Home Buyer Playbook by Greg Gale

Home Buyer Playbook by Greg Gale

CHAPTER 1 C.I.A. – Credit – Income - Assets

What happened?

What was it that brought you to this book, the one you’re beginning to read right now?

And how did this book - which should have been about pumping iron and building massive biceps - end up becoming a book about home ownership?

Let’s start with the most important of those questions. The one about you and your path to reading this book.

Assuming no one put a gun to your head and forced you, then you’re reading by choice.

Chances are, you’ve chosen to read this book because you’re interested in its premise. Reading the book’s cover or perhaps its write-up on Amazon.com, you’ve seen that the subject is home ownership. More specifically, the book promises to provide you with a proven strategy - or a “playbook”, as per the title - for successfully achieving home ownership. Why, though, are you even interested in home ownership? After all, it’s not exactly something which any of us suddenly decides to think about. Especially not when there are endless demands at work, family responsibilities, and yes - to be totally honest here - even great shows to watch (so-called “must see TV”).

What’s your reason (or reasons) then, for wanting to buy a home?

Is it because you view owning a home as the standard for having “made it”? That’s certainly the case for some people and it’s a perfectly legitimate reason too.

Or, perhaps you view a home as an asset, which can be leveraged in the future for retirement and other financial goals.

Then again, you might be driven to home ownership out of anger. Anger could be a major motivator for you, if you’ve had to endure sleazy landlords, loud neighbors, and other annoying aspects of renting an apartment. In this third case, you may view owning a home as the key to eliminating the annoyances and frankly, regaining your sanity.

Anger and the reasons before it are only three potential explanations for why a person like yourself may want to buy a home. Apart from these three, there are a myriad of other possible explanations. Too many in fact, for us to adequately address.

Fortunately, though, your exact reason(s) are largely irrelevant. What matters is that you’re here now. Reading this book about home ownership.

Yet this book, as you might recall from earlier, should have been about pumping iron and building massive biceps. So how did it change so dramatically, to become focused on home ownership?

To answer that, it’s helpful to know about me. “Me”, as in the person writing for you.

Greg Gale.

I’m the author of this book. I’m also a husband, proud father to two children, a martial artist, a golfer and a coach.

The important thing for you to know about me, at least with this book, is that I’m a mortgage banker/broker. As of this writing, I’ve been in the business for well over a decade. During that time, I’ve helped over 3,000 people get loans. In dollar terms, that works out to over half a billion (*with a “B”) dollars in funded loans, since October of 2008. Prior to mortgages, I was a personal trainer and martial arts instructor. That’s where the part about pumping iron and biceps comes in. For if this book were written before my mortgage career, it would undoubtedly have been fitness focused. I’d have taken my insights on getting “shredded” (*slang for being really, really fit) and put them into a book.

Yet that’s not what happened. Instead, my book ended up being about owning a home.

How did it change so much? Or, more appropriately, how did I change so much? From being a personal trainer - a so-called “meat head”- the last person you’d ever turn to for reputable advice on buying a home. To helping those 2,500+ people get the financing they needed for achieving the dream of owning a home.

What happened?

The short answer is that I let go. As in, I let go of all the beliefs which had kept me locked in the identity of a personal trainer.

One of those beliefs was simply not thinking big enough and then taking action towards that bigger think.

To be clear, I was working 14 hour days and felt capped in regards to how many people I had the ability to train. The vision I was missing was running more of a business and knowing that I could open my own gym and have people work for me, otherwise known as leveraged income. These are all things I didn’t know in my 20’s and many of the successful businesspeople I was training were guiding me into sales due to my people and relationship skills. So as a trainer I was trading my time for money, there’s a fixed number of hours available. Where in sales or in leveraged income, there is no ceiling, it’s not fixed. You may be a master of time management, employing various productivity hacks, getting up early, and having ZERO social life. Yet eventually, you will run out of hours. You’ll hit a figurative “ceiling” where it’s difficult, if not impossible, to put in anymore “billable hours” beyond those you’re currently working.

When that happens, your income also hits a “ceiling”. You may want to earn more, but the “time for money” paradigm prevents it.

Your only option to earn more would be to stop trading time for money. And to do that you’d need to rid yourself of a limiting belief.

Can you see now why limiting beliefs are so problematic? Or, in my specific case, how they held me in place, preventing meaningful personal growth?

If you’re up for some soul-searching, it might be worth thinking about the limiting beliefs in your own life. Take some time and reflect on what ways of thinking could be holding you back.

While you’re doing that, let’s get back to where we were - before we went on this whole tangent about limiting beliefs.

Think back and you’ll recall we were discussing how exactly I went from being a personal trainer to becoming a trusted advisor for thousands of home buyers.

The key in that transformation was letting go of my limiting beliefs. When I let go of my limiting beliefs, I could see a new road.

The new figurative road diverged sharply from the one I was on as a personal trainer.

