Something I’ve learned as a Realtor is that most people don’t really understand finances. And this isn’t anecdotal. While an overwhelming majority of Americans believe they are financially literate, according to a recent FINRA study, they are not.
In the study, 71 percent rated their financial knowledge as high but 59 percent couldn’t complete two simple interest rate and inflation calculations, and 38 percent couldn’t calculate the compound interest of a debt.
Lack of financial literacy
To be fair, financial literacy really isn’t taught in schools and hasn’t been in a long time. On top of that, most people think it’s rude to talk about money, so it’s easy to see how we got where we are today.
I see this firsthand every day because I specialize in short sales. While some of my clients end up facing financial problems due to unforeseen circumstances, like an illness, a death in the family or the loss of a job, many end up facing financial problems due to their own financial choices.
Don’t get the wrong idea — that does not make them bad people. They’re good people who just made poor financial choices. But their lack of financial literacy hurts them, both in the short term and more importantly, in the long term. That’s because a significant misstep, such as a bankruptcy or foreclosure, can set them back several years from a financial perspective.
Think about it — when someone gets hit with a foreclosure, not only do they lose their home, but their credit also takes a significant hit. Now they have trouble finding a new place to live because it’s harder to qualify, they have to put down a larger deposit, and their interest rate on any new credit, and often even existing credit, goes up.
This makes it harder to save, meaning a smaller emergency fund if they have one at all, and saving for retirement gets pushed to the backburner. That’s often years of potential compounding interest lost, all because they didn’t have the financial education to make better choices.
Investing in real estate
Dr. David Phelps wants to change this situation by leveraging one of my favorite subjects — real estate.
Phelps initially dabbled in real estate investing while running his dental practice, but when his daughter was suddenly facing leukemia, epilepsy and liver failure, he realized that he needed to take control of his life in a way that would allow him to support her through the fight for her life.
He sold his dental practice and poured the proceeds into real estate. It didn’t take him long to replace his income, but now he was generating it passively. This gave him the freedom of time without taking away the income he needed to support his family.
During this process, Phelps realized something that shocked him — most of the financial industry was giving people bad advice.
The vast majority of financial professionals push a model where clients are told to invest in securities like stocks, bonds, and CDs and then, at retirement, begin selling these assets off.
On the surface, it seems to make sense. It seems just like putting money into a saving account, except it offers a significantly higher return.
But Phelps says this is backward thinking.
“When you take that approach, you’re depleting your assets. You could run out of money — especially if the economy takes a downturn. And you’ll have nothing to leave to your family. But when you properly invest in real estate, you’ll earn passive income while your asset appreciates in value, and over time, the passive income from that asset will increase as well,” he explains.
Before long, his friends from the dental industry began asking him how he made this transition. From there, he launched the investing community Freedom Founders. This quickly grew into a successful business, but becoming a member of this elite group was still too costly for the average person.
Phelps knew he wanted to help more people than he could through Freedom Founders, so he put the principles he teaches within his investing community into a book that anyone can afford.
“I know that most people don’t have the financial education they need to achieve true financial freedom, and we’re facing an uncertain economy, so most people never achieve the financial freedom they deserve,” he said.
“I also know firsthand how impactful financial freedom can be, so I wanted to bring this knowledge to more people,” said Phelps.
Phelps says that the positive impact of successful financial planning goes far beyond the individual’s own family.
“Their wealth then helps support other entrepreneurs, their local communities and even the nation through economic activity. This is how we create a profound positive impact in the world,” Phelps explains.
Own Your Freedom: Sustainable Wealth for a Volatile World is available either on Amazon, or through OwnYour FreedomBook.com, where you’ll also receive three bonus items to jump-start your journey to freedom.
I personally think real estate is an amazing investment, and having seen what Dr. David Phelps has achieved through his own real estate investing, as well as teaching others to invest in real estate. I’m confident in recommending this book to others.
Every time I have the opportunity to catch up with him, I learn something new, and I hear the same from most of the people in my circle. I think that says a lot, considering that most of my circle is in real estate or the financial industry, so the bar is already set pretty high.