Using Real Estate Investments to Achieve Financial Freedom

Financial freedom is something many of us dream about, but few of us actually achieve. Some of us don’t even really understand what it means. In the most basic terms, financial freedom means being free from debt, not living paycheck to paycheck, and having the means to live how you want to live.

Sounds pretty good, huh?

While there are several avenues you can take on your journey toward financial freedom, there’s one that stands out (at least to me) above all the rest. And that’s real estate.

Investing in real estate can turn your financial situation around, allowing you to build wealth and ultimately become financially secure. Now, this doesn’t come without hard work, and it won’t happen fast. You have to make smart choices, be patient, and recognize that not every piece of property you buy is going to perform how you want it to.

But if you do all those things, you really can achieve the freedom you seek. There is a process, however, and the steps within it are critical to outcome you desire.

Step 1: Track your spending

First up, you’ve got to figure out where your money is going. Take a look at your expenses over the last month or two and see how they compare to your income. Are you living within your means? How much are you spending unnecessarily each month? When you start looking at it from this perspective, you might be surprised to see how many of your purchases are unnecessary….which leads me to the next step in the process.

Step 2: Cut back on expenses

Do you really need to make that daily trip to Starbucks? What about happy hour every Friday? Or that new outfit you just had to have? The answer is no. It’s not what you want to hear, but it’s the truth, so get tough on yourself. Step 1 gave you a glimpse into just how much you’re spending, and now it’s time to cut it back. Obviously, there are some expenses that are necessary, like your mortgage payment or your utility bills. But if you’re like 99% of the population, you can find a few things to trim.

Step 3: Create an emergency fund

With reduced expenses, you can begin to create an emergency fund. Some financial experts recommend a minimum of $1,000, while others think one or two months’ salary is more appropriate. I won’t tell you how much to put in your emergency fund, because that amount will vary depending on the person and the circumstances. However, I will say that your emergency fund is for EMERGENCIES ONLY. Your car broke down, your furnace went out, you had to go to the ER...these are emergencies and instances like these are the only time you should dip into that account.

Step 4: Eliminate debt

The next step in the process is going to take some of you awhile, but don’t get discouraged. True financial freedom does not include being indebted to another person, so eliminating debt is one of the most important steps in your quest for liberation. The snowball method is a popular one, and it involves organizing your debts either from lowest to highest balance, or highest to lowest interest rate. My preference is to start with the lowest amount, and focus on paying it off first. Put every dime you can onto that debt. Once it’s eliminated, move on to the next-lowest balance, using the money you’re saving from the first debt, combined with whatever you were already paying on Debt #2. When that debt is paid, move onto Debt #3, again snowballing the payment amounts to create a larger monthly payment to put down. If you are dedicated to your plan and disciplined in your action, this is a proven strategy that works.

Step 5: Build your savings

With all your debt eliminated, you can really start to save now. Instead of pouring money onto those balances, you can pour it into a savings account where it can build rapidly and earn interest. This is your start-up money for your real estate business, so grow this account as much as you like. These funds can ultimately be used for a down payment or other property-related expenses. Be sure to maintain some of this as your emergency fund; in fact, you may want to increase the minimum balance of your emergency fund at this point, or even create a secondary fund that is just for your investment property(ies).

Step 6: Invest

With zero debt and a sizable savings, the time has finally come to start making your money work for you! That’s right, it’s time to invest in real estate. Hopefully, you’ve already been scouting some properties in anticipation of this step in the process. Once you’ve found a piece of real estate that looks promising, all you’ve got to do is sign the papers to make it yours. (Obviously, there is a bit more to it than this - run the numbers, pass inspection, get tenants, etc.) With a cash-flowing investment property under your belt, you can start to really appreciate the idea of “passive income” and, eventually, leverage Property #1 to purchase more properties and expand/diversify your investment portfolio.

Step 7: Live your life to the fullest

You made it! By this point, your investment properties should be paying the bills for you, in part or in full. True financial freedom means that your income exceeds your expenses enough that you’re able to continue saving (and investing!) without having to worry about how you’re going to pay next month’s bills. Once you’ve achieved this, you are truly free, and you can start living your life how it was meant to be lived.

So there you have it. The steps to attaining financial freedom. Achieving liberation is possible, so long as you are willing to put in the time and effort and make some sacrifices along the way. I know it seems like it took awhile to get to the fun and thrill of investing in real estate, but I promise it’s worth it. While you’re moving through Steps 1-5, it’s a great time to educate yourself on the art and science of real estate investment as well. That way, when you’re ready to take the plunge with a property, you’ve got a great foundation of knowledge that will help you make better choices.