How to Develop Your Own Financial Plan

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One of the things you need to do when getting started in real estate investing is you want to figure out your financial situation. And what that means is you want to look at all your income and expenses. This is what's called an income statement.

On the left-hand side, you list all your income sources. For most people that's a job. Maybe you've got some investments that are paying you a dividend. Maybe you've got some money in the bank that's paying you some kind of interest return on that investment.

And then on the other side you, you list all the expenses. How much are you paying for your mortgage? How much money are you spending on your monthly payments? Do you have a car payment? Do you have any credit cards that you're paying?

What you're trying to do is you're trying to calculate the cash in minus the cash-out, and hopefully you have a positive cash flow at the end of this.

Then what you do is you sit down and you look at everything and you say, “Where can I make some adjustments?” And then you'd put together a budget. I mean, I don't like the word budget, let's call it a financial plan. If there are certain things that you're planning for like a vacation; or your car is going to expire in a couple of years, or maybe you're planning to save for your kids' education.

So you put these little buckets aside. And then, what happens is when the money comes in and what's leftover from all your expenses, you take that money and you allocate it accordingly to these different buckets of allocation.

The types of savings that I just mentioned. And the other things on your cash flow side, any kind of income will be added to that as you get more investments in that are producing additional income. And whether that income is in the business, you're still going to have some dividends hopefully that you’re going to make from within that business that's going to come out. That'll also be added to the income side of your income statement.

Another word for the income statement is profit and loss.

Okay. So let's figure out how much money you get coming in, how much money you got going out, and how much money you're going to put aside for the budget? And then what's leftover, or maybe even before you figure out what you're saving, you can take some of that money and you can invest it into some high yield investments that are going to give you good returns. Hopefully, they're in instruments that are associated with real estates, like mortgages for example, and any other type of joint ventures or equity-type of investments.

Okay. So, let's figure out your income statement or your profit and loss statement. Thanks.

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