Was buying 2 properties overseas a better investment than buying them in the US?

So yesterday I was having a discussion with my wife about the condo we sold in San Diego two years ago.  I looked it up on Zillow to see how much it had appreciated, and to my surprise it had appreciated by $100K.  So I was wondering if we made a mistake of selling it too early.  Did we leave money on the table?

It made me think about the 2 properties we bought in Mexico in 2013 and 2014.  The big issue with buying properties in Mexico is that there is no way to see how much they appreciate as sites like Zillow do not keep track of properties appreciation in Mexico.  This has kept our net worth from growing as fast as we had hoped.

Our 2 properties in Mexico cost us $450K, so what if we had spent that amount in San Diego to buy a rental property, would we have a higher net worth than we do now?

Let’s look at the numbers:

Buying a property in San Diego:

 

The San Diego Condo we soldElysian

Let’s say we had bought a 2 bedroom condo in San Diego at $450K which would be similar to the one we sold.  let’s compare apples to apples and buy the condo cash as we did with both properties in Mexico, because financing there is very difficult to obtain and the interest rate is ridiculously high.

So with no mortgage payment, the only cost to us would be the HOA of $370.00/month, property taxes of $440.00/month, homeowner’s insurance of $160/month and add $150.00/month for miscellaneous repairs, total expense cost is $1,120.00/month.  To be competitive in the neighborhood we lived in, we would rent it at $2,500.00/month.  So in theory we would clear $1,380.00/month, which is really good as a passive income.

Buying properties in Mexico:

This is our Condo complex in CaboPCV

We bought our first condo in the very touristy town of Cabo San Lucas, and our second condo in the equally touristy spot of Playa del Carmen on the Carribean side of Mexico.  The great thing about buying properties in Mexico is that the property taxes are almost non-existent.  The yearly combined taxes we pay for our condos is $600.00!  I know it is crazy to believe that it can be this low.  They do get you though when you sell your property, as the capital gain taxes are at 35%.  There are ways to get around that by hiring a good lawyer.

We don’t do yearly rentals and have chosen the vacation rental path.  It has been very lucrative for us to rent them daily and weekly.  We chose that route so that we could vacation at our properties whenever we choose to.  Last year we netted $2,400.00/month with our rentals.

Conclusions:

At first glance buying the properties in Mexico has yielded a better monthly and yearly return than if we had purchased the property in California.  We have been investing the profits into our Vanguards Accounts, and were able to put away more than $100K the last 3 years.  The only big positive of buying the property in California, is that our property would have appreciated yearly.  We would have probably increased our property value by at least $100K.

As a conclusion, I would say that either options would have worked really well for us.  Like any investment that one makes there is always a certain degree of risk involved, and that is how we rationalize buying the 2 properties in Mexico.  We will probably sell one of the properties in the next few years, and keep the other property for about 20 years.  I am currently 45 years old and do not see myself still having a rental property when I am 65, but who knows…

Should I change my portfolio from balanced to aggressive? Here is my 4 Basket Strategy!

Yesterday I was talking to my father in law about investing, and he was amazed that I had a balanced portfolio at my age.  He is 73 years old and even though we both invest in index funds, he is heavily invested in stocks.  His portfolio is 95% stocks and 5% bonds.

We had a constructive debate defending our positions:

My argument was that with the current president, there are so many unknowns that I just couldn’t trust the market.  Therefore I changed my portfolio from an 80 stocks/20 bonds to a more conservative 60 stocks/40 bonds.  I also did it because I didn’t want to risk losing my nest egg by putting all my eggs in 1 basket.

His argument was that he wanted to gain as much as possible, and grow it as much as he could when the economy was doing well.  He accepted the fact that if the market tanked he wouldn’t touch his portfolio. His safety net is that he has a pension that he collects, as well as the social security.  These 2 are enough for him to cover all of his expenses. He now has to take out the required minimum distribution from his 401k, but he doesn’t really need this income.

So this got me thinking, am I being too conservative with my investments and should I get more aggressive?

After doing some research and forensic work on my portfolio, I realized I had too much cash on hand and was playing it too safe so I decided that maybe I should give it a try and invest more money in equity.

Here is my strategy: I shall call it the 4 Basket Strategy!  

I would like to be able to rely on 4 streams of income to minimize my risk and be ready for any scenario that life might throw at me.

