How to Win Financial Game #1 – Cash Now (Survival)
In my last article I shared that we are all playing two financial games. For review, the two games as I see them are:
Game #1 - Cash Now: The game of active income and of survival. Success is earning more than you spend.
Game #2 - Cash Flow: The game of passive income and of freedom. Success is owning assets that produce more income than you personally spend.
In this article I want to suggest a two-part gameplan to win Game #1 - Cash Now.
PART 1: INCREASE YOUR INCOME
I know. That’s really obvious.
But, if you want to win the game of bringing in more cash than you spend, it usually means you’re not earning enough.
How do you bring in more cash? Several ways.
Keep Your Day Job (or Two)
You don’t have to jump into real estate full time to win the two financial games. In fact, most investors I know keep their job and invest part time.
Income from a stable job is your financial lifeblood. At least for the purposes of Game #1, it doesn’t matter where the income comes from as long as it pays the bills and then some.
If you have special training and years of experience in a particular job, it is very doubtful that you can quickly replace that active income with a full-time transition to wholesaling, fix-flips, or other cash-earning real estate activities.
So at least early on while you are learning how to produce cash in real estate, it is not a bad idea to keep the day job for financial oxygen.
If you need short-term cash infusions for debt payoff or extra savings, a second job can also be smart. If a temporary job gets you over the hump with extra cash so that you can move forward with your life, then go for it.
Sell Your Crap
Here is a fun one. Why not clean out your attic, basement, closets, trunk of your car and SELL it! You’d be amazed at how much money you can make with yard sales, Craigslist, and Ebay.
I love a blog by a guy named Adam Baker called “Man Vs Debt: Sell your crap. Payoff debt. Do what you love.
Adam and his wife sold everything they had except their backpacks, paid everything off and then some, and traveled the world with their young kid in tow! (Here is the story on a Ted Talk)
You may not be that extreme, but I bet you’ll find, like they did, that the extra cash is nice and the mental freedom of less crap is even more liberating.
Start a Side Business
I jumped into the world of entrepreneurship and small business right out of college, and the fun and freedom is a still a blast.
If you also have an entrepreneurial itch and you need extra income, why not start a side business?
A side business can (and should) be built around your skills and your passions. If you match your passion to what others care about or need, you’ve got the foundation of a profitable and fun business. Author and serial entrepreneur Chris Guillebeau calls this match “convergence.”
The best part about a micro-business on that side is that it’s not expensive to start. If you want a lot of examples of how to bootstrap a new business, read Chris Guillibeau’s book $100 Startup or read his extensive blog archives.
Your side business doesn’t have to be in real estate. I know people who make jewelry, sell stuff on Ebay, cut grass, teach classes, or plan tours. Follow your passion and the money. But, if you plan to invest in real estate, there will be even more synergy by starting a side business under the umbrella of real estate.
Could you get your real estate license? Could you manage properties for others? Are you handy and can fix properties on the weekends? Can you birddog for full-time investors? All of these could earn extra cash, keep you involved with real estate investing, and eventually grow into a full-time business if you want.
If you do decide to win Game #1 just in real estate, flipping houses either as a wholesaler or as a rehabber is a great route to go. This is the path my business partner and I took from the beginning.
As much as I love buy-and-hold rental properties, you need to know they are NOT an active, cash generating business up front (unless you are a manager for others). By definition, investing requires you to pay out cash up front in return for streams of cash over time (Game #2).
In Game #1, cash out of pocket is not what you need.
Game #1 requires big, quick chunks of cash into your pocket, and these come from finding good deals and then reselling them quickly.
You can of course find more than you'll ever need on this topic within the BiggerPockets.com forums and blog archives. I also go over these active, cash-generating buy-sell niches in my free videos “7 Ways to Make Money in Real Estate Investing.” If you haven’t seen the videos, just sign up for my blog at www.coachcarson.com.
PART 2: TAME YOUR OUTGO
Increasing your income will help win Game #1, but if you never tame your outgo (expenses) the increases in income will just run right through your fingers. What a waste.
Here are the ways I try to tame my own outgo.
Cut the Financial Fat
Housing and automobiles are a couple of BIG, fatty areas of your financial life that use a lot of your personal money. If you just reduce your expenses in these big areas, it will be easier to trim your overall outgo.
