The following is a guest post from FI Fighter. FI Fighter is an early financial independence seeker who aims to get there by 30. This day will arrive when the passive income and semi-passive income streams bring in more each month than is needed to pay bills. Let the journey continue! Let me know if you would like to guest post on RFI!
I will be over at Make Money Your Way talking about how I made over $1,500 in the past few months renting my house to travelers. Click to read more…
courtesy of freedigitalphotos.net
A lot of people play the lottery because they want to get rich quick without having to do any work. Those who do win are considered lucky because the odds of winning are one in a few million. Chances are great that if you went out tonight and bought a handful of lottery tickets, you wouldn’t win anything. Surely, there must be a better way to build financial wealth…
There does exist a better path to financial freedom, and it’s through the accumulation of assets. What are assets? Quite simply stated, assets are things that put money in your pocket without you having to do any work. To acquire an asset usually requires capital upfront (just like with buying a lotto ticket). And just like with a winning ticket, the right assets can make you instantly rich overnight!
Just how are assets better? Unlike the lottery, yours odds of getting rich off assets actually improves with time, as they become more valuable. The lottery is completely random, and your chances of winning at any instance are independent of previous results.
Getting Started
So, how does one get started in building wealth through assets? Well, Rome wasn’t built in a day and the journey of a thousand miles begins with that first step. Very cliché, and I’m sure you’ve heard those statements a billion times before. But that doesn’t make them any less true.
When starting out, the most important thing is to get started! If you have debt, do everything you can to eliminate it as fast as possible. You want to start a marathon at the starting line, not 10 miles behind everyone else, right? It’s the same with investing. It’s hard to make progress when you’re fighting an uphill battle. Curb the bad consumer debt and avoid adding any more. Treat it like the plague!
The First Move
Investing shouldn’t be nerve racking. Do your research first and get educated. When you’re ready to get started, well, get started! I’m not going to tell you what to do (there are a million options), but I can share my own personal experience to give you some data points. The following example will show you how one fortuitous event may be all you need to expedite your progress to financial freedom.
I started investing in December 2011. I had $1500. I knew that the 9-5 rat race wasn’t the life for me, so I knew I had to build a passive income stream to replace my earned income. Dividend investing seemed like a logical first step. The beautiful thing with buying dividend stocks is that they are accessible to everyone. You don’t need good credit, you don’t need a sizable downpayment, and you don’t need much capital.
I bought 25 shares of Walmart (WMT) for $59.58/share. This was the beginning of my financial journey!
Progress is Slow At First…
My first Walmart (WMT) dividend posted on June 04, 2012. I earned a whopping $10.00. When first starting out, don’t get caught up in the amount of money your investments are generating. Instead, focus on the neat idea that your money is now working for you! For many investors, seeing that first bit of passive income being deposited into your account is a signal from the universe that you’ve “arrived” as an investor. Let that great feeling motivate you even further!
After receiving my first taste of unearned income, I was hooked! I kept right on investing throughout 2012, making periodic investments like clockwork. I didn’t pay attention to the fluctuations in the market. I didn’t care for the headlines. I just kept right on investing my money, knowing that the more I put in, the more would be returned to me in the form of passive income.
It didn’t take too long before the portfolio increased from $1500 to $60,000. This progress was made over the course of about one year, and building a portfolio valued at $60,000 was one of my original goals set in 2012.
Opportunity Comes Knocking
How does one get lucky when investing? If you invest in stocks long enough, eventually there will be a bull market that arrives which can help elevate your portfolio gains by 30% or more (see 2013). Almost everyone who invested in stocks prior to 2013 is sitting pretty now. The market has been on fire this year!
However, there are also other ways one can get lucky. Towards the end of 2012, I started looking into real estate property. I knew that prices were still very low compared to historical norms for my location. Thanks to my diligence in investing with dividend stocks, I was sitting on a portfolio worth $60,000.
Around November 2012, I got a phone call from my real estate agent letting me know about a great deal. A beautiful townhouse in a fabulous neighborhood was available through short-sale. He said it was an absolute gem and an opportunity I shouldn’t miss. I saw how fast the real estate market was rebounding (open houses were always packed), so I didn’t hesitate and put in an offer the next day. One year later, I’ve rented it out for positive cash flow, and the property has now appreciated close to $100,000.
Be Adaptable
There are tons of opportunities floating out there each and every day. But you can only get lucky if you’re in a position to make a move. What good is there in knowing about a deal if you can’t come up with the capital to secure it?
The good news is, if you invest long enough, you’ll eventually come across some killer deals (and be in position to do something about it). That’s almost unavoidable, thanks to the powers of compounding and asset appreciation.
Also, please note, there’s nothing written in any rulebook that says you can’t mix up your investments as the market dynamic changes. Going back to the previous example, I was completely focused on building up my dividend portfolio at the time the rental property hit the MLS. I wasn’t looking to acquire a rental at all, but when the opportunity arose, I reconsidered my options.
Fast Track to Riches
Anyone who wants to secure financial freedom early in life MUST invest in assets. Putting your money under a mattress (or savings account) will never lead you to any riches. However, a single lucky outcome in an investment venture may be the difference that allows you to retire at 30, instead of 50.
