You Can’t Save Your Way to Financial Freedom

Attending Gary Johnston’s Financial Freedom Principals seminar last year (GaryJohnston.com) caused us to make a radical change in what we teach.

Since 1997, Kim and I have taught people how to successfully invest in real estate.  Gary’s seminar was the springboard that shifted our teaching from just real estate investing, to how to gain financial freedom.  It just so happens that real estate – for reasons like high yields, solid cash flows, huge tax advantages, etc. – is our primary investment vehicle of choice.    

What is financial freedom?  It’s when the net income from your INVESTMENT assets is greater than your expenses.  Think of it this way: On March 1, you have $30,000 in the bank.  Because of an illness, you don’t work all month and don’t get a paycheck.  You are the sole breadwinner.  After paying all of your March bills – expenses never stop – how much money do you have in the bank at the end of March? 

If your answer was less than $30,000, then you’re thinking like a wage slave.  If your answer is more than $30,000, then congratulations – you understand the concept of financial freedom!  Your investment income covered your expenses…and then some!

Here’s the thing: Your goal should be to create a gap between what you earn and what you spend, and then invest this difference in an appreciating capital asset that produces cash flow – you know, mailbox money!

In our case, Kim and I chose to invest in single-family homes and mobile homes in parks.  Go ahead and turn up your nose; at one time, we did the same thing.  But consider this:  Let’s say you have $3,000 to invest for five years.  You can put your money in either a bank savings account or in a mobile home.

Let’s do the bank savings account first.  We’ll be generous (really generous) and say the bank will pay 1% interest.  At the end of five years, you will have turned your $3,000 into a whopping $3,154.  Be still my heart!  A $154 profit after five years doesn’t even keep pace with inflation, does it?

So how does the mobile home investment fair in comparison?  You buy a 15-year-old trailer with three bedrooms and two bathrooms.  It’s in a nice park.  Your all-in purchase price is $3,000.  You then sell the trailer for $9,500 with the following terms: $500 down, 18.59% interest, monthly payments of $275 for 46 months.

Your yield on this investment will be 131%!  What does a 131% yield do to your $3,000 investment over five years?  It gives you a profit of $10,150!

Because I’m dyslexic, I wasn’t a very good student.  But I did learn this much about profits: $10,150 is more than $154 – and when it comes to financial freedom, more is better!

Folks, you can’t save your way to financial freedom.  If banks pay less than 1% interest on your savings, and inflation is running around 2%, do you see that your money’s buying power will be less at the end of the year than it was at the beginning?  Do you see that you’re going financially backward? 

The only way to achieve financial freedom is to invest in appreciating assets and then have the patience to let the compounding effect work its magic!  Please invest in something – real estate, stocks, mobile homes, something.  And here’s a good book to get you started (I first read it when I was 29 years old) The Wealthy Barber.  You’ll love it!