I was the original Mr. Money Mustache before the wheels came off…

The other day I was thinking about how I once bought my first home and a brand new car in the same month.  What would I tell my young self if I had to do it again?

I graduated from UC Santa Cruz in 1998. (Go Banana Slugs! yes it is indeed our school mascot…) that’s another story for another time…

With my fresh degree in global economics I was ready to conquer the World! That was right before the Dot-Com Bubble, and I remember at our graduation ceremony, the commencement speaker from Silicon Valley telling us, that it was a great year to graduate and that we had a great future ahead.

Now I needed to get started, but wasn’t too sure on what kind of job to get.  I knew that I wanted to be in sales, as I liked the idea of getting paid a commission.  I also knew that I wanted to live in San Diego, CA.  I moved down to San Diego and started crashing at my sister’s apartment.  It was now time to look for a job.  I was going to accept this entry level job at a local bank, when I saw this ad from the local newspaper that was very intriguing to me.  It was an inside sales job, where I had to call on big companies and pitch them these sports packages, to host their clients during all the major sporting events.  I had just finished my college career playing basketball and thought this was a marriage made in heaven.  Talk about sports all day, and make money doing it was the ideal job for me.  It was a small salary of $15,000.00 a year plus commission.

My Mr. Money Mustache Era begins:

I started renting a room.  The rent was $175.00/month with all utilities included.  I had a paid off 1989 Ford Tempo that I had bought when I was in college.  The crazy thing was that the $1,250.00 I was making each month, was more than enough to cover all of my monthly expenses, with extra money left.  I had $300.00 of extra money left each month, and if you add the $9,000.00 commission money I made that first year, I had $7,000.00 in my savings account by the end of my first year working.   I was rich and life was great!

Ford Tempo                   This is a picture of my 1989 Ford Tempo

Moving on up:

The following year I was promoted to sales manager and that is when the money started pouring in…hahaha.  As a sales manager, I had a monthly base of $2,500.00 plus commission.  I was now managing my own sales team of 5.  At the end of year two I made $54,000.00.  I thought I had arrived.  I decided to rent a 2 bedroom apartment with my cousin.  The rent wasn’t too bad as we were splitting the $1,200.00 monthly rental.  I could afford the $600.00 in rent, so I went for it.  My new motto became “if I can afford it, why not“.  Needless to say my Mr. Money Mustache era was over!  I quickly became a consumption beast, and had my my first credit card from Zales.  I off course had to take my Zales card for a spin, and got a $1,000.00 Movado watch.  My credit debt started to pile up and my savings dwindled, but I was only just getting started.

Time to upgrade the car:

I was working downtown and everybody was driving a nice car, so I naturally felt that I needed to upgrade to a better car just because (if I can afford it, why not).  I also needed to build a credit history, and the best way to get started was to finance a car, so I sold my Ford Tempo and bought a 1997 Nissan Maxima with all the bells and whistles…and also got a monthly car payment of $350.00.  It was an exciting time, as I thought as I was becoming an adult with responsibilities and stuff.

1997_Nissan_Maxima_GLE_3My 1997 Nissan Maxima

The big job leap:

4 years after graduating college and working in sports marketing industry, I felt I was ready to start my own business.  I had spent 4 years learning the sales, marketing, and most importantly the operations and know how, that I felt I was ready to start my own firm.  I wasn’t married and had no kids, and thought I really had nothing to lose, so I started my own company.  For the first 6 months I didn’t sell much and was struggling to establish myself and my company.  All of my existing accounts from the old company, who were very happy with the way I handled their accounts, were very scared to give me and my new company a chance.  I had hoped to get at least 40% of my old accounts to come with me, but none of them did.  I was now faced with an even bigger challenge to attract new companies that had never worked with me, to give me a chance.  I gave myself an 8 month goal to make it happen, or I had to get get a real job working for someone else.  Month 7 was the month I had hoped for, I closed this huge account that started my company.   After landing that big account I brought in 4 more major accounts which solidified me as a company.  I made over $100K that year!