My personal trainer road (“Bodybuilding Blvd”) seemed to end in a metaphorical cul-desac. Yet the new road (“Lender Lane”), led toward a career in the mortgage industry. To travel down that new road, I would need a teacher. Someone skilled in the mortgage industry, who knew every stretch of this “road” like the proverbial back of their hand.

While there were plenty of prospective teachers, one stood out to me. His name was “JB” and he was the most successful mortgage broker I knew.

There was, however, just one problem, “I had no vision, no Big Think for the mortgage business either”.

JB however, had a vision, a big vision. He shared that with me on day 1 and as his vision got bigger he shared that as well. I was totally bought into his vision and both he and I took massive actions towards it.

As his student, I worked alongside JB - pulling 14-hour days for 3 years.

Working such long hours for 3 straight years may sound like drudgery. Yet I never viewed my time with JB in those terms. Where others might see “drudgery”, I saw an opportunity to learn from a true master - someone I regarded as the “King of Mortgages”.

And what did I learn?

Anything you could ever want to know about mortgages.

10,000 hours of mortgage-related facts, figures, strategies, and insights. All taken directly from one of the industry’s most experienced players, as he and I worked together each day.

Looking back, it would be an understatement to describe my time with JB as “important”. “Lifechanging” is a far more appropriate description.

If you’ve ever met someone who’s had a “ripple” effect on your life - profoundly influencing it for the better - you may know what I’m referring to. Often you can become an entirely new person - unrecognizable to others or your “old” self.

That certainly happened for me. JB’s influence caused me to begin thinking, speaking, and acting like a successful mortgage broker.

Not that there was anything fake about it, though. My new identity as a successful mortgage broker was solidified by real world results. The results came as JB and I worked together and succeeded in tripling his existing mortgage business. Together, we took the business from $28 million in closed volume to $96 million.

With growth like that, JB and I were in the top of our company. We were also ranked in the top 1% for all mortgage teams nationally.

In fairness to JB, the success we achieved came first and foremost from his expertise. What I “brought to the table” - at least initially - was a thirst for knowledge and a willingness to outwork anyone.

Reading that last part, about JB’s expertise, you wonder why I’m writing this book. After all, if JB was younger than me and taught me everything I know about mortgages, shouldn’t he be the author?

Personally, I’d be inclined to agree. The bitter truth, however, is that JB is no longer with us. His time on Earth was cut tragically short.

The untimely end came just three years after we’d met. Three years that seemed to pass in the blink of an eye, as we ascended together to the heights of the mortgage industry. I mentioned “ripples” a moment ago, and JB’s passing was no exception. It too produced “ripples” in my life. Perhaps you can relate here as well, especially if you’ve ever lost a loved one or a close friend. The loss seems to come out of nowhere, doesn’t it? One minute life is flowing smoothly. The next, it’s as though someone has hit the “pause” button and your life is suddenly “frozen” in place. The world around you may still be moving forward, but you simply cannot. You’re held in place by the death and its consequences - whether emotional, psychological, or even financial. Eventually, you’ll begin to inch forward. The death’s hold on you, its figurative “ball and chain”, will loosen a bit - allowing you to wriggle out. As this happens, you’ll start to “get over it”, as those unaffected by the death would say. From there, things may return to a semi-normal state. I say “semi-” because few if any of us see our lives return to full normalcy following the death of someone we care deeply about. We may be able to laugh again at jokes. We may develop strong new relationships and come to care for different people. Nonetheless, there’s nearly always a lingering sense somewhere deep down of the loss. The feeling persists within us, even as we move on… Wow! That got depressing really quick. Not exactly uplifting material for you to read. More importantly, it’s NOT moving you any closer to your goal of owning a home.

That is your goal in reading this book, right? To get the facts on what it’ll take for you to own a home?

If so, then let’s cut to the chase. You now know the basics of my “origin story”. How I went from being a personal trainer to being in the mortgage industry.

For the sake of time, I’ve left out memorable moments from that story. Moments for example, like when JB and I had our first interview together. Or when he and I found ourselves unexpectedly confronted by sunlight, in the parking lot outside our office on a Friday afternoon. In the latter instance, I remember it being the first time we’d ended work in time to catch the daylight.

Moments like those are ones I’ll never forget. But what about you? You may nod along and appreciate that I’m “opening up” with a story or two. Still, you’re not here to read a storybook or revel in my nostalgia. We can probably count on one finger of one hand, the number of readers who’d actually want to do that.

Get the picture? Then it’s time to move on.

As we do proceed, let me mention just one more thing - quickly! - about my road into the mortgage industry. Stick with me for another few paragraphs, because this particular part of my story is crucial.

