How to Start From Scratch
While the American education system will at best teach you an occupation, it won't automatically teach you what to do with the proceeds of that occupation. Here's a story to shed some light on how families who manage money well do what they do, by starting early. Hopefully, by demonstrating rather than telling, the principles these types of families instill into generation after generation will become clear, and help everyone who is starting from scratch, regardless of their circumstances and whatever support they may have or not have in their lives.
Our parents had no money when they got married, but when we were born they immediately started a college fund (maybe even before we were born). So our college was paid for. Compounding is a powerful concept, especially after ten years when you start to see the results.
Sis and I started with a clean slate and no student loans. Granted, our parents were down near 0 after we finished college but they're OK now, and were able to catch up. Especially since they didn't have to worry about us.
It's helpful if each generation gets to start from scratch, to build self-awareness and self-confidence. I started with nothing, and didn’t ask for help. With my first real job I made $22K a year. After a year, I got a $2K raise and realized this wouldn’t bode well for the future, so I picked up a side job.
I also met a Taiwanese family where the father was reassigned back to Taiwan, and the rest of the family didn't want to leave or bounce back and forth between US and Taiwan until they knew how things would play out longer term. I rented a room for $300/month, which gave them peace of mind, having an English-speaking adult in the house.
Because of the rent and side job, plus the fact that I don't drink, smoke, or do drugs, I was able to live on the side job income and bank my paycheck.
2 years later I had $30K cash to put down on a $140K townhouse.
8 years later I was less than $20K away from paying off the townhouse, and had $90K in the bank since I’d gone independent by then. Reasoning: if it all went to hell in a handbasket, I could send myself back to school. And this is in addition to max'ed out 401K/IRA and SEP (Simplified Employee Pension plan for independent contractors). Zero credit card debt. Only my first car had a car loan. When I did this I was single the entire time, no kids.
It's also helpful to know when you're starting out, that life circumstances like medical issues, choosing the wrong life partner, and divorce can devastate finances.
I have a friend who did a similar thing. Family started with nothing, she’s now a self-made multi-millionaire in real estate with multiplexes at age 40. In fact, growing up they were so poor relatives would gift the kids money, they would hide it, and their mom would find it and spend it.
Her tenants rent nicer places than she does; she’s in a plain 1 bedroom with hardly any furniture, and the least expensive tenant’s rent more than covers hers. We're both doing similar things:
- We're real estate investors, but rent ourselves, which may sound strange initially if you think about homestead exemption, etc. If freedom is important and you rent, you can move quickly and not have to find a tenant to replace you, try to sell a place in a down market, etc.
- You might want to live in a better (or smaller) place than your rentals. If we suddenly decide next year we’re better off across the river in Battery Park, we can easily do this.
- We can rent one of the units to a general contractor / property manager instead.
Main thing: if something happened and we lost it all (and our family lived through world wars, occupations, life altering events and lost it all multiple times), we’d simply go back to our roots and start again, since we know how to start from scratch. Greed and love of money will Eventually catch up with people at some point in their lifetime. But for the ones who do things right, they’re under the radar and you won’t even know they’re there. And they trade tips with each other and are chuck full of valuable information that would put Everyone starting from scratch on equal footing.