Why Real Estate Investors Need to Keep Score
Do you know what your number one goal is? Maybe it’s your overall net worth, or maybe it’s a monthly residual cash flow.
Do you have a scorecard in place that provides you with a snapshot of the score on a regular basis?
I hope you enjoy our latest Blog article by Jim Ingersoll:
Keeping Score…
This is an exact article I blogged on: Friday, February 15, 2008 (long)
Financial Freedom: How to Keep Score in the Money Game, and Why It Matters!
[Article adapted in part from The Maui Millionaires by David Finkel & Diane Kennedy]
Far too many people will never be financially free simply because they unwittingly fool themselves as to the real status and direction of their financial lives. Most millionaires agree that in order to win the money game they must consistently update a meaningful measure of financial score, and they have to keep track of the trend (which way am I headed, how much progress or lack of progress am I making, and how fast is it happening). When you have this information, in a reliable, consistent, and simplified format, you are able to make accurate financial decisions and accelerate your progress towards financial freedom.
The main wealth trap for most people is fooling themselves as to the real score of the game. People fool themselves for three primary reasons…
First, far too many people simply take the path of least resistance, and do nothing. They put their long-term financial future into the hands of others because it is easy and expected (sadly, it is the norm). “Social Security or my kids will take care of me.” “Hopefully I will have a pension fund.” “I’ll find a way to get by somehow – I always have.” This is an almost certain path to financial failure! Yes, it takes energy and effort to put your financial house in order. But it takes 100 times more energy and effort in the long run to live your life paycheck to paycheck, to struggle to get by, and to work your whole life and eventually depend on someone else to support you when you are able to work no longer. The old adage is true: An ounce of prevention is worth a pound of cure.
Second, people fool themselves about their current financial status because of ignorance. They never learned financial skills, they don’t understand the how or why of figuring it out, that was good enough for their parents so it is good enough for them, etc. Let me (Finkel, Kennedy, and Lund - haha) just say, YOU are totally, 100% responsible for your financial success, and ignorance is no excuse; it is a cop out and an acceptance of financial failure.
Third, people fool themselves about the real condition of their finances because of fear and shame. Millions of people are afraid to look at their financial status because it is too scary for them, or it is filled with painful feelings of shame. They may have lived beyond their means for years, and are ashamed of the big negative number that represents their net worth. Maybe the idea of anyone finding out their true financial status threatens them immensely. These people might rationalize, fantasize, ignore, distract, or flat out deny the truth. Right up to the point where their financial house of cards comes crashing down around them. If this is you, at some point your financial status is going to come out, one way or another, so you might as well bring it out into the open yourself, and start making it all that it can be.
So, what is the solution? First, understand that the foundation for wealth and financial freedom is changing yourself on the inside. It is knowledge, followed by a little discipline. When you upgrade what is on the inside, you empower yourself to get richer on the outside. And YOU BETTER KEEP SCORE! You can not win this game if you do not keep score!
If you haven’t already, begin today to spend a little time getting acquainted with finances, net worth, cashflow, passive income, etc. It doesn’t have to be hard or complex. Start setting a percentage of your income aside for saving and investing. Set up a plan to get rid of credit card debt if necessary. If you start slow and simple, and you continue to spend a little time learning along the way, eventually bigger numbers will happen with more and more ease. “It’s not the amount, it’s the Hobbitt!” Seem familiar? You might remember from previous e-mails, my son Justin repeated that at age two (when he couldn’t pronounce habit). You probably recognize patterns and repeats in everything I say and do… That is because the rules of this game are short and simple. People are scared of it because they think it is more complex than it really is. It is the discipline of doing it consistently that is the tough part. For every minute of time I spend on financial knowledge, I spend an hour on trying to motivate myself and others. The knowledge is easy. Doing it is actually easy. Getting yourself to do it over and over again over a long period of time is a little tougher. Consistent persistency and persistent consistency is how Richard Flint might put it (though he never talks specifically about money or finances in any of his material). But it is oh so worth it!!! Get started, learn some things, make some progress now, and later you can focus on wealth accelerators like clarity/focus and leverage!
Let me briefly discuss my own personal scorecard, to give you an idea what it takes. It took me a couple hours to set it up, tops. I have a one page net worth statement. It lists my assets, liabilities, and net worth (which is merely the difference between the two). Every month it takes me about ten minutes to update it (occasionally more if multiple houses are bought and/or sold in a particular month). I watch it over time to monitor my progress, to see what is working and what is not, and with this clear financial picture, I am able to learn from the past and make wise choices for the future. I am also able to notice if I slack off for too long, and give myself a kick in the pants. Because I own a lot of real estate, I also have a one page Real Estate Owned sheet, which breaks down my real estate (and mortgages paid to me), what they are worth, and what I owe on them. This doubles as a partial cash flow statement because it also shows the flow of money in and out of my real estate and mortgages. With a minimal amount of upkeep (again, about ten minutes a month), these two pages (and if you don’t have a lot of real estate or own your own business, you would only need one page) allow me to keep my finger on the pulse of my race for financial freedom. This also gives me everything I need, quickly and all in one place, when I apply for a mortgage or loan or make other financial decisions. To simplify even further, you might remember that when I first started on the road to wealth, my scorecard was merely a chart that tracked how much money was in my savings account. That was it. Can you make yourself start keeping score today, simple as possible, so you will know if you are doing what it takes to get on the road to financial freedom? Are you worth it?
Ever hear anyone say “Money isn’t everything”, or something akin to that? Did you ever ask them how their finances were, or did you not really need to? Money isn’t everything, and it certainly isn’t the only thing. With just a few seconds (literally) thinking about my priorities, there is no way I would ever put money above fourth on my list, and maybe not even that high. However, having money allows me to take better care of my higher priorities. I can give more appropriately to God. I can take better care of my family. It is easier for me to act with integrity in everything I do (even someone of the highest integrity might resort to stealing if they had to in order to feed their family). Winning the money game, and achieving financial freedom, is awesome, and it doesn’t require sacrificing who you are or how you live - having money doesn’t make the man; it just reveals the man (or woman)! It requires a little bit of knowledge, some long term thinking, a little bit of discipline, and a little bit of… Keeping Score. You have to play the money game no matter what, so you might as well play to win! And finally, one last time, YOU CAN NOT WIN THE MONEY GAME IF YOU AREN’T KEEPING SCORE!
Best wishes,
Chris in FL