In the case of the rental property example, I could simply sell the property tomorrow, pocket most of the $100,000 appreciation, and perform a 1031 exchange to shelter the capital gains from any taxes. The proceeds of the sale would be used to purchase more rental properties in better cash-flowing markets across the country. This would also help provide a tremendous boost in passive income.
Using real numbers, I have about $60,000 in equity with the rental. The current cash flow is about $300/month. If I sold the property and retained $160,000 (equity + appreciation), I might still have $144,000 remaining after agent expenses/fees. By rolling the equity into a cash flowing market that returns 15% (e.g. single family homes in the Midwest), I would generate $21,600/year, or $1800/month.
A single stroke of luck could potentially increase my passive income from $300/month to $1800/month (and potentially make early retirement possible).
It Pays to Invest
To put things in perspective, just think about how many long hours (or years) of labor you would need from your employer to generate $100,000 of net income…
When it comes to investing and getting lucky, it’s not always about having skills or smarts. Often times, you just need to be in the right place at the right time. After all, luck is when opportunity meets preparation! The most important thing to do is to keep investing, rain or shine. If you stick to a gameplan and work diligently on acquiring more assets, eventually lady luck will choose to side with you and let you know how it feels to be rich.
Unlike with the lottery, your odds of winning with assets will keep improving over time. Just keep on playing!
This post was featured on the Carnival of Financial Camarederie, Carnival for Young Adults, Festival of Frugality, Lifestyle Carnival, Financial Planning, Aspiring Blogger, thank you!
Good post! I think the reason why so many don’t take this approach is because either they don’t have the patience or unwilling to put in the time and effort to build up something of substance. I love your point about getting started – I think so much of it comes down to that and having a plan that you can grow with.
John,
Yes, definitely getting started is the hardest part for most people. It usually appears nerve racking at first, but once you get comfortable, you’ll probably question why you didn’t get started sooner.
Things like market crashes, instability/uncertainty, are probably prime fears on why someone doesn’t make the move. However, if you focus on the long term, and question how the rich actually got to be rich, it will always point you back to this — the rich are rich because they own assets.
I agree with you on this – accumulating income-producing assets are absolutely vital in building wealth and passive income. I wrote a post about dividend investing recently and it’s motivating (and a bit depressing) to see the amount of money you would need to live entirely off of dividend income.
DC,
Yes, assets are the name of the game. That is, if you want to be wealth and have passive income. Instead of fixating on the doom/gloom what if scenarios, a lot of investors simply put their noses down and work as diligently as possible to acquire as many assets as they can. They measure their successes through the growth of passive income, each and every year. Forget the underlying value of your properties/stocks, focus on the income.
Awesome post! So true. We live in an amazing time with great opportunities everywhere. But only the “lucky” ones see them and are ready to act.
Oh and quick tip, for those of us who weren’t “lucky” enough to have a friend in real estate tip us off on one of those great deals, there’s companies out there like Strongbrook REIC to help you find and buy properties with that kind of sweet equity growth and cash flow described in this article. Just sharing because I was lucky enough to get introduced to it a few months back. If I hadn’t been saving it would have been just one of those opportunities that would have passed me by.
Casey,
Thanks! The opportunities sure were abundant up to about 2013. In 2013, we witnessed a bull run, for sure. These days, the gems are harder to find, but through persistence, you should still be able to find something good.
Haven’t heard about Strongbrook, but if it helps investors find good deals, I’m all for it.
Take care!
We need to build up some equity in our home and get rid of our consumer debt before buying another property. While we’re waiting for that to come together, we’re investing in the stock market to build up our investment portfolio. I had to realize that it’s all about the long game.
Lindsey,
That’s a good idea to eliminate bad consumer debt first before getting into another property. The long game is what matters… I’m a buy and hold investor myself.
Best of luck to you and your investments.
One who dreams to be financially independent must know how to accumulate assets that could increase in value over time. I also like they way you point out why investing is a good way to grow your wealth. Great article!
Mark,
Well said. The increase in value is measured differently for many folks. Some like to see appreciation, some like to see more cash flow. Ultimately, if your assets are becoming more valuable, you are buying the right ones.
As someone who’s trying to get to early financial independence, cash flow is the name of the game since that is the key variable needed to allow me the ability to step away from the rat race.
All the best!
The growth of you portfolio is very inspiring! Great job on picking sensible stocks!
Moneycone,
Thanks! That portfolio has since been converted into a downpayment for a rental, but it served its purpose 🙂
Cheers!
Many try to avoid or do away with investing because they only see it as a risk and not an opportunity. Sure, it can be pretty slow or tight early on but with patience and diligence, everything will eventually pan out.
Shane,
Exactly. But if you never try, how can you get anywhere? Wealth isn’t created through hard work, labor as many would like to to believe. If you simply worked 9-5 for 40 years and didn’t invest, you wouldn’t progress much in your wealth building… especially when you factor in the corrosive force of inflation. If your goal is financial independence, investing is almost always a necessity.
Take care!
Great post! When you prepare yourself, you can take advantage of opportunities and thus be successful. Luck is just another way to describe it. I could say you are lucky, which you are, but you were simply prepared for when an opportunity presented itself.
I love how you ignored all of the news and headlines and just kept investing. So many others would be well served if they could take this approach. It doesn’t matter what happens over the short-term, you should be focused on the long-term. Just keep investing in a regular basis and things will work out in the end.