My big home and car purchase:

After year 1 in my new business, I felt like I was on a good foundation, as I started getting repeat business.  This is when president George W. Bush was pushing the American Dream of owning a house.  Banks were lending to anybody, and I thought I was ready to buy my first home.  It was a calculated move, as I still had my cousin living with me and paying rent, and he would move into the new home with me and help me with the mortgage.  I felt it was a win win for me, and started looking at condos. I found a new construction project in a very desirable area near downtown.  It was a beautiful 2 story Mediterranean style townhouse at $395K,  and they only required a $10K deposit.  I qualified for a first and second mortgage to cover the entire loan, I was in business!  My loan terms were terrible, but I wanted the house so bad that I agreed to them.  It was a 5 year fixed interest only, and I would pay $1,900.00 per month for the first 5 years.  I could afford the payment, so I went for it and closed.  I wasn’t sure if I would keep the house for 5 years, so I thought it was a great loan to get started and call myself a homeowner!

I still remember the day I closed on the house and received the keys in 2003.  I felt like a huge success having my own home.  I was a little anxious about the idea of having a mortgage, which was a bit higher than my old rent.  One week after I moved into my new town house, I told myself that I could not have a new house without having a new car to put in the driveway, right?  So I went and bought a brand new Infiniti FX 35.  It was the first year that Infiniti had introduced those mid size SUV’s, and the loan wasn’t too bad as the monthly payment was at $450.00, which was only $100.00 more than my then existing car loan.  (if I can afford it, why not), right?

IMG_0033 This my Brand New Town House, with my Brand New Infiniti FX35 parked in front of it

What if I had continued being Mr. Money Mustache?

Would my life have changed that much if I had continued being a Mustachian?  Yes it would have completely changed.

Let’s look at the numbers:

After graduation, my expenses were $750.00 a month.  When I decided to move in with my cousin and rent an apartment, my monthly expenses would have gone up by $425.00 to $1,175.00.  I would have had to pay for utilities and cable, which would have raised my expenses to $1,300.00 max.  At that point I already knew I could live off $1,300.00 a month, as I had done it for a year.

Year 2 of my job I made $54,000.00, which means I could have saved $26,500.00 after expenses.  I made around the same amount of money the following 3 years, and would have saved $79,500.00.  If you add the $7,000.00 I saved in year 1, I would have saved $86,500.00 in the first 4 years.

Year 5 to 10: I had then started my new company and was making at least $100,000.00 a year as a base salary, and netted around $6,300.00/month.  At year 5 my cousin moved away, and I would have rented a one bedroom apartment in the same building at around $1,000.00/month, which would have raised my expenses to around $2,000.00/month including utilities.  With my base salary of $100,000.00/year, I could have saved $4,250.00 a month or $51,000.00 a year for the following 6 years.  That would have been a total of $306,000.00 in 6 years.  If you add that to the $86,500.00, I would have had a principal of $392,500.00 at year 10.  When I put these numbers into an investment calculator, it shows me that at an 6.7% return in an S&P 500 Index Fund (from 1998-2007), I would have accumulated $517,094.00 after 10 years.  Using the 4% rule I could have taken out $20,683.76/year or $1,723.65/month if needed.  This is the true definition of having F.U. money.  Just to give you an idea, my monthly expenses in 2017 are now $2,700.00 which I will lower to $2,300.00 next year.

So basically the moral of the story is that if I had seen the light 18 years ago, I would have been financially independent in 2007.  Even with the recession of 2008,  my nest egg would probably be more than $1.15 Million now.  With this nest egg, at a 4% withdrawal rate, I could afford to take out $46,000.00 a year, or $3,833.33/month.

In conclusion, I would like to say thank you to Mr. Money Mustache and everyone else in the FI community for changing my life!  I’m almost there, and will reach FI in 2019 or sooner.