It’s about the aftermath of JB’s death. If you’re wondering what came next, here’s the quick version. The summary or “cliffs notes”, if you will…

As I struggled to rebuild in the aftermath of JB’s death, life threw another curveball. This curveball was the 2008 Financial Crisis. Like countless others, in and around the financial world, I too never saw the crisis coming. It hit me between the eyes, with comparable speed and force as JB’s death. Calamitous as the ‘08 crisis was, however, it may have been exactly what I needed. For the crisis knocked me out of my depression over losing JB. His death was still deeply painful to think about. But it could no longer dominate my attention. The financial crisis demanded immediate attention and action on my part. In response to the crisis (the financial one), I decided to take matters into my own hands and start my own mortgage team. This meant going out on my own. Taking a major risk, to start from scratch in the heart of the recession. As you can probably guess, the risk paid off. The team I founded during the recession in 2008, the Gale Team, has become one of the top mortgage teams in the country. Moreover, I’ve been recognized for a decade by The Scotsman Guide as one of the top 1% of mortgage originators nationwide. There have been other awards and accolades over the years too. What you’d probably care more about, however, are the people who my team and I have worked with. Hearing about them will give you a better idea of what we (my team and I) do. It’ll also give you a clearer sense of how a mortgage team can help you - regardless of which team you might ultimately choose. In the interest of clarity, I’m going to shut up for a page or two. Replacing me in this next part will be a few of the Gale Team’s many past clients. These are REAL people who we’ve helped to become home owners.

The first of those people would be Isha. Since Isha’s story happens to be a bit complicated, here’s a quick summary for you.

In Isha’s case, she came to us hoping to purchase a home. She felt it was within reach, yet couldn’t see a clear path to ownership.

Initially, we helped Isha to achieve the dream of home ownership in 2009, purchasing a house for $65,000. She then sold the house in 2013 for $96,000 and purchased another one for $256,000. Fast forward by four years and Isha turned to us for help refinancing the $256K home. Refinancing allowed her to reduce payments on that home and purchase yet another for $479,000.

The $479K house became Isha’s primary residence. As for the $256K one, which we’d helped her refinance; Isha turned that earlier house into a rental property.

Today Isha’s rental property goes for around $2,100 per month and she pays just $1,500 per month on its mortgage. That works out to an easy $600 in cashflow. Not bad for someone who, only a decade ago, saw owning a home of ANY kind, as being a major challenge.

Alright, you know the basics of Isha’s story. Now hear how it was, from her perspective.

Take it away Isha…

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Greg was very responsive & always willing to help when we had questions, even on weekends! This was the smoothest loan with Greg & his team to date, & it was a pleasure working with you [Greg] again!

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After Isha, here are some of the experiences of other people we’ve worked with over the years…

Clie

They [Greg Gale and the Gale Team] went the distance reviewing, assessing and advising me to provide the best options for financing. They were always willing to discuss different / separate approaches. And little to no wait times for their responses. I always felt welcomed when I called, emailed my questions and they responded in short turnaround.

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Zuel

The Gale Team did a great job making the mortgage process easy and straightforward. They met every timeline we set and were even able to make last minute adjustments without delay. I would recommend them to anyone, and will use them again for my needs. Thanks

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Glynis

I highly recommend The Gale Team. They made applying and receiving my home loan a breeze. I received a email at the end of each week to keep me updated on what has been completed and what was the next step. Also, all phone calls and questions were answered immediately. So happy I went with The Gale Team at Nova Home Loans!

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I’m back! What did you think? Was it helpful to hear directly from actual people we’ve worked with in the past? Hopefully it was. Let me also point out that you can read more feedback from our clients online. Just visit this link - https://thegaleteam.com/reviews/ Don’t go online just yet, though. We’re heading into what may be the most significant section of this chapter. All of the “background stuff” is done. You know who I am and how this book made such a major leap (from fitness to home ownership). Having concluded that, we can turn our attention fully to home ownership and how exactly you achieve it.

The best way to begin this next discussion - the central one for the book - is with an overview of what we’ll be covering.

In the pages which follow, you’re going to get the complete playbook to home ownership. This playbook is the exact recipe for you to own a home. No matter where you are on the path to ownership, you can rest assured that the concepts in the book are applicable to your situation.

How can I be so certain? Especially since you and I have never met?

Simple. Remember the track record I mentioned to you, earlier in this chapter? Flip back a few pages and you’ll see where I described helping over 2,500 people to get loans. (*That total by the way, is since 2008 - when I started my own Mortgage Team. It does not therefore include all of the additional people who I helped, while working with JB.) Having helped so many people, I’m confident that while you’re undoubtedly unique - a “snowflake”, as the motivational speakers like to say - it’s highly likely that I’ve assisted someone in a similar situation to you. Similar, at least where mortgages are concerned. Spend decades in this industry, as I have, and you’ll realize that there aren’t that many differences among clients. Barring the rarest of rare outliers, most clients tend to be in comparable positions. The clients themselves don’t look the same, of course. But their circumstances and the ways I’m able to help them do. And for our purposes here, in this playbook, that’s what matters.

Speaking of the playbook, you’ll be pleased to know that it’s not complex. “Playbook” may be a somewhat complex word - a “whopping” two syllables. Yet there’s nothing “whopping” about the material itself. Nothing that’s going to leave you as bewildered as I was, following JB’s passing or the financial crisis. The material you’ll be reading in the coming chapters will be centred around three things. These three are the fundamentals for all loan applications. If you want to think in terms of sports plays, as per our “playbook” title, the three fundamentals are what’s needed to run a successful play.

