that now I can literally do whatever we want. In 2018, I went to Europe for six weeks with all my kids and my wife. We went through eleven different countries. I sacrificed and now I can live the life I want. In 2017, I went to Japan for six weeks with my four kids, my wife and my dad. Because I was able to sacrifice to build up that investment money so I can buy more properties, now I can live however I want. It was the means to an end of having more money to buy more properties.
In 2018, I went to Europe for six weeks with all my kids and my wife. We went through eleven different countries. I sacrificed and now I can live the life I want. In 2017, I went to Japan for six weeks with my four kids, my wife and my dad. Because I was able to sacrifice to build up that investment money so I can buy more properties, now I can live however I want. It was the means to an end of having more money to buy more properties.
Buy The Home You Live In – Excludes Bay Area!
We know that when you’re renting something or like leasing a car, you literally don’t own the car. You’ve got to give the car back. It’s the same thing when you’re renting a house; you don’t own the house, you’ve got to give it back. If you own it and live in it, it’s not making money. Robert Kiyosaki would not call it an asset, which I agree it’s not an asset, but it can be an asset. This is a big reason why I would say own your home. You’re currently owning the home, paying down the mortgage, obviously paying interest, but you’re paying down your mortgage. Let’s say you buy a $200,000 house to live in, you pay down the principal and then eventually the market’s going to go up. Your value’s going to go up.
Then you can use the equity in your home to buy more properties, which I’ve done many times. I bought many properties with the equity in the homes that I lived in because as I paid it down, there was more equity. As the market went up, I had more equity and so I used that money to buy properties on. That’s all on top of if you’re renting, then you’re literally giving the money away and somebody else is making money in your pocket. My opinion is there are so many different avenues from a home equity line of credit, cash out refinance. There are so many different things that you can do. When you have your own home, it’s allowing in the future to be able to utilize everything to the best of your ability.
What would you say to someone who lives in an expensive market like some of the coastal markets in the US, where housing is $700,000, $800,000, $1 million, $2 million?
I moved from California because California is horrible. It’s so expensive there. It’s taxed so much. It’s horrible. I moved to Phoenix and I have so much more money. Not saying that everyone’s going to be able to do that. I made my mind that I wanted to do that. That’s something I had to do. It’s like I had a 20% increase in income, not for my properties from moving from California to Arizona. I know places in the Midwest are even expensive. I’m not saying everybody can do that. That’s an option but for somebody like that, these are principles that if you can get there then it’s better to own your home, if it’s cheaper to rent and I completely understand.
If somebody said, “I’m going to pay $3,000 for a mortgage or I’m going to pay $2,000 for rent.” I’m going to say rent. I tell this to students rent because those extra thousand dollars put that in your pocket to buy more properties. Buy more properties not in your area. I lived in California and I invested in Ohio, one of my very first property. I didn’t know what I was doing but I bought a property in Ohio and started buying there and I had money coming in. There are different options but yes, if you’ll be able to save money by renting, that’s a really good option.
Ensure A Future Income
A future income would be something if you’d stop working. If you literally said, “I don’t want to work anymore, I want to go fishing, I want to play video games or whatever I want to do.” You can still make money. When I went to six weeks in Japan, six weeks in Europe, I want to go to Alaska for fishing or whenever I do anything, my business runs itself and I still make money. I’m ensuring the ability to make money. What I always try to tell everybody is, if you don’t work then you don’t make money. You want to make sure that you ensure the ability to have that. What I’m saying with my business like with every business and also with your own home, you want to have actual insurance.
This is another way to insure all of the properties that you have. Number one, get insurance on those, landlord insurance not just homeowner’s insurance on those properties. Number two, get umbrella insurance on top of that over everything. You’re covering everything. It’s so many more things to talk about there. What I’m saying is you want to make sure that you have future income. When you’re incapacitated, if God forbid something happens like that but when you need money and you can’t work, you need to have money coming in. With rental properties, it’s a beautiful thing you always have money coming in.
Make Your Money Work For You
As we said before, when you work an hour you get paid a dollar. When you don’t work, you don’t get paid. You want to have your money work for you. I’ll obviously go off of what Robert Kiyosaki says, “The home that you live in is not an asset where the bank tells you it’s asset, you put an asset column but it’s not, it’s not making you money. An asset puts money in your pocket as opposed to a liability that takes money out of your pocket.” The home that I live in is not making me money. It’s taking money out of my pockets. You want to make sure that you have a property or properties, you want to have your money working for you. I think of every single dollar that I put into a property, it’s like a little employee working for me. I put that money to work and there are so many great things about investing. I’m sure you go through all this with all your audience but when I have that money working for me every single minute of every single day, even when I’m sleeping, I’m still making money. I want my money to work as opposed to me working for money.
Guard Yourself Against Losing Money
Insurance is definitely guarding yourself against having an asset being taken from you but guard yourself against losing money. There are plenty of ways, you mentioned that there are bad investors not necessarily bad investments like a property. It might be a great property for one person but horrible for another, as long as you know how to actually apply it. When you’re looking at the thought of guarding yourself against losing money, I’ve had some people buy a rental property and think, “As long as I make $50 a month on that property, I’m going to be fine.” It’s $50 in my pocket every single month. Everything’s fantastic and you never have any evictions, vacancies, the roof needs repair or anything like that.
It’s always possible to lose money but you’re doing your best to mitigate the chances of having that happen. What I say is number one, as strictly speaking of rental properties I always tell everybody and I follow this, where at minimum is $200 coming in my pocket every single month. I have properties in Ohio and I had two furnaces go out at the same time. That’s a lot of money but praise the Lord I have so many properties that the expenses are fine. Even with a furnace going out, I make enough money every single year from the $200 or more in that property that with that furnace going out, I still am making $1,500 on both of those properties after the expenses of the furnaces being fixed.
What you want to do is when you’re starting your business, you have real estate or another business could be another way to making sure that you guard yourself against losing money. You want to do the business right. When I first bought my first property, I did it wrong. I did not run it like a business. I did not make sure that I evicted people when I needed to or collect rent on time and letting people slide. I wasn’t doing the right things to run it like a business. If you sum it up to anything in this one line, it would be run your business like a business. Make sure it’s running well, that’s what it comes down to. You’re guarding yourself from losing money.