The 20-Something’s Guide to Financial Stability (Apply These Lessons for Life)

The 20-Something’s Guide to Financial Stability (Apply These Lessons for Life)

4 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender.

Experience
Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Press
Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Accreditations
Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

Follow
Dave’s LinkedIn
PPR on LinkedIn
PPR on Facebook
Twitter @DAVIDAVANHORN

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You can pretty much be broke at any age. For me, I was pretty poor growing up. So, there was really only one way to go, and that was up.

When it comes to financial mistakes, though, I believe that most of them are made between the ages of 25 and 35 years old.

You see, that’s the first quarter of the football game of life, or the earning years, which for most of us is between the ages of 25 to 65. It also looks like some of us may be going into overtime, too, as the government keeps pushing back the retirement age.

So, where do most of us go wrong when it comes to controlling our money?

Financial Stability = Discipline

Recently, I read where Dave Ramsey, the anti-debt guru, tweeted that if you could just save $100 a month between ages 25 to 65, at 12 percent, you’d have $1,176,000, thus making all of us potential millionaires. He then explained that this statement was intended to inspire people to save.

I think Dave does a great job getting folks, who are in financial trouble, back on track by eliminating all of their debts. Although this puts folks in a much better financial picture, it does so by making the assumption that all debt is bad.

I disagree with this. For example, good debt is something that you take on to improve or to build wealth (i.e., a student loan to get a better-paying job, a mortgage for a rental property, or a loan to expand your business). Bad debt is when you purchase something that goes down in value or doesn’t throw off any additional cash flow (i.e., credit card debt, a loan for a leisure vehicle, a payday loan, etc.).

I also believe that it’s making the assumption that people, who aren’t necessarily good with money, are not disciplined and therefore, should not have any debt.

Close up view of bookkeeper or financial inspector hands making report, calculating or checking balance. Home finances, investment, economy, saving money or insurance concept

The downside is that this person is limited by the negative stigma surrounding debt and is less likely to utilize disciplined leverage. By this, I mean utilizing good debt to build wealth.

For example, if I took a HELOC (Home Equity Line of Credit) and I used that to buy or fix up another property, or I purchased a note with a higher return than the interest rate I borrowed at, this would be a disciplined way to leverage debt.

Utilizing these types of strategies, by the way, is how I was able to build most of my personal wealth.

Other than establishing bad debt and not utilizing disciplined leverage, another common financial mistake is living beyond your means.

Related: The 5 Steps Necessary to Master Your Personal Finances

Budgeting: Wants vs. Needs

One thing I see wealthy people do is that they have a cash flow budget, and they pay themselves first. They know their own numbers (exactly how much they need to live on, their income, expenses, etc.), and they have a plan for the rest of their cash.

When I used to meet with first-time homebuyers as a real estate agent for homebuyer qualification, the first thing we talked about was their family budget. This consisted of all income and expenses and how much they would qualify for as far as housing expenses go (the biggest bill for most). Often, this is the first time many couples even look at all of their expenses written down.

For many, this was also the first time that they analyzed their wants versus their needs. They got to see firsthand how much was too much from a lender’s perspective. They also learned exactly what the bank was looking for in a mortgage, which is usually based on the borrower’s stability and ability to pay (things like front-end and back-end ratios).

So, why are so many who are starting out living beyond their means?

Maybe it’s in our instant gratification culture. Maybe we all want to show off to family and friends. Maybe instead of taking control of our money, we’re letting it control us.

In George Clason’s book The Richest Man in Babylonir?t=biggerpocke0a 20&l=am2&o=1&a=0451205367, he tells parable-like stories about how clay tablets found in the Middle East from 8,000 years ago hold the secret to becoming financially well-off. Besides paying yourself first, one included instruction is to live off 70 percent of your income, save 10 percent, invest 10 percent, and give the remaining 10 percent to charity.

If this simple formula is the key to attaining financial stability, why is it that most of us don’t follow it?

investment-thinking

Related: 8 Traits of Successful Real Estate Investors

Financial Stability

In Robert Kiyosaki’s Rich Dad’s Raising Your Child’s Financial I.Q.ir?t=biggerpocke0a 20&l=am2&o=1&a=B0011WP5NI, which comes with the Cash Flow for Kids game, he states that every time a dollar hits our hand, we’re choosing to be rich, middle-class, or poor by what we decide to do with it (from a cash flow perspective anyway).

If we spend it on expenses, we’re choosing to be poor. If we buy something that we think is an asset but it’s really a liability, then we’re choosing to be middle class. But if we invest our money in an asset that throws off income, then we’re choosing to be rich.

Sure, this is a very simplified way to look at it. But if you think about it, it ties back into paying yourself first and hopefully investing that money in something that cash flows, so that someday you’ll have more than enough passive income to pay all of your expenses and become financially free.

So, I guess the secret is… there is no secret. You need to be disciplined, live within your means (unless you can figure out a way to expand your means), and have a budget, as well as a plan to invest in cash flowing assets. The sooner you can do this, the faster you’ll build true wealth.

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So, where are you on your journey to financial wellness?

Leave your comments below!