In an earlier blogpost where I tackled the frequently asked question: “Are foreclosed properties good deals?”, I mentioned that financial literacy is a prerequisite to real estate investing, and with good reason… I believe that the lack of financial literacy will certainly lead to financial failure!
With that said, let me give you four reasons why I believe we need to be financially literate real estate investors.
Reason #1: It’s the only way to eliminate bad debts/raise capital for your deals
As I have said in my series on managing finances, you need to learn how to manage your finances to get ready for your first real estate deal. You do this by taking care of your finances by becoming your own Chief Financial Officer, who is always on top of one’s cashflow by properly tracking income and expenses and proper money management.
Buried in credit card debt?
Living paycheck to paycheck?
Still have nothing to invest?
If you said yes to any of the above, then it’s obvious that there’s a big problem you need to solve before you can even start saving for your first real estate deal.
As Rich Dad would say,
It’s not how much money you make, it’s how much you keep.
Why not take a deep hard look at how you manage your money and take the next step towards being financially literate?
Reason # 2: You will become trustworthy when it comes to money
Think about it, would you do business with someone who is not trustworthy?
This not only applies if you do decide to get Other People’s Money or OPM to finance your deals, you also need to be able to trust yourself. If you trust yourself, I’m assuming you really are trustworthy and you act in a trustworthy manner.
As they say,
If you want people to trust you, be trustworthy.
and you start by being trustworthy with your own money, not with OPM.
If you can’t even trust yourself to handle your own money well, don’t even try to get into real estate investing.
Reason # 3: When you get your own deals, you will be in control
So you got a deal, finally! But how do you know that you are doing good? You’re an investor and you need to know if you really are making money!
If you are financially literate and manage your finances the way you should, you will know at any given time if you are really making money or losing money, you will be on top of your cashflow.
What if you eventually got your very first real estate deal but never really learned how to manage your money? You might lose track of your expenses and then you end up wondering what’s happening to your cash, or even worse, you might even lose track of important payments like monthly amortizations or you simply have no money left to settle your obligations and end up facing foreclosure.
On the other end, you might lose track of your receivables and end up NOT getting the money that is rightfully yours, some if which are meant for mortgage payments, maintenance, etc.
Things get even more complicated once you acquire more and more deals, so without financial literacy, you might end up with nothing but a financial mess.
Reason # 4: When you do start earning money, you won’t end up like a lot of Lotto winners
In a talk during The Feast at the PICC, Brother Bo Sanchez mentioned stories of Lotto winners who lost all of their money, get buried in debt, ended up with broken marriages, etc. (Actually Bo also wrote an article that mentioned this and you can read it here: How To Use Your Pain To Achieve Great Success).
These are perfect examples of what can happen if you are not yet financially literate, and you get a big amount of cash.
Sad but true.
Earning money from real estate investing, though not as big as Lotto winnings(at least not at the start), can still be considered as a big windfall of money, especially, if your real estate investing strategy is more focused on capital gains.
If you are not yet financially literate, you might not be able to handle the sudden windfall of money, and you may end up just like those Lotto winners mentioned by Bo, where money became a curse.
On the other hand, imagine if you were financially literate, and you earned a lot from your real estate deals (or if you won the Lotto), you will be able to handle it well.
You won’t go into a shopping spree!
You won’t go for instant gratification!
You won’t accumulate liabilities!
You will focus on real income generating assets first!
You will be generous!
You will spend wisely!
You will be in control!
In other words, you will be able to manage it well and put your new found wealth into good use, and it will become a blessing!
In summary, you need to be financially literate because…
- Start by working on your financial literacy first, it cannot be just an afterthought. This is how you can eliminate your bad debts so you can finally start saving money for your first real estate deal.
- To be someone who can be trusted, you need to become trustworthy, and that definitely applies to money and real estate investing.
- Financial literacy will tell you if you are really making money with your deals, and help you run your business through proper cashflow management. Yes, real estate investing should be treated as a business. The importance of managing your finances well will get magnified as your business grows.
- If you are financially literate, more money will be a blessing to you and the people around you. It won’t be a curse.
Remember we are just stewards of the wealth and abundance that come our way, and being financially literate helps ensure that we become worthy stewards.
“From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” – Luke 12:48
What do you think?
To our success and financial freedom!
Jay Castillo
Real Estate Investor
PRC Real Estate Broker License #: 3194
Find us in Facebook:Foreclosure Philippines facebook page
Text by Jay Castillo and Cherry Castillo. Copyright © 2018 All rights reserved.
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Congratulations to you and your wife Jay. Your site have shown me the light and have committed to make the most out of the opportunity. I have copied and downloaded most of your pages but I still need to know more. Do you have any courses you can recommend?
Thanks,
Art Tenoyan
All of us must be financially literate real estate investors when we undergo to the field of investment. In order to be successful and to not waste our time, effort and many.
INteresting Article..thanks for all your post…it is indeed informative…
tnx for this post, your blog provides helpful information. It’s great that I happen to stumble your site..Keep this up!..I’ll surely come here more often..
Hi, Jay
..Got interested to this site and I was amazed to find a wealth of real estate related data / info, links, that you have here. Thanks a lot for your selfless real estate development concerns. My purpose here is to look for some investors who might be interested to partner with us or join us in developing our family properties 2 prime land properties meant for social and or medium cost housing subdivisions in Nueva Ecija). Can I pls. ask for your email address where I can discuss and ask for some advise regarding some immediate real estate family concerns that we have now at this point. My email add is: [email protected]
Thanks so much!
Vicki
Sept. 20, 2010
Dear Sir Jay,
Thank you so much for the great tips on financial management that you are unselfishly sharing in this website. I’ve learned a lot and am still learning….Im in my mid-40’s and it’s a shame that this is one wisdom ive been lacking all along….Yes, i know there’s still time, and I’ll regain soon enough all Ive lost because of financial illiteracy…sob….God bles you Bro.
Hi Doanne,
You’re welcome and thanks for the comment. It is never too late and as long as you persevere, I know you’ll regain so much more than you lost. The important thing is you already know what to do, why you need to do it, and you are actually doing it.
Cheers!
I agree. Financial literacy is for everyone as well, whether you are an investor or not.
Hi phliving, I totally agree with you on that. Thanks for visiting and for the comment!
If you are a literate person you will not be fooled by other people. So think about, if you have been fooled, then you are not a literate one. LOL
Hi Jay,
Thank you for your valuable article. I will see you in October!
God bless and more power!
Gladis
Hi Gladis, you’re welcome and thank you also for dropping by. See you in TRQ 2.0!
Hi Jay,
Wonderful post!
I love what you said about being worthy stewards. The book of Luke in the Bible really talks a lot about financial management. In fact, Jesus said in Luke 16:12 (NIV) “if you have not been trustworthy with someone else’s property, who will give you property of your own?”
I know that before I can get more (financially or otherwise), I need to be a good steward of what I already have. The question is what we are doing with what Gode has given to us today.
The good thing is that God also promised to give us wisdom when we ask and seek for it earnestly. King Solomon put it well when he said, “Wisdom is supreme; therefore get wisdom. Though it cost all you have, get understanding. Proverbs 4:7 (NIV)
God bless bro.
Hi Bryan, thanks a lot for the many wonderful insights! Yes, we should start with being good stewards of what has been given us, we must somehow prove ourselves first of our worthiness, I guess these are the private victories that Steven Covey talks about. And then, maybe, we can be entrusted with more, like OPM for example. 🙂
More money does not solve the problem if lack of financial literacy is the problem.
Very true Jay!
God bless you and your family more and more each day.