How to Save 20k Dollars (without being a doctor or a lawyer)

I've reached the point where I'm beginning to tell friends about my real estate investments. Not everyone, just a few choice friends who I know will be supportive of what would probably sound crazy to most of my friends and family (I don't blame them!). 

Most have ended up being really interested and want to get started as well, and one topic that comes up is "how do I save up the down payment?"

If you're just getting started, you should know that investment property mortgage down payments are much higher than traditional owner occupied mortgages. You should expect to put 20-25% down when you purchase a rental. 

That can actually add up to be a big chunk of change, but don't worry, Even in today's high flying market there are still plenty of places where you can buy a nice property in a nice neighborhood for 80,000 dollars or less. 

This means that you should plan on saving about 20-25k dollars for your first deal to cover the down payment, closing costs, and hopefully some leftover reserves. 

Easy right? Ha! 20k dollars is nothing to sneeze at. I don't know about you, but most people I know who are just getting started don't have an extra 20-25k lying around.. 

So you have some options... 401k loans, beg your rich uncle for money, cash out re-fi, or if all else fails... do it the old fashioned way and save. 

No matter what your situation, I think the advice I'm about to share applies. So whether you have a rich uncle or not, I encourage you to follow these simple steps which have really changed the way I view and handle money. If you do so, you'll quickly realize like I have that finding money isn't always the problem, sometimes it's finding good investments! (Let's start with finding the money first though) Good Luck!

7 Steps to Build Wealth 

I'm sure there are some reasons why someone shouldn't invest in real estate, but not being able to save up for a down payment isn't one of them. 

I should say in advance that this is not some secret formula that I've come up with. I myself am not a millionaire or anywhere close for that matter. This is all advice that's been given before in various books and on various website. The steps below are time tested though and I can already see the impact they've made in my life in just a year. I should also say that most everything below is based on one of my favorite books on handling money: "The Richest Man in Babylon" 

7 steps anyone can follow to become wealthy ("Titles taken from Richest Man in Babylon")

1. Start thy purse to fattening

2. Control thy expenditures

3. Make thy gold multiply

4. Guard thy treasures from loss

5. Make of thy dwelling a profitable investment

6. Insure a future income.

7. Increase thy ability to earn 

Here we go!

Step 1: Start thy purse to fattening. 

Say this aloud (unless you're in public) "10% of what I earn is mine to keep"

Think about that phrase for a second. You might be thinking, "all of my money is my money"... but we both know that isn't true. Your money comes in and then your money goes out. Two weeks from payday you're back to where you started. This is how most people live so don't feel bad, myself included until recently. Even if you have a big income this is usually the case. I know plenty of people making 100k, even 200k+ who live pay check to paycheck or credit card cycle to credit card cycle. If you think a raise is the answer (it certainly helps) it probably isn't. Your expenses will most likely rise to meet your income no matter how many raises you get (barring being discovered as the next hit pop star of course!)

If you're living paycheck to paycheck as is, you're probably thinking how do I save 10%?

I always thought I just needed more will power, the truth is, very few people if any have the type of will power it takes to keep 10% of their money every month no matter what. People who save figure out ways to force themselves to save. 

I mean look how good you are at paying your taxes! You probably pay thousands of dollars in taxes every year. Most likely it is your single biggest expense! So why aren't you stressed out about making that once a year payment? Because your employer withholds that money for you. They force you to save. If you're willing to make sure the government get's their money, why aren't you willing to make sure you get yours?

So my advice is to do the following:

Open up a new checking account and set up a direct deposit that directs 10% of your money into this new account. 

Here is the key: as soon as you get home pull out the scissors and cut up the shiny new debit card they just gave you. Just do it no matter how strong you think you are. Don't invent a potential emergency where you may need that money. The next time you use this account will be to wire transfer money to a title company to purchase a rental property. Do not skip this part!. An emergency will always present itself when you have that debit card in your wallet or purse. 

You can survive on 90% of what you make... do not try to convince yourself otherwise. 

Step 2: Control Thy Expenditures

Pretty self explanatory. If you want to save money you're going to have to live on 90% of your income. I won't criticize your Starbucks habit because they know me by name at all three near me.

