2008–the wake up call:
My odyssey from a spendthrift workaholic to a frugal living semi-retired entrepreneur has been an 8 year journey. As many people will relate, 2008 was the turning point. My once thriving business was all but bankrupt, I had 10 people on my payroll I was struggling to meet at $60K a month, and I had a large space in an A+ office building that was running me another $5K a month. All told, I was looking at a monthly nut I had to cover of $75K in a business that had been hugely affected by the economic downturn. My personal finances were just as stressful with a $1K car payment, large mortgage, and 5 rental properties in Arizona which were purchased before the bubble burst. Basically, I realized this was the time to make a drastic change and simplify my life before I had a heart attack at age 36.
WIFE INTERJECTION: He claims he “won” me with his expensive Mercedes, I say I don’t even notice cars and it was actually his smile. 🙂
Making the BIG changes:
The first step was to close my business. This was not an easy decision, I had put my blood, sweat and tears into this enterprise for over 6 years and built it into a very successful and (hitherto) profitable company and my employees were like family. Fortunately for me, my business can be scaled up or down, so I was able to let my employees go knowing they would have unemployment to fall back on, and the expensive office lease go and re-start under a new business and much leaner organization. Next, my rental properties had to be divested, they were under water and hemorrhaging money. Sure, my credit score took a hit on this one (me and the rest of the country that is), but it had to be done to pare down and de-stress my life. Next went the expensive leased car and the upside-down condo I lived in. I was fortunate to be able to save a lot of money since all this timed perfectly with getting engaged and married. We decided to live in my wife’s condo since hers was bought after the bubble burst and seemed like a better long term investment. This effectively cut my personal housing budget in half. The leased car was replaced by a bike.
Now, my life was looking much more manageable and my stress was instantly cut in half. It sounds so simple, but sometimes it just takes making that first step, then the next, then the next to get back on the right path. I started to become very aware of my spending and analyzing all my what I once thought were “necessary” expenses. Did I really need to spend $300 at Nordstrom per month on clothing? No–first of all, because I was now working from home and secondly let’s face it, do any of us need that many clothes? Next up was eating out. As a single guy, I was eating out twice a day, every single day. This just naturally changed once I moved in with my wife and we budgeted a new reasonable amount that allowed for groceries and occasional eating out that still cut my budget by half.
WIFE INTERJECTION: Duh, yeah, you’ll save money when you learn how to boil water to make pasta once in awhile.
Other unnecessary stuff was soon tossed out of the budget: dry-cleaning, bottle service and “clubbing” at trendy downtown hotspots, HBO, extravagant vacations, my dread locks which were costing me $100/month and 4 HOURS of my time (this took a lot of persuading by my wife to let go), and even seemingly minor stuff like gas (my expensive vehicle took premium gas and was a guzzler, not to mention I was now driving less due to being at home). It was a whole mindset change for me—I used to valet park at the mall! I literally went from never thinking twice about spending to micro-analyzing every detail of the budget (there’s probably a happy medium there somewhere). I think some of this emphasizes how important it is for you and your spouse to be on the same page when it comes to spending. I know they say opposites attract, but when it comes to your money strategy, it is important to be in sync.
WIFE INTERJECTION: I would’ve paid someone $100/month to convince him to get rid of the dreads…but phew…it didn’t come to that.
Research and the blogoshphere:
As the budget worked itself out, we had more money to begin our retirement savings plan. Our strategy was to save 10% of our income per year to put towards retirement and began researching the best vehicles to do this. I began obsessively following and reading about retirement planning. My first discovery was Dave Ramsey. He gave me the mindset I needed to realize the material things I was stressing myself out over were not only not necessary, but in fact just causing me to perpetuate this rat race cycle I had been a part of for so long (my wife kind of gives me a “told you so” on this—especially the need for a fancy car when I work from home and my longest commute is to the gym 2 miles away). Next, I discovered Mr. Money Mustache, the Mad Fientist, and Joshua Sheats. They took it a step further by encouraging me to strive to not only save for retirement, but save and plan for EARLY retirement. My new goal was retire before my father in law did, at age 55. It was becoming clear that 10% was not going to cut it to make that happen. We ended up investing more like 20% the first year and have been increasing that number every year since. On top of the obvious reasons for early retirement, I had been concerned for some time my industry would be obsolete well before my retirement age, so this only gave me more motivation to work to retire early. My wife actually felt the exact same about her business and was also coming to that same realization.
The savings and budget part was coming along, but there was still another piece of the puzzle—passive income. From my constant devouring of all things frugal and financial, I came to realize that passive income was a necessity for early retirees to provide an income stream. My wife suggested Mexico as a great market for us to dip our feet into passive income planning—the short term rental market there is relatively cheap to break into, very much in demand, and close to home. With the popularity of vacation rental sites and SEO Marketing, the ease of doing this became more manageable than ever before. Our first investment was in the popular resort town of Cabo San Lucas. We did a lot of research and analysis of the market before deciding but eventually settled on a 2 bedroom condo in a complex close to the main beach and downtown. This investment ended up doing amazingly well, really beyond what we expected, so in a year we decided to add another similar type of condo in the super hot rental market resort town of Playa del Carmen just south of Cancun in the Riviera Maya. We now manage 2 successful rental properties with income netting enough to cover a huge percentage of our personal monthly expenses—freeing up a lot of income from our jobs that can now be used to put towards retirement investing.
WIFE INTERJECTION: I had an ulterior motive with Mexico, who doesn’t dream of owning a condo in a resort town? And it’s a win-win, now going on vacation to Mexico is a “business expense”
2016 and beyond:
So to summarize our strategy, we started with a 3 prong strategy to begin to tackle our goal of early retirement: lowering living expenses, saving/investing, and rental income. I am still earning a good income from my business but instead of paying overhead on payroll and rent, that money though less than I was grossing before, was netting enough to make the bottom line similar to before, and along with drastically lowered personal expenses, was allowing us to save much more than I ever had in my life (truth be told I never saved much until I had these eye-opening events happen in ’08).
Please let me know what you think and your requests!
I know this first post was very broad, but I wanted you to know my background before delving into the nitty gritty details in future posts—index funds, investment strategies, rental property strategies, budgeting, owning vs. renting, the list goes on. Please comment below, what do you want to hear about in more detail?