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An interview with author, real estate investor and podcast host Rachel Richards
We are in a financial education crisis. At no point in our lives are we taught how to manage our money, and then we’re left to figure it out all on our own. No wonder we grow up with so many misconceptions about finance!
Rachel Richards, bestselling finance author and former financial advisor, joins us today to clear the air on four of the most common misconceptions about building wealth.
Misconception #1: Wealth has to do with income.
I used to think that the more money you make, the wealthier you are. Boy, was I wrong!
Someone making $300,000 per year and spending $300,000 per year isn’t wealthy, they’re BROKE. But someone else making $40,000 per year and saving $20,000 is doing much better financially. Wealth doesn’t have anything to do with your income. In fact, wealth has a lot more to do with your spending.
When it comes to growing your wealth over time, you have two factors to work with: your income and your expenses. The magic happens in the gap between the two. That’s why in the finance community, we talk a lot about “growing the gap.” In other words, how can you create as much space as possible between what you’re making and what you’re spending? If you just focus on that one thing, you’ll end up much wealthier than the guy making $300K.
Misconception #2: It’s too late for me.
My friends, I invite you to throw this common misconception straight into the trash where it belongs. Allow me to show you the evidence.
I quit my job last year and retired… at the age of 27.
It didn’t take me 20 years to do that. In fact, it took less than three years to go from zero rental properties and zero extra income, to 39 doors and $15,000 per month in passive income.
So, here’s the point: what if I had been 65 years old and just counted myself out because I didn’t think I had enough time to make substantial progress? I would never have retired.
Another example is our very own Bill Manassero. You better believe Old Dawg Bill is the rule, not the exception. He started investing at age 58 and from another country, nonetheless. You hear about these stories all the time.
Nothing has multiplied my net worth as quickly as owning real estate. And the opportunities are there for the taking. Anyone, at any age, can begin building wealth. It is never too late.
Misconception #3: I have job/income security.
We grow up with the belief that being a full-time salaried employee equates to job security and income stability.
But wait a second… what happens if you get laid off or your hours get cut (something that is all-too-prevalent during the ongoing Covid crisis)? Hear me out: there’s nothing secure about being 100% dependent on a single source of income.
I introduce you to… income diversification. Diversifying your income means having money come in from multiple sources. This strategy is brilliant because if one income stream is impacted or reduced, you still have others to keep you afloat.
For example, in a normal month, I make $10,000 in profit from my rentals. But in April, when Coronavirus was hitting the U.S. economy hard, I only made $1,000.
A lot of landlords were worse off than me; a lot were doing better. The way I saw it? If I could just break even for a few months, I would be a happy camper.
The only reason I wasn’t in a complete panic is because I had plenty of other income to keep me whole during that time.
Income diversification is one of the best financial safeguards you can have.
Misconception #4: It takes money to make money.
Okay, okay, you got me here: this is often true. It’s just not always true.
If I’m being honest, I counted myself out of the real estate game for years because I didn’t think I had enough money. I wanted to start investing in my early 20s, but I was pretty broke at the time. And lenders almost always require you to put 20% to 25% down on an investment property.
If I knew then what I know now, though, things would be different. When it comes to real estate, you actually don’t need to have a lot of money to get started.
One method to get started without a ton of money is house hacking. With house hacking, you either live in the house and fix it up and flip it, or you live in one unit in a multi-family property and rent the other units out. Since it’s your primary residence, you can qualify for a much lower down payment. If you’re a first-time homeowner you could even qualify for certain grants and programs. FHA loans require a 3.5% down payment at a minimum, making it a lot easier to make your first investment.
If I had to do it all over again, though, and I had absolutely no money, I would become a wholesaler.
Wholesaling is when you find a deal, put something called an “assignable contract” on it, and then sell the contract to an investor who wants to buy it. You are basically getting paid a “finder’s fee,” to find those great deals, which is often the hardest part! Investors will pay you to do this for them. This is a brilliant strategy because it requires no money, and it helps you learn as you go! I’ve seen wholesalers make anywhere from $5,000 to $25,000 per deal. It would only take a handful of these before you stockpiled enough money to finally purchase your own.
These four misconceptions are dangerous; don’t fall prey to them! When it comes to building wealth, these misconceptions often even act as excuses to not get started at all.
I’ve said it once and I’ll say it again: anyone, at any age, on any income, can build wealth and become financially independent. You just gotta do it.
Rachel Richards is the bestselling author of Money Honey and Passive Income, Aggressive Retirement. At the age of 27, Rachel quit her job and retired, living off $15,000 per month in passive income. She is a former financial advisor and a real estate investor with almost 40 rental units. By making the topic of money management fun, entertaining, and simple, Rachel has helped thousands of millennials work their way out of financial despair. Check out Rachel’s interview on the Old Dawg’s REI Network Podcast here: 433: Secrets of a 27 Year Old Retiree.
Download Rachel’s passive income starter kit for free at www.moneyhoneyrachel.com/bonus.