Here are my 4 Baskets:

  1. Cash/Emergency Reserve: I have heard from a lot of people in the personal finance field, that a 6 month cash reserve is a good milestone to reach, so that you can cover your expenses for 6 months in case you lose your job.  With my job being so unpredictable I put aside 2 years worth of emergency fund aside.  I love the security that it gives me as I always have a full year of expenses paid for, and it gives me a year to replenish it. I know some people might think that is too much money to have in a liquid account, but the peace of mind is worth a lot to me.  The security of not having to worry about my day-to-day expenses is wonderful!
  2. Rental Income: Our 2 rental properties are doing really well and we are cash flow positive on both properties. This is a great way to generate a passive income, as we don’t really do much work on them because we have 2 property managers who handle the rentals and maintenance.  This income covers most of our monthly expenses and our goal is to increase it to where it covers all of our expenses.  We use this basket to replenish our cash reserve each year.
  3. Vanguard Portfolio:  I have a SEP IRA that I max out every year.  I have actually started doing a Roth Conversion this year, which was actually easier than I thought through Vanguard.  My CPA helped me out with paying the least amount of taxes on the converted money.  I also max out a regular Roth IRA each year and these are the 2 retirement accounts that we have.  We have a huge amount of money invested in a taxable mix of index funds.  This is where I had a 60/40 ratio of stocks versus bonds, but I have since changed that to a more aggressive approach of 90/10.  Our goal each year is being able to save at least $24K into our Vanguard accounts, and through our frugal living we have been able to save $100K in the last couple of years. So far so good!  I almost forgot to mention that in case of emergency I could tap into my taxable investments, and according to the 4% rule this basket would cover more than half of my expenses.
  4. Work Income from my company: I am self employed and able to work the hours I choose.  The beauty of my job is that I am location independent and can work from anywhere in the world as long as I have access to wifi and internet.  Though it is a very high pressure job, I love the excitement of it and it brings me an income that I can either use for my cash reserve or invest in my Vanguard portfolio. I also expense a lot of my bills through the company which is an added bonus of being self employed.  This basket is large enough to cover baskets 1 and 3.

This is how I developed the courage to become more aggressive with my 3rd basket, as it is a basket that I am not planning on touching for a long time while reinvesting the dividends to keep it growing.

I am still contemplating on how I could develop a 5th basket.  I keep telling my wife that I have a few hours a day I could dedicate to another way of creating an additional passive income basket.  Ideally I would like to find a way to monetize Frugal Safari as I am very passionate about personal finance, and would love to be able to generate income while pursuing this passion of mine.

I look forward to going to Fincon 17 to meet like minded folks and who knows, maybe I will learn how to monetize my site and create my 5th basket!

Stay tuned guys!

How technology changed my life and my quest towards financial independence

Technology is a huge part of our life.  I now see 11 year old kids with smartphones.  My 12 year old nephew is already an expert at social media and coding.  I was thinking the other day that without technology, I wouldn’t be where I am at today.

My life is great now due to all the technological innovations:

I started working in 1998, and have been in the same industry for the last 19 years now. I marvel at how technology really changed my industry and my life along the way.  I am a sports entertainment broker, and provide my clients with exclusive access to all major sporting events and concerts.  I provide them with backstage passes, field access, meet and greet with celebrities.

Technology at work:

In 1998, the hardest part of my job was researching leads.  We didn’t have any computers at work, and the best way to research leads was going to the local library and go through the business books they had.  My printing expenses were very high each month as these books couldn’t be checked out.  My company didn’t cover those printing expenses, so spending on those leads was a way to invest in yourself.  It’s crazy to think that having a computer was a luxury.  I remember being recruited by a bigger company in 1999, and we had to go train at the corporate headquarters in Chicago for 2 weeks.  They had their own library and librarian for researching leads.  That was mind boggling to us, that you didn’t have to go to the library anymore, and all you had to do is give your list to the librarian and she would print and deliver the leads to your desk.

Computer in our office:

Back in San Diego, we now had one computer in the copy room and we had to take turns using it.  I didn’t have to go to the library anymore which was unbelievable.  The reason why we couldn’t have a computer on our desks was to concentrate more on making calls than researching leads.  I kind of agreed, as it was very easy to get sidetracked with a computer.  Our motto then which is still my motto now is that a company will not buy from you if they have never heard of you!  Whats the point of having all of these leads if you never call them?  We used to say that our industry was a contact sport, and you had to initiate the contact or nothing would happen.

Computer on my desk:

Four years later, I started my own company.  It was scary at first, as I was on my own and didn’t have a whole team making calls.  I now had a computer on my desk which was revolutionary.  I could actually research a lead, save that lead on my computer and call that company at the same time.  I felt it gave me a huge competitive advantage.  I could talk to a potential client, while I was learning more about the company and competitors. I could email a proposal to a client, right after talking them when our discussion was still fresh in their mind.

Email Marketing:

My next step was trying to find out how I could reach a lot of people at the same time since I didn’t have a sales team to make the calls for me.  I would email an opportunity to dozens of potential clients, but it would take me a long time personalizing each email to be more effective.  I remember talking to my website developer about my frustrations of spending too much time personalizing my emails.  He suggested to me that there was a new company called bluehornet out of San Diego that could solve my problem of personalizing my emails and sending them out to the masses.  I could now send a personalized email to a thousand people in less than a minute.  It was like having an entire team of sales people working for me.  This was revolutionary, especially with the fact that people now have smartphones and get their emails on the go.  It is now still the most efficient way to reach people.

