Personal Finance Education

Before I begin the next section in looking at creative financing options for real estate purchase, there are some basic financial principles and skills I would like to instill and insist on you knowing.  Some that you may know, some you may not, but you need to take them into consideration.  I am going to make some suggestions that you might not agree with, but you need to remember that our preconceived thoughts on money and finance are deeply ingrained from what we’ve learned throughout life, our parents, school/college, work, all have shaped our views on money and finances.  Keep your mind open to my suggestions, and if you have never read it, I highly suggest you reading “Rich Dad, Poor Dad” by Robert Kiyosaki.

When talking about real estate you will often hear people say that your house is your largest investment, or it’s a real “asset.”  Have you ever stopped to wonder what they mean?  What is an asset?  I view assets as anything that bring you money.  Your job is a TYPE of asset, however, you are the asset to yourself, because you go to work…but outside of that, does your house put money into your pocket every month?  Most likely it does not. If anything you probably pay more than your mortgage every month on your house…repairs, service, utilities.  Therefore, is your home your biggest asset, or is it your biggest liability?  I would place your house into the liability category.  Usually the person telling you it is an asset is your banker…and it is true, for him.  Your house is your biggest asset for the BANK…not for you.

Often times the bank or finance company want you to list your things of value as assets, which to them they are, because rather than drive your car or live in your house, they will sell your car and sell your house.  The bank has no emotional ties to your property, so they claim those as assets.
So, when you are preparing your budget, please take these things into consideration:
Assets put money in your pocket
Liabilities take money out of your pocket.
“But Aaron, I’m trying to sell my house.”  When you do sell your house, and you’re selling it for even $1 over what you paid for it, THEN it’s an asset.  Same with your car, vehicle, or anything else you’ve held on to.
Sit down with EVERYTHING.  All debts, bills (due and past due), credit cards, stock portfolios, bonds, business earnings.  List them all into these categories.
Income: Earned income from your work; portfolio income from stock dividends; passive income from business holdings or real estate.
Expenses: (Active/Past Due monthly):

• Rent/Mortgage
• Insurance
• Taxes
• Child Care Expenses
• Loans (car, student, personal)

The above should be listed with as much EXPLICIT detail as you are able to include.  This will give you an accurate view of your financial life line.  Are you “red lining” or just “in the red?”  Red-Lining is when you drive your car until it reaches the red line on the RPM…it’s going forward…but just not good for the engine.
If you have a positive number when you subtract your expenses from your income, then great, you are a step in the right direction.  What can you do to increase that number?  Work harder?  I say, absolutely not.  Work smarter?  ABSOLUTELY.
The best investment you have is located within the 6 inches between your ears…USE IT!
I will discuss more in detail as we go on, but until then…work smarter.

Related posts:

1. Reign in Your Personal Spending with Sensible Budgeting
2. Understanding Your Financial Report Card
3. Generating Passive Income