The “Big 3” in any loan application are credit, income, and assets.

Let’s tackle the first of those - credit. For our purposes here, we’ll consider credit initially in the context of credit scores.

What’s a credit score?

It’s essentially a number which reflects the chances you’ll actually repay those you’ve borrowed money from. This number is calculated independently by the three major credit bureaus (Experian, TransUnion, and Equifax), along with credit score providers like FICO (creators of the FICO score). When it comes to the number in a credit score, higher is always better. This is because the higher your credit score, the better the terms you’ll receive when borrowing money (a.k.a. getting a loan). “Terms” in this case, with loans, refers to the rates, fees, and loan programs you’ll have access to when borrowing (i.e. taking a loan). Higher credit scores therefore lead to “better” terms, in the sense of better rates, lower fees, and more supportive loan programs. Loans, for their part, matter because they’re what most of us use when purchasing a home. Assuming you don’t have suitcases of cash on hand, you’ll probably be taking out a loan too. Your credit score will thus be an important factor dictating the terms of your loan. While credit scores are important, having “poor credit” is NOT the end of the world. (*Poor credit, according to the credit bureau Experian, is indicated by a FICO score under 580 (out of 850)1 .) If your score happens to be sub-580, take comfort in the knowledge that it can be raised. That’s why I say “poor credit” isn’t the end of the world. Your low score isn’t the “end”, just as a low score during a football game isn’t the “end” either. The football comparison works here because credit is a game. When you know the rules of it, you can play the credit game - just as you would a football game - and get your score up. _____________________________________ 1 McGurran, Brianna. “How to ‘Fix’ a Bad Credit Score. Experian. 29 July 2019. https://www.experian.com/blogs/askexperian/credit-education/improving- credit/how-to-fix-a-bad-credit-score/

We’ll be covering the rules of the credit “game”, as it relates to home buying, later in this book. Alongside that, we’ll also be digging deep into income and assets.

Income and assets, remember them? They were the other two fundamentals in a loan application.

“Income” means how much money you’re earning versus how much you have in debts. In home buying, your income will help to determine how much you can pay in monthly mortgage payments (i.e. payments on the loan for purchasing a home). In theory, the more you can pay per month on the mortgage, the more expensive a home you can purchase. Notice how we say “in theory”. That’s a tip- off to the fact that in reality, there may be a disconnect between what you can pay each month for a loan, versus what you truly want to pay. You may, for example, qualify to purchase a home where the mortgage payments are $1,500 per month. But if your goal was $1,300 per month in mortgage payments, you’d need to pick a different home. This example illustrates how income shapes your home buying criteria. It also conveys the importance of talking to a mortgage broker before you go out looking at homes. On the latter point, about talking to a mortgage broker; make sure you do that prior to home shopping. You don’t want to get excited, for instance, about a $400,000 home, and then realize later that the monthly mortgage for it is higher than what you’d want to pay. Imagine how disappointing that would be. You’d probably feel crushed, especially if you’d begin to mentally move into the house - having dreams and daydreams about living there.

All that disappointment. And it could easily have been avoided just by consulting a mortgage broker before you went in search of your dream home.

OK, that’s income. What about the third fundamental in a loan application?

You mean assets?

“Assets” are the funds you have available to use toward the purchase of your home. Your assets can be in a bank account, or they may be drawn from another source like a 401K. Since you’re taking out a loan, your assets don’t have to cover the entire cost of the home. Instead, whatever assets you have must be enough for the down payment. After the downpayment is covered, your assets can figuratively “step back”. Your income can then “step in” to cover the monthly mortgage payments.

See how income and assets fit together in home buying? And let’s not forget about credit either. We saw earlier that it too has a vital role to play whenever you’re pursuing a loan for the greater goal of purchasing a home.

Income and assets, remember them? They were the other two fundamentals in a loan application.

“Income” means how much money you’re earning versus how much you have in debts. In home buying, your income will help to determine how much you can pay in monthly mortgage payments (i.e. payments on the loan for purchasing a home). In theory, the more you can pay per month on the mortgage, the more expensive a home you can purchase. Notice how we say “in theory”. That’s a tip- off to the fact that in reality, there may be a disconnect between what you can pay each month for a loan, versus what you truly want to pay. You may, for example, qualify to purchase a home where the mortgage payments are $1,500 per month. But if your goal was $1,300 per month in mortgage payments, you’d need to pick a different home. This example illustrates how income shapes your home buying criteria. It also conveys the importance of talking to a mortgage broker before you go out looking at homes. On the latter point, about talking to a mortgage broker; make sure you do that prior to home shopping. You don’t want to get excited, for instance, about a $400,000 home, and then realize later that the monthly mortgage for it is higher than what you’d want to pay. Imagine how disappointing that would be. You’d probably feel crushed, especially if you’d begin to mentally move into the house - having dreams and daydreams about living there.

All that disappointment. And it could easily have been avoided just by consulting a mortgage broker before you went in search of your dream home.

OK, that’s income. What about the third fundamental in a loan application?

