That’s Too Risky! Overcoming a Poverty-Mindset

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Danger Will Robinson!

The mister and I married in 1980. We were 19, freshly spit-out by the public school system and totally clueless about the real-life world of household finance. Our parents were lower middle class, Depression-era survivors with a ton of fear about anything deemed risky…and pretty much everything was considered risky.

For the first twenty years of our marriage we lived by the mantra:

  • Get educated
  • Get a job (preferably with a big corporation)
  • Work hard for someone else so you’ll get promoted
  • Live within your means
  • Buy a house, pay it off and stay put
  • Save for retirement.
  • And pray Social Security doesn’t fail before you do.

Not So Risky Business: 3/2/1 with garage apartment in a historic district bought with 80/20 financing. Fix-up involved paint, removing old carpet, refinishing the oak floors underneath and installing a new kitchen floor. Total cash out of pocket– 7K (repairs + closing costs). Positive cashflow from Day 1 of $400/month.

True Risk

Starting a business was considered risky. Investing was considered risky. The stock market was gambling and don’t even get me started on real estate investment.

But here’s what I’ve come to understand:

  • Education is good, but things change. You can go back to school a dozen times during your working years and never keep up.
  • It’s extremely risky to rely on only one source of income, and for that source to be completely outside of your control. Working for someone else means you have no say in your salary, work schedule or rate of increase. If you need more income, you can work more hours, get a second job or hope for a promotion. Of course, that only works as long as your boss doesn’t decide you’re a numbskull that’ll never get a promotion no matter what. Or decides to cut expenses by outsourceing your entire department.
  • It’s risky to save for retirement and watch inflation eat up the increase. It’s risky to count on a retirement savings plan you don’t understand in the first place and turn over to someone you’ll never meet, assuming they have your best interests in mind.
  • Living within your means is a beautiful concept and highly recommended, but if you never step outside your comfort zone, you’ll never know what your means might become.
  • And don’t get me started on Social Security.

Compound Interest

When we finally comprehended the power of compound interest, our way of life changed forever. Over time, I’ve come to understand that compound interest either enslaves people or sets them free. Living on the negative side of the equation makes someone else wealthy. Moving to the positive side builds family wealth and financial freedom. Simple as that.

So why, why, why is this concept so hard to internalize? Probably because most of us were indoctrinated with the dogma that any move from the negative side of the consumer-debt/savings equation to the positive business owner/investor side was just too risky.

How Hard Can it Be?

But how tough is it to save enough every few years for the down payment on a single family home in a nice neighborhood? Income tax refunds, bonuses, automatic savings accounts tend to add up over time with a little effort. And how difficult is it to find a nice person to make those mortgage payments for you? And how hard is it to pocket the majority of that rent once the mortgage is paid off?

And just how many homes could you buy and pay off by retirement-no fancy footwork, no learning tricksy real estate investment schemes–Five? Ten? Fifteen?

If you acquire one rent house every other year between the ages of 25-45, you’ll have 10 houses with 20 years left before retiring to pay off that last mortgage. And if, after expenses, you clear $700 per month per house-how does an extra $7000 a month during retirement sound?

Now that, my friends, is a backup plan. And I can guarantee that during your investment years, with a minimum of effort you can and will learn a few simple ways to make the process faster and easier with less of your own money involved to maximize returns.

And that doesn’t sound the least bit risky to me.

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  1. Very well said. So many of us spend many years learning the truisms that you have so eloquently stated. Unfortunately most people never learn. Get rich quick schemes rarely work but the path you described will rarely fail if done right. Nice article!

  2. I am a huge fan of this post. I was raised on the same principals. I won’t say that it was the best advice I ever received. People need to be able to step outside of their comfort zone, so that they can set themselves up for retirement. Robert Kiyosaki’s book Rich Dad, Poor Dad was probably the best thing that I have ever read when it comes to becoming financially free. Great post.

  3. Steven Boorstein on

    Nicely said, although I would caution on a couple of things.

    1. I agree that relying on only one source of income is risky… and that includes only having rental property.
    2. There is nothing wrong with working for someone else for that steady paycheck and accumulating property at the same time. That’s diversification of income, too.
    3. Education, living within your means and owning your home in retirement or before are also not bad concepts in themselves. Although we look at the people who lived through the depression era as having outdated concepts, in our over-leveraged society, I think we also need to practice temperance.
    4. I agree with you that accumumulating properties can be a great souce of current and retirement income… but investors also need to be cautious for a number of reasons: For example, owning rental properties/landlording is a business. Some people like it and some hate it. It’s the weekend before Christmas and a tenant has already called me with a question. Last year on New Year’s Eve, the hot water heater for a four unit building I own broke down. Now multiply that by 10 properties…
    5.. The RISKS in owning properties is one that individuals need to understand: legal, time, cash flow, personal, financial, mental, etc.
    7. Economically, it is difficult for most people to save for that downpayment. I agree that there are ways to do it (tax return refunds, etc) but most people DON’T live within their means already, which poses a risk and a barrier to them not being able to save for the downpayment. And, although I show people how to buy with little or no money down, they have to make sure they are buying with built in equity or they will be too leveraged.

    With that said, I absolutely agree with the author of this article that people who can, should step outside of the box and their comfort zone and try to push the envelope a little bit at a time to better their lives. Personally, I think real estate is a great path for many of us. It is one of the great “levelers”… meaning you can be a doctor, a high school dropout, or your average Joe and ALL of us have essentially a level playing field for making money in this business. There are few educational barriers to getting in… so you don’t need a college education, and you don’t need a degree. But, like anything else, you still need constant education on your real estate business… on laws, management, and the real estate market.

    A landlording business is not easy, but if you are willing to treat it like a business and work at it, you might just find that it’s worth the effort. My cautions above are only to serve the reader with things they need to consider in the process…

    Steven Boorstein
    Landlord Business Insider

  4. I agree with the benefits of diversifying income streams. I also believe that becoming dependent on just real estate is a problem (especially if it is one city). It can definitely work – it is has some risk. Having multiple sources of income (or assets for retirement) is best: income from job, rental income, stocks, pension, social security, annuity, small business, real estate assets… Likely you won’t have all of these but having several is good. And things like staged retirement can help a great deal (going part time instead of full time to not working go to 24 hours a week or something for several years…).

  5. Connie,

    Excellent article.

    Many people say that being a landlord is hard work and not eveyone is suited for it. I think it’s more a matter of motivation than of ability. If you keep your mind fixed on the reward of steady, and usually increasing, income over the course of your life, that provides pretty good motivation.

    Can I learn to deal with tenants if it provides me with financial security for my family and I? If the choice is learning people management skills and financial security vs. not learning people management skills and financial struggles, the choice is simple.

  6. Connie Brzowski on

    For clarification, let me say I’m a firm believer in getting a good education, keeping your day job and diversifying with real estate investment. However, it goes without saying that real estate isn’t for everyone.

    I know of someone who tried real estate and decided early on he didn’t want to deal with people issues… so he bought a coin-op laundry mat and eventually owned several by retirement.

    Same principle, different vehicle ๐Ÿ™‚

  7. Wow! I am constantly trying to increase my knowledge base, but times are changing constantly and it’s hard to keep up with all the new technology each month. Eventually you run into the concept of time is money, and another company may be able to do something much faster and the price is worth saving all that time.

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