With housing the main away to trim this fat is to live more modestly.
I know, I know. You’ve earned it, you work hard, you want your family to be comfortable, and you want a clean and newer house.
But, the truth is that the difference between comfortable living today and comfortable living 50 years ago is completely different. We’ve been conditioned to “need” extras, and do you know the real cost of all of these fancy extras?
For example, if you pay $225,000 for a house instead of $125,000, using a 5%, 30 year loan you’ll pay an extra $538/month on your mortgage plus extra taxes, insurance and maintenance for a more expensive house. This could easily be a negative $750-$1,000 per month in your budget.
It’s the same with cars. Look at the real cost of paying interest and higher insurance and taxes on a new car versus paying cash for a decent used car. The savings are enormous over time.
I’m not saying the extras aren’t nice. I like them too. But are they worth it? And can you afford it?
You have to be honest about your own financial situation. If you’re struggling to win Game #1 and you’re still hanging on to big houses and fancy cars, something has to give.
It is not unusual to cut $1,000+ out of your personal budget with a few deliberate lifestyle changes in these big areas. So, if you are an investor who can consistently earn 10% on your money, $1,000/month or $12,000/year saved consistently would turn into over $687,000 in 20 years!!
Ouch. THAT is the real cost of not cutting your financial fat.
Get on a Budget
This is the bad “B” word of personal finance. Like diets, no one wants to go on a budget.
But, the most successful investors and businesses I know spend every penny on paper before the month starts by allocating their estimated earnings into specific categories.
In the end, budgets aren’t about squeezing or sacrificing. Budgets are just tools to make you more aware.
Just like counting calories, you need to observe the money that is going into and out of your life so that you can make conscious choices. If you see hundreds of dollars per month going towards frivolous expenses and you’re ok with that, fine. But, if you spend that money unconsciously and then complain about not having enough money, that’s on you.
Some of the best resources I know for budgets and living consciously with your personal finances are:
- (Book) Your Money or Your Life, Vicky Robin and Joe Dominguez (my favorite on this topic)
- (Book) Total Money Makeover, Dave Ramsey
- (Blog) GetRichSlowly.com
- (Blog) manvsdebt.com - inspiring, good tools
Pay Off Personal Debt
One of the best messages in Rich Dad, Poor Dad by Robert Kiyosaki is “use debt to buy assets, not toys and liabilities.”
Kiyosaki argues that anything in your personal life is a toy or a liability. I agree.
Your cars are liabilities. Even your home is a liability because you have to live somewhere.
So as a result, winners of Game #1 payoff their credit cards, car loans, student debt, personal loans, and eventually their mortgage loan.
The result is an ENORMOUS amount of stress reduction and peace of mind. Paying off personal debt is the surest way to slow down that ever-present, money-making rat wheel you’ve been running on so that you can finally take a rest.
Yes, I know all of the mathematical arguments for debt, including borrowing at 4% and investing at 8%.
But, the world is too complicated and risky to think you can plan your entire personal life on models and market timing. I’ll leave that to Wall Street money managers (who often don’t beat the market anyway). Simplicity has its own elegance and power, especially in your personal life
You may say these suggestions are pretty basic. You’re right.
Like in the game of football, where the best teams win with the basics of blocking and tackling, the winners in Game #1 are excellent with the fundamentals.
Measure yourself in these fundamental areas to see if you need to go back to basics.
In the next article, I’ll share my gameplan to win Game #2 - Cash Flow (passive income from assets).
Enthusiastically your coach,
@Chad Carson Great article! Am in the process of stream-lining our lives to save more and get income & expenses on paper so we can see where our money is going and setting savings goals.
Matt Aspen, almost 8 years ago
Thank you for all the great advice and the wonderful cross references to other books. However, I beg to differ with you on one important point: having an automobile. Unless, of course, you live in New York City where we have subways, buses, taxis, and nearly everything - especially in Manhattan - is in walking distance - You need a car. I don't know of any other state or city with as elaborate and comprehensive a transpo system as New York. That said - unless you meant luxury cars, to go and view real estate or follow up on leads - you have to have a car - it's not a luxury; it's not expendable; it's an absolute necessity in my book. Even if your partner has one - you should still be able to move independently. Again, thanks for the advice. Gloria Dulan-Wilson
Gloria Dulan-Wilson, almost 8 years ago