You mean assets?

“Assets” are the funds you have available to use toward the purchase of your home. Your assets can be in a bank account, or they may be drawn from another source like a 401K. Since you’re taking out a loan, your assets don’t have to cover the entire cost of the home. Instead, whatever assets you have must be enough for the down payment. After the downpayment is covered, your assets can figuratively “step back”. Your income can then “step in” to cover the monthly mortgage payments.

See how income and assets fit together in home buying? And let’s not forget about credit either. We saw earlier that it too has a vital role to play whenever you’re pursuing a loan for the greater goal of purchasing a home.

Credit.

Income.

Assets.

The three key elements of our playbook to home ownership.

And subjects of deeper discussion in the remainder of this book.

Before we get to that discussion, let’s conclude this chapter by setting expectations.

When it comes to expectations, what can you realistically expect from reading this book? Or, to be more specific, by the time you finish my book - what can you expect to know or be able to do? The answer is that you’ll be clear on what it takes to buy a home. That’s what I can guarantee you, if you stick around till the end and give this book an honest read.

Will you do it?

I suppose it depends on the kind of person you are.

If you’re a “serial starter”, the kind of person who starts things but then never finishes them; then you probably won’t. You won’t finish this book because you tend not to finish most other things. Somehow, though, I doubt you’re a “serial starter”. It’s unlikely you’d have made it this far in the book if you were. You’d have stopped a few pages ago because honestly, I’m not that talented a writer. Not talented enough to hold flakey, non-serious readers spellbound for page after page. Stephen King, J.K Rowling, and other bestselling authors can do it. But me? I’m a mortgage guy, not some literary genius. So, if you’re still here, reading what I’ve written; then it’s evident you didn’t come for the writing itself. You came instead for the content - the material being covered. It’s why you’re here. You want this “playbook” I keep talking about. The one which will enable you to become a homeowner.

You want the playbook. And you know what you don’t want?

I’m not a mind reader by any stretch. Yet I’m certain you don’t want endless “circling”. Meaning endless sentences about what you’re going to learn. An introduction which is way too long and becomes tedious.

Let’s keep this intro chapter from becoming like that, by ending it here and now.

Join me in the next chapter as we begin the specifics of our playbook. Beginning with a deep dive into what may be the most neglected step in preparing to buy a home…

CHAPTER 2 Assets & Budgeting

The truth will set you free.

Ever heard that one? It’s been so widely cited as to have become a cliche.

And for good reason too. Just think about your own life. Hasn’t there been a time when you’ve told the truth - to others or even yourself - and it’s helped to resolve difficulties? Can’t think of a personal example? Then picture a disgraced public figure. Anyone from politics, entertainment, or sports. No matter who you choose, we can probably both agree that their lives might never have taken such a negative turn if they’d only been more truthful.

Ok, you say, but why are we talking about truth? What’s any of this got to do with home ownership?

The connection is that as you proceed down the road to home ownership, you’ll need to master the concept of budgeting. Budgeting is so essential in fact that we’ll be devoting this entire chapter to discussing it. Yet for all its merits, budgeting seems like an exception to the idea that the truth will set you free. It’s as though the more truthful you are when setting and following a budget, the less freedom you’ll seemingly have. How free are you, for example, when a budget prevents you from eating out at the finest restaurants in town? Or when a budget keeps you from buying the latest fashions? In these two cases, and countless others, budgets seem to repress rather than liberate.

But is this really true?

No, thankfully it’s not. Budgets are not inherently “totalitarian”. Moreover, creating and following a budget can actually be an empowering and liberating experience. If that latter claim - especially the “liberating” part - seems too good to be true, stick with me. Over the course of this chapter, you’ll learn exactly how budgets empower, liberate, and ultimately supercharge your drive toward home ownership.

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To launch our discussion, let’s get clear on what we’re talking about when we say “budget”.

A budget, for our purposes here, can be defined as an estimation of your expenses over a specified future period of time. This estimation serves as a plan for how you’ll spend a certain amount of money in order to control your overall money supply and grow it.

With this definition, it’s important to call attention to two important things.

First, our definition says nothing about financial sacrifice. Nothing as well about “pinching pennies” or having to downgrade your quality of life. I raise this point because the word “budget” is often associated with precisely those things. You may hear “budget”, for example, and think of having to sacrifice your current diet for a low-cost diet of ramen noodles and canned spam. “Budget” might also cause you to imagine trading the excitement of an exotic vacation for the “excitement” (note the quotes) of a Stay-cation (like a vacation, only spent at home). If staycations, ramen, and spam are what you associate with “budget”; then you’re in for a pleasant surprise. You’ll be pleased to learn that none of those three things are a foregone conclusion when budgeting. Neither is having to cut costs, period. Our definition of a “budget” simply notes that you’ll spend a certain amount of money in order to control your money and grow it. Whether that entails extreme cost-cutting (i.e. ramen, spam, etc.) is up to you. Just realize that it doesn’t have to. Apart from this first point, regarding our definition of “budget”; it’s worth mentioning that we’re future-focused. What I mean is that “budget”, as we’ll be discussing it in this chapter, is about having a set amount of time and money that you’re putting aside for the future. This is the opposite of how people often perceive “budget” - viewing it as a look back on what was spent and what one’s habits were. Let’s also get clear on what’s meant by the phrase “set amount of time”. We need to clear that phrase up because it could lead you to mistakenly think of time management.

