If You Ever Hope to Reach Financial Freedom, Master This Concept

by | BiggerPockets.com

There is one major prerequisite to becoming a successful real estate investor or entrepreneur that any aspiring person must master. That prerequisite is the deferral of gratification. Namely, to live below your means.

Unfortunately, this is not something that has been embraced by most of the American population. As recently as 2006, Americans actually had a negative savings rate. And in 2014, the average household had a whopping $15,611 in credit card debt!

On the other hand, though, the most successful entrepreneurs are almost always frugal. As an article on Yahoo.com about the traits successful entrepreneurs share puts it,

“Amazon founder Jeff Bezos may believe that being frugal can help with innovation, but living a frugal life is championed by many other entrepreneurs and business leaders. For example, Warren Buffett, despite having the money to purchase anything he wants, lives a modest lifestyle. Instead of toys and mansions, Buffett’s riches come from loving what he does and doing it well. Facebook founder Mark Zuckerberg famously drove an entry-level Acura even though he was worth more than $7 billion.

“Being frugal doesn’t mean that you have to be cheap. It means not being careless with your money. Instead of taking loans out to purchase a luxury vehicle, save that money so that you can expand your business.”

Related: Big, Fast-Growing Businesses Are NOT the Ticket to True Financial Freedom: Here’s Why

This should not be surprising. High interest credit card debt chips away at your future wealth by forcing you to pay back money for things you’ve already used up. It’s anti-wealth. I’m not a huge fan of Rich Dad, Poor Dad, but Robert Kiyosaki’s advice to “pay yourself first” (i.e. to save) as well as to vividly see the difference between an asset (that which produces income) and a liability (that which consumes income) are key insights.

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Time Preference

What this boils down to is what economists call time preference. An individual’s time preference is the relative value one places on a good now versus that same good at some later point in the future. The less time you’re willing to wait, the higher you time preference is. And the higher your time preference is, the more you’ll end up paying because of the interest that will accumulate during the time it takes to pay off the debt incurred to purchase that item.

Rent-to-own televisions, computers and furniture and even things like car loans are simply transfers of wealth from the impatient to the patient. This is all bad debt. Good debt, such as the mortgage on a rental home, allows you to leverage an income-producing asset and increase your income. This simple distinction is critical. Now, sometimes bad debt is necessary, such as with medical debts. But whenever possible, bad debts should be avoided.

Bad debt simply means you are obligating yourself to work in the future to pay off whatever you’re buying today. You’re demanding your future self to work to pay off whatever pleasure you are enjoying in the here and now.

Why make such obligations?

Why treat your future self so poorly?

Bad debt is the ultimate treadmill; it’s running to stand still. The work you do should pay for the present and build a nest egg for the future, not just allow yourself to pay off something you’ve already used up. Nothing better illustrates the importance of this than the famous Stanford Marshmallow Experiment.

The Marshmallow Experiment

In the experiment, young children were given a simple choice; eat one marshmallow now, or wait in a room alone with the marshmallow without eating it for 15 minutes and get two. The majority failed miserably and yielded to the temptation of the first marshmallow.

Related: Of These 4 Financial Paths, You Can Only Choose One. Does Yours Lead to Financial Freedom?

But a few succeeded. Most of them had to fight their sweet tooth tooth and nail to get by. But they somehow managed and got to indulge in two marshmallows after the long and torturous wait.

Many years later, the researchers followed up with the kids in the experiment. James Clear notes the results as follows:

“The children who were willing to delay gratification and waited to receive the second marshmallow ended up having higher SAT scores, lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.”

Saving may feel like an impossible task sometimes. Too often, our lifestyles, materially speaking, act like water being poured into a jar; it takes the form of whatever jar it is poured into. So if we make $50,000 a year, that is the jar that our lifestyle will fill.

But if you make $50,000 a year, you can probably live on $40,000 a year. Maybe even $30,000. After all, most of us have lived off of less in the past. Excess savings is a key factor in being able to build a real estate investment career or even just a comfortable nest egg. Yes, there are ways to buy real estate without much money, but 1) having money makes real estate investment much easier, and 2) even if you make money in real estate without using much, you need to have the wherewithal to save it if you are ever going to reach financial freedom.

So break the jar and live below your means. The second marshmallow of financial freedom awaits.

What do YOU think is the most important factor in achieving financial freedom?

Be sure to leave a comment, and let’s talk!

About Author

Andrew Syrios

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.


  1. Mindy Jensen

    In today’s consumer society, we are told repeatedly that we “deserve a break today” or that we should “have it our way”. American schools offer zero financial education past how to write a check. I vividly remember being taught in some economics class what parts of a check to fill out. No mention of having money in the bank to cover the check, and absolutely nothing about delayed gratification.
    An excellent article, Andrew.

