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!
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.
My 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?
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.