For the record, we’re NOT talking about time management. Instead, “set amount of time” means the amount of time in which your budget will operate.

And that would be?

My recommendation is that you do it monthly. Budgeting by the month works because it takes into account the fact that most bills are also monthly (i.e. electricity, water, mortgage, credit card, etc.). Not a fan of monthly budgeting? Feel free to go smaller, budgeting on a daily basis. Don’t go bigger, though. Trying to budget over a bigger time period than just monthly (say quarterly, semi-annually, or annually) is bound to trip you up. It reduces or eliminates outright your ability to pivot financially.

You can see the danger of budgeting in bigger chunks than one month, with the following analogy.

Picture an ocean liner and a small racing boat (a so-called “cigarette boat”). The ocean liner is hands-down the more majestic-looking craft. It strides across the waves, while the cigarette boat erratically darts about like a fly trapped behind a glass window.

Still, what happens when the ocean liner runs into trouble?

You need only think of another ocean liner, one that actor Leonardo DiCaprio sailed aboard in a certain movie.

The Titanic.

When that fabled vessel came upon an iceberg, it was game over. The Titanic’s size prevented it from pivoting, both to avoid hitting the iceberg and then to escape further damage following impact. How about the cigarette boat? Unlike the Titanic and other ocean liners; the cigarette boat’s size does not become a liability, restricting its responsiveness. The tiny craft can immediately pivot to safety at the first sign of trouble. The takeaway from this analogy, with the two boats, is that a small time-frame (monthly, weekly) is preferable to a large time-frame (quarterly, semi-annually, annually) when budgeting. This is because like the cigarette boat, a small time- frame for budgeting allows you to immediately respond at the first signs of a catastrophic event (i.e. a financial “iceberg”). You won’t be “dead in the water” and doomed to take a hit, as might be the case with both a large time-frame and an ocean liner.

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Can you avoid the financial “icebergs”? Great, but danger still looms on the horizon.

The danger now is that you’ll take your hands off the wheel, figuratively- speaking, and stop steering your financial life. If this happens, you’ll find yourself drifting along financially. Drifting is the approach most people take with their finances. The average person in the U.S. tends to just drift through life, living paycheck-to-paycheck or worse, using their credit cards to get by. Each of these approaches seems to work in the short-term, yet both are ultimately losing propositions. Living paycheck to paycheck is a losing proposition because it chains you to your job. If anything - and I mean, ANYTHING - happens to your job, you’ll suddenly be hardpressed for money. Imagine going to work each day with that kind of pressure on your shoulders. It would be like having an economic gun pressed to your head. Eventually, as the pressure grew, you might just want to blow your brains out.

As for the other scenario - credit cards and using them to get by financially; you can probably see the problem there. The issue is that credit cards have limits. Whether it’s $500, $5,000, or $500,000; there’s inevitably a limit to what you can spend on a given credit card. There are also limits to the number of credit cards you can get. You can’t therefore continually burn through cards and get new ones. Eventually you’ll be out of cards and credit to spend. When this happens, you’ll be out of cash and you’ll have the added “bonus” of poor credit.

Do you want to end up in that position?

The question’s rhetorical. For unless you’re a financial masochist, I’d imagine you don’t want to wind up in the “credit card hell” just described. You’re probably not eager to live paycheck-to-paycheck either. To avoid both scenarios, you must be intentional about your finances. That means having a plan - or, as per our definition - a budget. With a budget you’ll know where you’re going financially, and you can course-correct to stay on track and out of financial ruts.

The benefits of budgeting don’t stop there either. With a budget, you can also soar to incredible heights in regard to your personal savings.

Imagine getting to the point, where you could save 10% of your income. Impossible? No, not at all. It’s well within reach.

The following example shows how you might do it.

Suppose you made $50,000 per year. Ten percent of $50,000 would be $5,000 saved. Breaking down the $5,000 on a monthly basis (i.e. dividing it by 12 months), works out to just $416 per month. Keep in mind as well, that your total monthly earnings are approximately $4,166 ($50,000 divided by 12 months). The question then, is whether you could set aside $416 each month and live on the remainder ($3,750). If you’re like most people, you’re up to the challenge. In fact, it probably won’t be a challenge. After all, most people who earn $50K are already taking $416 or more out of their monthly earnings. They’re just doing it for the wrong reason - to pay their car loans and credit card bills, versus saving proactively. Imagine then, how it would be for you if saving, versus simply paying bills. Your little $416 per month would grow at a conservative 7% return. Over ten years, you’d have $50,000 saved up. Actually, it would be more like $100,000 saved up. Reason being that we need to take into account the Rule of 72. The Rule of 72 is a financial principle which states that your money at 7% will double every ten years. That means after saving $5,000 per year for a decade, you’d have savings of $100,000. Not a bad ROI (return on investment). Plus, if you could hang in there for another decade, the $100,000 would double again, becoming $200,000.