Let's say your combined household income is 70k. You follow my advice and 7k goes into an untouchable account every year. Maybe you throw a tax refund in there. Let's also you learn to live on less than you make and even save a little more than 10%. You could easily be ready to buy a house in as soon as 2 years. Let's even say you make less and it takes you 3 or 4 years. Your future is worth it.

I know that sounds like a long time, but if you make this a priority I promise you that somehow you'll get there sooner than you think. There's a lot of negativity out there about money and I don't want to make it sound like most of us don't have real problems, but a lot of stuff just tends to work out when we put our mind to it. If you disagree then guess what... you're right... you can't do it. If you believe you can you will. Corny maybe... but I think there's a lot of truth to that.

Step 3: Make Thy Gold Multiply

This step comes into play once you have your down payment. So technically there are only two steps to saving your down payment! Pretty complex stuff. Save more and spend less!

Once you have your down payment you need to put that money to work. Plenty of people have said this next quote but it still rubs people the wrong way:

"No one ever got rich by saving money"

It's true though! 

Of course you have to save money if you want to build wealth. It is the most important step to master if you want to achieve financial freedom... but it's just step 1. You need that money to work for you! Picture your savings as your employee. It's job is to work for you and make you rich! This employee doesn't need to take vacation or sick time or even sleep! While you're at work your money is out there working too... when you're home in bed it's still making money. The more little green soldiers you have out there the sooner you can live your dream and tell your boss to take a hike! 

(If my boss is reading this I want her to know I really like my job :/)

There are plenty of investments out there so I'll just say this. There is no investment or asset class with a more proven track record than United States Single and Multi-family homes. 

Enough said!

Step 4: Guard thy treasures from loss

This one is going to depend on you and your risk tolerance. You're going to be amazed how rich you feel when you save your first 20k dollars. That said, when you first get started, you may be a little insecure about your relatively small net worth and feel a need to "put it all on red" so to speak. Take your time. You spent two years saving this money. It is important that you invest it yes, but you can take a little time to make sure you feel comfortable with your first deal.

Step 5: Make of thy Dwelling a Profitable Investment

This one just means own your own home rather than rent it. 

You might be surprised to learn that this one is becoming pretty controversial. 

If you're new to the real estate investing education or financial freedom scene... you're probably thinking "Duh, I need to own a house if I want to build wealth" 

It may come as a surprise to you to hear that more and more very smart people are dispelling this myth. 

Before you get mad, just know that I own my home. So I obviously haven't bought into this. 

The basic argument is this:

Let's say you buy a million dollar home in California (congrats! you don't need my advice) Your combined monthly payments are probably around 5900 a month... yikes. 

Let's say instead that you rented that same house... for about... well probably 5900 a month but no longer have to worry about maintenance repairs etc. Instead of buying that million dollar house house you buy 10 100k dollar houses in tennessee, arkansas, etc and rent them out for about 10k or more per month. 

You now have the same housing expense as before (probably less) and you also have a big passive income stream!

Listen, there are some flaws in that argument, I own my home, there's pros and cons to both ideas. 

Step 6: Insure a Future Income

Mae sure you develop an income for yourself and your family for when you're no longer able to provide for them. It's just the right thing to do. If you're investing in cashflowing real estate this is going to be a piece of cake. Let's say you're 25 now, and you buy a 100k dollar house and put it on a 30 year mortgage. If the next 30 years were anything like the last you're going to have a 300k dollar paid off house cashflowing like crazy when you're 55. That's just if you buy 1 investment home. 

A good man leaves an inheritance to his children.... a great man leaves an inheritance to his children's children.  That's what you can do with real estate!

Step 7: Increase thy ability to earn. 

Here we circle back all the way to step 1. Your single biggest wealth creator is your income! The harder you work now the quicker you can stop working and be financially free! Get a side gig, work more hours, whatever it takes. 

You can do it.

If you want financial independence I think these steps are the most time tested and proven ones you can find out there. It's not a get rich quick scheme but I've seen it work for enough people and already am feeling the difference it has made for me. I encourage you to read The Richest Man in Babylon (as well as Rich Dad Poor Dad) if financial freedom is on your mind. 

Thanks!