  2. Angel Rosado

    Great Article. The concept of frugality was introduced to me by the millionaire next door and Dave Ramsey.

    The strategy that I’m looking to utilize is buy and hold and for this strategy to work, I must have some money saved which is what I’m working on. Unfortunately I’m dragged down by the debt that some would call good while others evil…STUDENT LOANS.

    Although the rates are low in comparison to credit cards out still robs you of cash flow that could be utilized to invest in RE. And no matter how frugal you are 800 students loan robs you of alot.

    I also think that the issue of frugality is partially derived from a lack of financial education because if the time value of money would be taught in schools I feel that some NOT ALL would be able to give up spending now knowing that a dollar invested properly would be worth more.

    • Andrew Syrios

      I think student loans are a toss up. If you’re going to school to become a doctor or attorney or follow your dream, even if it’s not as lucrative as something else might be, student loans make sense. But if you’re just going to college because “that’s what you do after high school”, yeah, it’s basically a racket.

      • Deanna Opgenort

        You CAN go to college and graduate with low debt, but it’s very, very hard. You work instead of partying, you work. You do the Junior college/transfer thing. You don’t live in the frat house, you work as an au pair (or in today’s world I’d suggest live-in care for the elderly) . You end up giving up a lot of “I want”‘s in exchange for “I need to”s….BUT at the end of it all, degree from UC Berkeley and NO student debt = FREEDOM.
        I did have help from parents (tuition only), but the only student aide I qualified for was one student grant (a pell grant $250/year).
        My grades were not anything to right home about, but a C+ to B- average still equals a degree, and in 30 years since, precisely zero people have ever asked what my GPA was. Hm!

        • Raymond Pintor

          You can join the military to get free education. It takes time away from somethings but people in the military also invest in real estate moving from duty station to duty station.

  3. David Krulac

    I’m with you, Andrew.

    One time an investor friend of mine spent like $80,000 on a speed boat, at the same time I bought a couple houses with the same amount of money.

    Which had the better long term return?

    David Krulac
    How I Started with Nothing and Made $12 Million

  4. Brian Karlow

    Great article Andrew! I don’t know how I would have performed as a kid on the marsh mellow test, but as an adult I did pass the 1966 Chevelle test…..I passed on the Chevelle acquisition in lieu of (2) additional buy and hold properties being added to my portfolio 🙂

  5. Jen Shrock

    Great article. I actually went to a high school that taught us to fill out checks. We briefly covered budgets too. While it wasn’t much, at least there was an attempt to educate us for the future. It is amazing what the educational system just expects you to know.

    I am living below my income and fixing my current home to sell. Really looking forward to rolling that into RE Investments to secure my future. My eye is definitely on that carrot (or marshmallow) out in front of me.

  6. Sean Gronholt

    Excellent article. As Angel Rosado pointed out above, more people would be frugal and likely to invest if they knew the potential upsides of doing so. If a class on personal finance/investing was mandatory in American high schools, I think we’d see a drastic changes for the better at all levels of society.

  7. Tony Kobe

    So true that our education system in America is a joke. However I do believe that it our job as parents to teach our children how to live and act in life. Money management is one of those things that we should and need to be teaching our kids. I was not taugh how to manage my money properly as a teenager or a young adult. One day my dad asked me if I could show where all the money I had for the past yr had went, I could not even show where half went! I had made a little over 70k so it was a huge eye opener. I started reading books and implementing ways to better manage my money and it has done wonders for me. If I had been taugh these things as a teen I know my net worth would be way more than it is now.
    Fun fact: as soon as I started actively trying to manage my money I did a fun experiment. I picked up all the loose change I can across for 10 yrs and put it in a huge container. After those 10 yrs I had acquired slightly over $1,500.00 and it was from money people just threw on the ground. My wife, my son and myself are now doing this again to see how much we can collect. It is a fun and simple way to help get them to respect and appreciate money.

  8. Colin Smith

    I bet most people couldn’t imagine a life without being able to finance their toys. I have a friends whom I see maybe every couple weeks and it seems he has bought something new to show off every time I see him and he doesn’t even make very much money to begin with. It’s quite sad to watch because I know he is digging himself a deeper and deeper hole every purchase.

  9. Ian Ray

    I completely agree with your statement on saving your marshmallows. Once I found out what “bad debt” was, It really changed my entire perspective. I am glad I figured this lesson out young.

    Also, Is it wrong I find saving a marshmallow harder than saving money?