Can you see now why budgets are important? The right budget would enable you, as per our example above, to save $200,000. It would also keep you safely away from “icebergs” and drifting, those two dangers we talked about earlier. Let’s not forget about home ownership either. As the core subject of this book, home ownership serves as another reason to budget. This becomes most apparent by looking at the three components which make up the mortgage you’ll use to buy a home. The health of each of those three components (credit, income, and assets) is directly dependent on whether you consistently budget. Take the first of those components, your credit. With budgeting, you can anticipate bills in advance and pay them on time. Paying bills on time shows lenders and financial institutions that you’re trustworthy, causing your credit to improve. Improved credit, in turn, gives you more options on loans to use in purchasing a home. It also reduces the interest rate you’ll pay each month on your home loan. Next up is income, the second component in a mortgage. Budgets improve your income by allowing you to keep more of it. This is important because your income is what you keep, not what you make. Consider for example, making $4,000 per month. It’s a healthy chunk of change. Except that you also have bills totaling $3,000 each month. These bills must be handled first, leaving you with just $1,000 each month to spend elsewhere. That $1,000 is all you have left for groceries, meals at restaurants, and even a vacation. Moreover, the $1,000 must also cover any emergencies. If you have an emergency where your child is hospitalized, you may have to choose between groceries and paying hospital bills. Groceries or your child’s hospital bills? With budgeting, you’ll be free from these kinds of gut-wrenching decisions. The freedom comes from following a budget and thus keeping more of your income. On a budget, you’d earn the same $4,000 each month, yet after paying bills, buying groceries, going out to eat, and maybe even handling a hospital visit or two for your child; you’d still have $1,000 left to keep and put in savings. As your savings increase, you’ll have more money available to use in acquiring assets. Assets are worth acquiring because they’re the third component of a mortgage. In a mortgage context, the extent of your assets will further determine your available options. Depending on what assets you’ve acquired, you’ll find yourself with more (or less) possibilities for purchasing a home, loan programs, and structuring the negotiations for your next home (if you’re already a homeowner).

Want more options? You probably do. But budgeting, the key to having more options, isn’t always easy.

I’ll be the first to admit that. I’ve been there, at the grocery store for instance, and struggled to avoid buying certain foods that would put me over my grocery budget. If you’ve ever faced a similar struggle, you know what I’m getting at. It can be downright painful to avoid certain purchases and stay on budget. In times like those, when the temptation to overspend arises; I’ve found it’s helpful to put aside the word “options”. Stop thinking about budgeting as giving you options. That’s too mild a description. “Options” aren’t compelling enough to make you put down the tub of ice cream when it will clearly put you over your grocery budget. In place of the word “options”, substitute the word “freedom”.

With “Freedom”, you can see budgeting for what it really is - a long-term play. This perspective allows you to then ask yourself two critical questions -

1) Do you want short-term gratification and a lifetime of living paycheck to paycheck?

2) Would you rather trade some gratification now, for financial freedom in the long-term?

Like most of the questions I’ve given you, these latter two probably aren’t difficult to answer. Nearly all of us want long-term financial freedom.

We want the financial freedom, for example, to take our kids on vacations to Disney World, Hawaii, and other fun destinations. In between the trips, we also want the financial freedom to buy our kids new clothes for school and high- quality school supplies. Beyond the kids, think about your own well-being too. Being financially free means you’re covered in your retirement, unlike 76% of our population who retire with $0.00. With financial freedom, you’re not among the 73% of Americans living paycheck-topaycheck either. Unlike the 73%, you’ve got savings which provide a financial “cushion”. You may have a home as well - one that builds equity and creates generational wealth. Sold on the idea of financial freedom? Then keep that idea at the forefront of your mind, whenever you think about budgeting. As you do, you’ll be instilled with a sense of purpose and find it easier to budget. The ease comes from knowing that creating and adhering to a budget is not just an empty sacrifice. The sacrifice you make counts for something more. It gets you one step closer to achieving “financial freedom”, regardless of what you define that to mean.

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Having a purpose behind budgeting sounds great, but do you really need one? Or can you just “wink” at the idea of purpose, and then get down to business, budgeting without it? My advice here is to avoid trying to budget without first knowing your “why” (a.k.a. your purpose). It’s a major mistake, one that will only end in frustration. Using yet another analogy, budgeting without a “why” would be like putting yourself through pain at the gym in order to...

…put yourself through pain at the gym?

I rest my case.

Continuing from that first budgeting mistake (not having a “why”), let’s talk now about five more.

1) Denial

Denial is a budgeting mistake where you deny that budgeting is necessary. In some instances, this denial may be supported by the seemingly altruistic claim that “money won’t make you happy”. Since money can’t buy happiness, the implication is that money and money-related activities (like budgeting, for example) are therefore not matters of immediate importance.

