Training Day - Saving and Stabilizing Finances

Hopefully by now you are reading about and/or discussing Real Estate investment strategies with other investors. By now you should have taken a hard look at your finances. Yesterday being the best time to start, but if not, then today is the next best day. You want to make sure they are in order if you are to begin investing in real estate. I’m not qualified to give you any hard-factual financial advice, but I can give you some tips based off of what has worked for me and many other investors I have talked to or researched. I began with taking a look at my net worth by evaluating my assets versus my liabilities. And like many other investors, I started out by getting rid of any liabilities such as credit card debt, car loans, student loans, and etc. The priority being any debt with a greater interest rate than 4%. Then I continued by tracking my income and expenses for a couple of months to get a good idea of where my money was going and where I could make adjustments in order to create a budget. Budgeting helps maximize your saving/investment rate because it helps you realize how much money is being wasted versus how much you can be saving. Once my finances were in order, I made sure I had an emergency fund which consisted of two parts; the first part being the 6 months to a year’s worth in cost of living available in case of an emergency, and the second part consisted of 6 months to a year’s worth of cost of operations. Cost of operations is how much money you would be spending to keep your asset afloat during this emergency. The cost of operations fund is often referred to as reserves. Reserves are important to have before starting your investing journey because of murphy’s law, anything that can go wrong will go wrong. I’m not saying your investment will take a dump on you, but chances are that the less prepared you are for those emergencies then the more likely you are to take a hard hit. This may scare most of you, but fear not my young padawans for this is a mere precaution that one must take to further limit your risk. There will always be risks involved with investments but that doesn’t mean you can’t take actions to minimize them. Now for example, my emergency fund is a year’s worth in cost of living which includes rent/mortgage, bills, groceries, transportation, and etc. In addition, I have a year’s worth of reserves for my rental property, bringing my total to $50,000. With 50k I have enough to support my family and assets through the worst-case scenario for a year. The worst case being no source of income, no tenant, and repairs that are needed. There are cases where things can get worse but this being the most realistic/related to your investments. In summary, one of the greatest moves you can make to advance in the investment world is gaining control of your finances. Now get out there and conquer your check book.