Sales Teams for hire:

Another revolutionary tool for me was hiring a telemarketing or telesales team.  The one single thing that salespeople hate is making cold calls and being rejected.  That is why the most cost effective way to alleviate that stress on you, is to hire a company that specializes in cold calling.  They become an extension of your team and generate good leads for you.  This will save you money, as you don’t have to hire people anymore, and cover a salary with benefits.  For a fraction of the cost I used to spend in hiring, training sales people, I am now covered and get fed good leads everyday.

Assistant and receptionist for hire:

Another tool that I use that allows me to travel more, and be location independent is having a virtual assistant and receptionist.  A virtual assistant can now be hired hourly, for as long as you want them each day.  It is not a computerized voice.  It is an actual person who answers your phone when a client calls, receives mail for you, and can also ship mail for you.  She can transfer the call to your cell phone, take messages and email them to you.  This is another way to make your company look trustworthy.

Airbnb:

This company has changed our World!  I’m really not sure how we would have been on track to financial independence without the emergence of Airbnb.  In 2013 we were seriously thinking about buying a condo in Cabo San Lucas, Mexico.  We vacation there a lot as it’s only an hour and half from San Diego.  Our goal was to buy a condo that we could use as a vacation rental now, while vacationing there when there are open dates.  We realized right away during our research, that the most important thing when owning a property overseas was finding a good local property manager.  The way things work there is that you hire a property manager, and he takes care of your bookings with a 30% commission on each booking.  In addition to that you have to pay them a few hundred dollars a month to maintain and manage your condo.  There was no way to go around that, so you had to account for that expense in your budget.  My wife refused to hire those expensive managers, so we settled on a local American manager who had lived there for 30 years and was only charging us $75.00 a month.  We were hoping to have our condo rented 50% of the time, as other owners told us it would be a good start. Airbnb blew that out of the water.  We now have it rented 90% of the time, which is incredible.  My wife handles the bookings, and we would never have created this level of success without Airbnb.  If anybody is interested in a great Cabo rental, please don’t hesitate to check out our listing here on Airbnb: Cabo San Lucas Listing .  We did so well in Cabo, that in 2014 we decided to buy another one in Playa Del Carmen on the Caribbean side of Mexico.  My wife applied the same Airbnb magic for this property, and it is doing unbelievable as well.  Here is our Playa Del Carmen Listing

PCVThis is our condo in Cabo San Lucas

Accessing your work computer remotely:

Another technology that has allowed us to travel 40 days each year, is being able to access my work computer remotely.  GoToMyPC is another revolutionary product.  I can now access my computer desktop from my smartphone anywhere in the World.  This is huge as it allows me to do my work remotely from any country in the World as long as I have WiFi access.  Last year, I was in my home country of Rwanda, Africa.  I was a bit nervous about the quality of WiFi as I would be visiting different sites away from the capital of Kigali.  I was so relieved to realize that the Rwandan government with the help of Microsoft had invested heavily in WiFi access throughout the country.  I was replying to my clients and closing Super Bowl deals from remote villages deep inside Rwanda.  It was exhilarating to be able to make money so far from home.  I now tell people that all I need is a WiFi to work from anywhere in the World.  I can also make calls using WiFi.

My final thoughts:

What’s great about technology is that I can fulfill my dream of traveling, and save money as everything is less expensive.  Without technology, I wouldn’t be able to work remotely, rent our condos, and talk to my friends and family for free thru mediums like WhatsApp or Viber, watch videos from friends on YouTube.  I am curious to hear your stories and see if technology has helped you in your journey towards FI.

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.  

Quieting your guilty inner voice: Slowing down and enjoying life

Getting off the Go-Go-Go treadmill

Most of us are so used to the on the go lifestyle, that when we do decide to down-size, get off that corporate treadmill, or go to part-time employment so we can pursue our passions, we have this ingrained sense of guilt that we cannot shake.  We have been conditioned our whole lives to quote Rihanna “work, work, work, work, work, work”, and when we finally figure out a way to enjoy life more and slave less, we have to really understand the psychology that underlies this huge lifestyle change.

 

workonthebeach1

Getting rid of the guilt

In order to rest easier, it is important to have a financial strategy in place, this becomes even more important for those who decide to simplify their lives and downsize.  Obviously, a lot of thought and preparation was put into your decision to let go of your over-sized mortgage, car lease, and/or your big corporate job, but once you do make the leap, a constant evaluation of your new finances is needed to make sure you’re sticking to  your plan. Key in this equation is keeping your expenses low–blowing your budget has much bigger repercussions now that you don’t have a consistent pay check coming in.  A tool I find very valuable in putting my mind at ease is personalcapital.com, a website that takes all your finances including your credit cards, bank accounts, and other financial info and gives you a snapshot of your net worth at any given time.  This includes an easy-to-use retirement calculator that will give you a very accurate picture of your status to make sure you’re on track.  It takes into account everything:  income, savings, assets, social security, pensions, debt, to give you a detailed analysis.  My other favorite tool is still my good old spreadsheets in conjunction with the online checking account.  I log every single item in and out, so I have an updated snapshot at all times so that we stay on track every single month.