  10. mike kelley

    Very simple. Wealth really breaks down to 1st grade math. Save more than you spend equates to positive cash flow.

    My two tidbits to share:

    I. “Your Networth is valued in your Network”

    Who are the closest people in your circle of concern? Wealthy minded or Instant Gratification minded…

    II. Live like No Else, So You Live Like Noone Else”

    Proper credit given to Dave Ramsey…

    When you live frugal it allows you to understand how money works thus fostering a deeper understanding of prudent money management when wealth coming into your life.

  11. morris lucas

    Ok, so i have been thinking about this subject for months now….actually longer, so this hits home.
    I used to argue with my family all the time that college for BS “business”, and generic degrees was a huge waste of time AND money…just think if all that tuition was invested in RE or stocks and instead of learning useless math problems and social sciences, you actually GOT TO WORK in a craft, trade, investing or whatever…but no you are waaaaaaaay behind the work force in everyday skills.(excluding IT, Medical, legal, engineering, etc)Not to mention 60k in debt for a degree. One of my best friends was making 90k in IT when i met him because he went straight into the field. Then he went back year’s later for the degree at his own pace so he could get management jobs..There is no way in this day and age that you need 4 years to learn 90% of any current field in the workplace(of course some exceptions, doctor, etc)…i’m sorry….you could probably replace a car engine with 6 months of training, wtf??
    all i learned in college about money was a macroeconomics class and how many Visa, AMEX and MC people where on campus trying to sign up students with no job for a credit card! SMH
    As far as gratification…this is a biggie…like others have said if you think about how much you made over the years and where it went…OMG…just saving a few bucks a month over 5-10 years and investing it makes so much of a difference…had i done that early on, I would be RETIRED right now with multiple rentals i could have bought during the crash….but oh, no, had to have that new truck, lol.
    i laugh now at people paying horrendous car-payments just to want a “new” car or keep up with the Jones’es…
    I always say you don’t even HAVE to be cheap…just put a CONSISTENT amount into savings on a regular basis….that act in and of itself makes a huge difference…just the mindset alone will begin to change your financial situation IMO..for example, i used to spend and save what i had left after buying what i wanted…now I SAVE every income i make and ONLY spend what i HAVE to….
    Another concept that i learned from a friend is truely appreciating every dollar…if i get a website done, make a purchase, use direct mail, whatever, I try EVERYTHING to get what i want as close to free as possible, to literally use every option i can to NOT spend money if i don’t have to, like it’s my last dollar on earth, even if i do have it to spend!
    Sorry for the rant, lol

  12. Raj Patel

    Great article Andrew. I think frugality is one of the most important trait to build life long wealth. I think that is always in a person control to be frugal there may be other factors like location deals time etc that may not be in your control most of the time but saving money from what you have and being frugal is something everyone can try even if it starts with few dollars. Thanks for taking me back to basics


  13. Shaun Reilly

    Good article and your points are right on the money.

    The problem for most people is that they don’t have good role models for these principles, and has been pointed out a lot in the comments already the schools aren’t doing anything to help with that either.

    In regards to schools teaching these ideas, I would not hold my breath.
    Why would the government want people to think this way?
    The US economy is basically based on ignorant people buying crap they don’t need with money they don’t have via credit they really don’t qualify for…

    • David Pickard

      I agree 100%. If they taught how to properly manage money and invest in school, then people would be a lot more wealthy. That means a lot less laborers, burger flippers, etc. More people wouldn’t be buying all they junk they don’t need and then that would equal less profit for those big companies. The US needs people to be dumb, which is why everyone places such heavy emphasis on institutional schooling. Get your diploma, get a job and work for the man, get some credit cards, retire, then… we all know what comes after that.

  14. Rich Ryan

    That’s great advice. Too many people live beyond their means and will never achieve financial independence. There is a great feeling of freedom and control over ones life when you live below your means and have healthy savings.

  15. Hello Andrew,
    Good article on delay gratification. Unfortunately, this is something we need to teach in school and at home to our children. As a college professor, it has been brought to my attention that this new generation has not learned this skill and future Society will suffer.

  16. Julie Rogers

    I liked the article.
    I believe college is a good investment, but cost have gone up ridiculously over the last few decades. It seems colleges are more interested in sports centers, pools, and aesthetics than education.
    It is easy to talk about saving. Fortunately, we scrimped to get by for so long, now that we have a little extra cash, it is easy to save.
    I am not sure about the return on real estate, we seem to be spending more than we are making.
    I am sure that will change soon.
    We need more experience, but bigger pockets helps with the articles and comments of the experienced and not so experienced.

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