Five personal finance tips I have learned in the last 3 years!

In the last 3 years I have been so consumed with learning as much as I could about personal finance. I am so passionate about this topic and feel I can’t get enough of it, and yes I am addicted to personal finance.  

I don’t remember the last time I was so excited about anything, besides my wife of course…lol.  In the past I developed interests but they never lasted too long, and the excitement always fizzled with time.  My newest interest with Personal Finance and financial independence doesn’t seem to fizzle, on the contrary it is gaining steam.  I have been trying to figure out why I love this stuff so much…

Why am I soo intrigued about this early financial independence or freedom?  My biggest “WHY” is due to the line of work I have been in since 1998.  I help my clients from Fortune 500 companies use the attraction of major sporting events or concerts to invite their top clients or hard to reach prospects. I provide them with the best luxury skyboxes or VIP tickets where they get to entertain their clients while being entertained by the concert or sporting event they are attending.  As an ex basketball player this industry is a passion of mine, because I feel like I am still involved in the entertainment aspect of it and get to meet all the celebrities that we contract out, and have made some great friendship with my clients.

From the outside looking in, it looks like a great gig for a sports buff like myself and I have the best job in the World, right?  Well yes and no, yes for the reasons I mentioned above with all the perks I get, and unlimited potential on how much I can make on any given month.  No because it’s a very stressful industry and everytime there is a recession or market correction, companies tighten their belts and cut their marketing budgets first, and I’m not needed anymore. The 2008 recession cost me my first company and forced me to reinvent myself by downsizing drastically.  I am certain now, that there is no way I can rely on my industry alone to provide for me financially for the next 20 years, and need to save as much as I can to have some types of passive income to fall back on.

I have been trying to develop 3 different baskets of passive income, so that I don’t have all my eggs in 1 basket alone. My 3 baskets consist of Real Estate Rental Income, Paper Asset Investment Income and Income from my Company. When I turn 67 I will add another basket with social security income.  The reason why I chose 3 baskets, is to always have at least one basket generating passive income to cover my expenses as a worst case scenario. I also have 1 year of emergency fund in a liquid account.  

How did I develop the 3 basket rule?

I relied heavily on all the blogs on personal finance I am reading, as well as all the daily podcasts I listen to.  I have all the podcasts on my ipod and always listen to them when I am at the gym or traveling.  I can now recite my favorite ones.  Slowly but surely I started laying a foundation on really understanding personal finance.

Here are the 5 tips or lessons I learned and feel anybody should know to start their journey towards FI:

