GIVE YOUR INCOME STREAMS A NAME, A SOUL, A “WHY” TO BECOME MORE COMMITED TO YOUR FINANCES
When I think of only money, I may feel a little bit stressed or anxious, but when I think of my sons, I feel nothing but love and gratitude. Give your investments, a reason, a name, a soul and most definitely a why. My guess is you may become just a bit more committed, and a bit more successful.
Most of us do not map out a plan when deciding to invest. We don't identify what it is we are investing for. Maybe we set aside 10% of our income into our savings account, or devote a portion of our paycheck into our 401k, and forget about it. Think about how little thought we give to one of the most crucial decisions in our life. Some investors do think in categories such as retirement and college funds etc. But can we break it down further? What if we dedicate income streams to what is essential to our lives? Give that income stream a soul, a person, a child, or how about a house in Hawaii, and it will have much more significance.
As often told, you need a “Why.” Money alone is not a good enough reason. Check that - maybe for those who sincerely insist they are money motivated -perhaps it is enough. I, for one, was never "money motivated," but the freedom it can create? Now we are talking. For me, my "why" or "whys" is/are simple. My wife, my kids, my freedom, and my cats (don't judge me for liking cats. These guys are cool). An excellent place to begin for a lot of folks is the financial freedom number. Maybe you can call it your "Retire Early Income Stream."
How much income is it going to take to replace the revenue from your job, and become financially free? Essentially this number covers all your bills and then some. Of course, you want to go beyond this number to live comfortably, but once you quit your job, think of all the time you will have on your hands to think of ways to build on your income. We can start at $10,000/month. This will sound like a lot for some and not enough for others. But it is a nice, round number to illustrate. What will be your active or passive income strategy? Let us use investing in apartments as an "active" example. Let's say that net of all expenses, we end up with $150 per door per month. Divide $10,000 by $150, and you get roughly 67 doors or units. This could mean you need to buy a duplex, two fourplexes, one 27 unit, and another 30 unit, and we're done. See you on the beach.
If you went the "passive" method and you invest $100,000 into syndications that project 8% annual Cash on Cash return, then you are 8% or $8000 a year closer to your goal. This does not include the balance of your Average Annual Return. This consists of the forced appreciation (maybe an additional 8-12%) that is baking in the background.
Come up with another essential income stream. Maybe you have a son, and your son's name is Paul. You think it will benefit him to go to college, and since you don't want him to be saddled with college debt like many of our current millennials, you want to start a college fund. Instead of slaving for the next, however many years, and putting $250 into your college 529 fund. You decide that you are going to make your money work for you instead. You decide $100,000 is an excellent place to start "Paul's College Fund." Again we go the "passive income" route and invest in apartment syndications as our vehicle. Apartment syndications clearly layout their financial projections based on the increment that you invest. They often project an equity multiple of 2x for a 5-year hold (or close to it). This means you are expected to double your money in 5 years. Thus, if you invest $100,000 into a syndication, at the end of that 5 years, you will have your additional $100,000 for Paul’s College Fund. Depending on the business strategy, there may be a refinance after a few years that will return most, if not all, of your $100,000. Often times, syndications will have these capital events (such as a refinance). Now you can redeploy that $100k for your other son Judd. "Judd's college fund."
How about your annual "Hawaiian vacation rental mortgage fund?" If the mortgage on that comes out to $4000 per month, how many income streams will it take to cover that? Four? Eight?.
You get the idea. Break it down into denominations, and try not to go in blindly. When I think of only money, I may feel a little bit stressed or anxious, but when I think of my sons, I feel nothing but love and gratitude. Give your investments, a reason, a name, a soul, and most definitely a "why." My guess is you may become just a bit more committed and a bit more successful.