In response to those in denial, let me point out that yes, it’s true - money will not make you happy.

All the same, have you considered the opposite? Suppose you didn’t have money. Would that make you happy?

My guess is that it wouldn’t. The reason is that you’d have less options for what you could do.

Logically, less options means less choices. Having choices is typically associated with freedom. Freedom, in turn, is typically seen as desirable - with a person feeling happier, the freer they are. So, putting all that together, not having money tends to limit your choices (or eliminates them altogether), reducing your freedom, and making you unhappy in the end. Now, for all the philosophers reading this, what I’ve just said is not meant as the final word on happiness, money, and the meaning of life. Remember, I’m just a personal trainer who fell into the mortgage business. Whether that was good luck, cosmic karma, or some other philosophical principle at work is beyond me. That’s for you guys and gals - the philosophers reading this chapter - to figure out. In the meantime, let’s get back to budgeting mistakes. My point in that whole diatribe on money and happiness was to dispel the rationale against budgeting. I wanted to show you that yes, money does matter. And since it matters, budgeting also matters - as the means of keeping your money in order.

Think too, of just how hard you work in order to get your paycheck. If you’re like most working professionals, you’re probably working your tail off. Each week likely feels like a grind to you, and Friday at 5 PM can’t come soon enough. If, on the other hand, you’re the type who spends their “workday” on Facebook or watching superhero movie trailers; you may be tempted to disregard what I’m saying. Even in those cases, though, I’d be willing to bet that you still feel as though the paycheck you’re receiving isn’t just being given away. You’re still putting in some effort to get paid, even if that “effort” is just clicking away from Facebook when your boss walks by. Whether you’re working hard or hardly working, the bottom line is that your paycheck is precious. Recognize that and adopt budgeting to ensure your paycheck is put to its highest and best use.

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2) The Math Excuse

Another of the mistakes I see people make with budgeting is fixating on the math side of it. This leads to what we can call “the math excuse”.

With the “math excuse”, opponents of budgeting excuse themselves from having to budget because they’re “not good at math”.

Whenever I hear this line, I want to pull my hair out in frustration. Trouble is, if you’ve seen photos of my head, you know that’s no longer possible. So all I can do now is fume inwardly. The math excuse makes me angry because budgeting is not rocket science. Much of the math is rooted in simple addition and subtraction. Can you add up a set of expenses to see how much you spent in a given month? Can you subtract certain expenses to bring your total spending in line with a desired target? Then voila, you’ve got the math skills necessary to succeed at budgeting. Besides, even if basic math intimidates you; there’s still hope. Check out Microsoft Excel and you’ll find that it can do budgeting calculations for you. Alternatively, if you’re anti-Microsoft or just prefer smart-phone apps, there are plenty of budgeting apps for the same purpose.

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3) Fear of Deprivation

Remember when we spoke earlier of Spam, Ramen Noodles, and the god- awful staycation? Our point was that those three things were often mistakenly associated with budgets. Yet as we said then and must reiterate now - our definition of budgeting doesn’t include such things. Nor does it include deprivation period. As a result, it’s silly to be afraid of budgeting on the grounds that it will mean depriving yourself.

If anything, what you should really be afraid of is NOT budgeting. Be afraid, be very afraid of NOT budgeting. That’s because when you don’t follow a budget you deprive yourself of future money. If that happens on too great an extent, you may find yourself uncomfortably close to the nightmare of spam, ramen, and stay-cations.

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4) The “I Have Arrived” Mentality

At what point are you in such good shape financially, that you no longer need to budget? I don’t know. But I can tell you this - you’d better have a net worth of well over $30 million.

Why $30M? It’s the cash net worth of one of my mentors. This guy has clearly “arrived” financially. Yet he still budgets and saves his money.

My mentor could probably stop budgeting and saving. Stopping, though, would mean breaking what are now firmly rooted habits. Habits which are as natural for my mentor today, as brushing teeth is for you. If my mentor is still budgeting and saving with his $30M in the bank; what does that say about the importance of these behaviors? I believe it shows that you’re never “too successful” to budget and save. Those behaviors remain important for anyone, even those who’s bank balances indicate they’ve “arrived”.

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5) No Discipline

The last of the major mistakes I see people make, with respect to budgeting, is not having the discipline to do it consistently.

Why do people lack discipline in this area? Perhaps it’s because they don’t understand what “discipline” means.

Discipline may cause you to think of military drill sergeants, straight out of the film Full Metal Jacket, screaming at terrified recruits. That’s not the kind of “discipline” we’re talking about. Our discipline is self-discipline, coming from within rather than being imposed on you by someone else. Furthermore, “discipline” as we’re discussing it here is simpler too. It’s merely the act of building a habit that you stick with no matter what. If you can build the habit of budgeting, for example, and then stick to it; then you’ve got discipline. “Habits”, there’s that word again. Remember how we said my mentor budgets now out of habit? Since it’s a habit, my mentor doesn’t have to use any willpower to force himself toward budgeting. Budgeting feels natural to him, just as it will for you when you build and maintain that habit too.