  1. Know your monthly expenses:  I created an excel spreadsheet and started tracking all my monthly expenses.  Once you know your monthly expenses, you have now won half the battle, can start figuring out where you can save money to lower your expenses even more. I use my spreadsheet to balance my checkbook every month. I can always go back and track my past expenses, since I now have 4 years of monthly expenses recorded to date.  There are also apps that can help you track your monthly expenses such as Mint or Personal Capital. I actually use personal capital to track my net worth, but I prefer using the good old-fashioned excel spreadsheet.  As an example our monthly expenses are now $2,700.00 down from $3,500.00 last year. My goal is to lower it to $2,300.00 a month by next year.
  2. The Rule of 300 or the 4% rule:  I first heard of this term by listening to Todd Tresidder from Financial Mentor.  He basically said that to know how much you will need to save for your retirement, simply multiply your monthly expenses by 300, and you will have an idea of what kind of nest egg you will need to create in order to retire.  This rule is also commonly described as the 4% rule from the old trinity study.  This study claims that you can safely withdraw 4% from your retirement savings, if you have a balanced portfolio of stocks and bonds without touching your principal.  As an example using the rule of 300, we would need to save $810,000.00 in order to cover our $2,700.00 monthly expenses.  This is a great way to track your progress, as you now have a real number to target as a goal.  After we knew our number we started building our 2 baskets (Real Estate and Paper Asset)
  3. Saving rate towards retirement:  The conventional way of investing towards retirement is putting away 10 to 15 % of your income towards an employer’s 401K, and hope that there’s a match offered.  The problem with this approach is that you have now accepted that you will work 40 plus years before you can retire.  I graduated college with a degree in global economics, but was never taught how to save money or invest towards retirement.  I had to learn it the hard way.  When you work for a small business that does not offer any retirement plan or if you have your own business, it is harder to start saving because you have to remember to do it personally.  We all know it’s not natural to save money especially at a young age in your 20s or 30s.  you have to be more vigilant and disciplined towards saving and investing into an IRA account or a solo 401K.  I personally really started paying attention and really investing towards retirement in 2013.  I refused to believe that I will work full time until I reach the conventional retirement age of 65, so I had to put my retirement savings into high gear.  I now invest between 50 and 65% of my income.  If you are able to save 50% of your income, you basically just shaved off one year of working each year you save 50%.  You can basically work one year, save 50% and take the next year off, as you will have saved a full year of income. You have now learned to live off 50% of your income, which is a HUGE DEAL!  This also means that if you save 50% of your income each year towards retirement, you can technically retire in 17 years!  Can you believe that?  If you are able to save 65% of your income you could be retired in 10 and half years.  To me this is mind boggling!!  I always tell my wife what Dave Ramsey, the debt reduction guru always says: Sacrifice like no other now, so that you can retire like no other!!  This is so true!  This is really hard to achieve as you have to be disciplined and able to live off the 35 to 50% of your income.  The great news is that this level of saving can really get started at any age, if you haven’t started saving towards retirement and you are in your 40s of 50s you can still do it.  Mr. Money Moustache has a great article and graph that shows how many years you will work depending on your savings rate.  You just need to be disciplined and have that mindset change.
  4. Mindset Shift:  This is a really important point, as we are a consumer society and like to buy, buy and buy more. I used to be the king of spending money, and thought that it was my right to buy expensive stuff.  I leased a Mercedes at $1,100.00/month, went on expensive vacations, had a private account at Nordstrom with a personal shopper there to manage my account.  She would call me everytime new merchandise came in and she always put clothes aside for me.  That service cost me thousands of dollars each year.  I know what you’re thinking, and I’m thinking the same thing, what a waste of money!…  with the amount of money I spent on useless stuff, I could have been retired by now….  The big question to ask yourself here is what is your “why”?   Why are you saving towards retirement?  I really feel that once you discover your why, things become very easy and your mindset changes.  My why was being able to have that freedom of not relying solely on my work income basket to pay for my monthly expenses.  I love what I do and know that I would love it even more if I didn’t have to rely on hitting my monthly goals.
  5. Semi-Retirement:  The thought of being semi-retired is what I am shooting for.  I don’t really want to be fully retired as I want to be able to still keep my mind sharp a few hours a day.  My wife has a lot of hobbies and being retired is very easy for her.  Yes, my wife has now been retired for 2 years!!  We bought 2 vacation rental properties in Mexico in 2013 and 2014 (part of our Real Estate Basket), and the properties are doing great.  My wife is in charge of the rentals and it probably takes her 30 minutes each day to reply to inquiries, and she has the rest of the day to really pursue her passions. (that will be another blog to share my wife hobbies…lol).  Our rental properties now cover 80% of our monthly expenses!  We are very excited and blessed about the quick revenue generating from these 2 properties.  I remember reading a blog that mentioned that if you could make $1,000.00 a month with a part time job that you are passionate about then using the rule of 300, we would only need to come up with $510,000.00 of savings to cover our expenses, this would save us $310,000.00.  I don’t know about you but $500,000.00 is easier to get to than $800,000.00, just saying…

I hope you find this helpful in your journey towards financial freedom.