 

personal-capital-retirement

 

 

Self employment and staying motivated:

Once you have your budgets set, and understand where you need to be each month, quarter, and year to achieve your goals, sometimes it’s harder than you think it will be to “let go” and work less.  We are finding that we have the full year’s budget saved, an additional cushion of 8 months liquid cash, and we have already doubled our retirement contribution yearly goal due to our huge expense savings we detailed in a previous blog.  The idea was to work less and travel more, which we are doing, but there is always that underlying nagging feeling that we are leaving money on the table by not pursuing more deals in our businesses.  I guess the main way we squelch that nagging inner voice is to keep reviewing our finances to continue to set our minds at ease until we get into the “semi-retired” mindset more completely.  It’s a work in progress. By the same token, neither of us would ever say “no” to a deal where we can “pad our stats” if the deal isn’t going to cause extra stress or get in the way of a planned vacation.  So it’s a give and take, we have the freedom to work when we need or want to, but we also have the freedom to say no to deals if we feel it will not fit with our lifestyle.

relax

 

We can create our perfect life:

We are starting to really understand that we are the creators of our lives.  We don’t have to answer to any corporate rules, we don’t have to clock in to any job, and we don’t have to live by anyone else’s schedule.  It takes time to really feel comfortable with this concept, most of us have spent years living by someone else’s rules and grew up thinking that was the only way to live.  But that mindset is getting smaller and smaller as it fades into the past, and the future is looking very bright indeed!

 

Next post:

Savoring travel rather than scarfing it:  the ability to really become part of the city your visiting using telecommuting and frugal travel strategies to make it happen.

travel

 

 

 

 

The 6-figure salary myth

The California Dream:

I admit, I subscribed to the very popular Southern California theory that in order to survive here, you needed to make a salary of at least $100K and up.  Make the money, spend the money, make the money, spend the money.  I was just spinning my wheels and really never saving anything.  All of my friends were doing exactly the same so I thought it was normal and took it for granted I was going to be working until I died in order to afford the California dream.

Wife Interjection: Yup, he was a PRO at spending money when we met! 

What changed my mind:

I cannot say there was an A-HA moment, it was really a gradual result of researching financial freedom podcasts, frugal living blogs, and a concerted effort to lower and understand our monthly expenses and what is needed to maintain our lifestyle.  Gradually, after going through everything with a fine tooth comb, we were able to lower our expenses from $6000 in 2013 to where they are now at $3500 per month with NO change in our lifestyle other than positive ones.  There were some key factors that made this possible.  The biggest was selling our residence.  We waited until the market was strong and after much analysis felt the time was right to go for it.  This saved us $800/month and the funny part was, we were able to rent a nicer and bigger place than what we had in the exact same area we lived in, AND banked a large profit on the sale!  The other biggie as you might have guessed was transportation.  In another effort to save monthly expense in my business, I had given up my rented office space and now work from home.  Thus, I no longer needed my Infiniti SUV which was costing me extra in insurance, gas, maintenance, and car payments.  Timing was right, since my father in law was giving away his car, a 1997 Honda Civic LX with low mileage.  The old me would’ve NEVER been seen in this car.  The new me takes pride in my fiscally responsible and frugal “LX“.

Wife Interjection: I never understood the Infiniti’s appeal, those 20″ tire rims?  Still reminds me of that scene from “Spinal Tap” with the amp that goes to 11. 

It’s the little things:

So those were the big ticket items, but there were other savings we were able to take advantage of.  We had been spending a lot on vacations before we bought our condos in Mexico.  Through changing our credit card to an Amex Starwood and using it to pay for business expenses which racks up the points, we almost always are able to get free rooms.  We also started flying out of Tijuana, which we are lucky to be able to do here in San Diego.  Finally, since we both have flexible schedules, we are able to book flights during low cost fare times.

Eating out and going out expenses were another line item that was dragging our budget down.  Much of that was because I was working outside of the home and buying lunches almost every day out.  Working from home changed that to almost never.  We still enjoy an occasional night out, but both of us agree, we prefer casual beachy restaurants to fancy ones anyway!

Wife interjection: what a win-win, he’s saving money and eating healthier!  

There are many other little expenses that can be saved on when you start looking into it.  In working from home, both of us are saving on dry cleaning and clothing.  We do not use a credit card, we always pay with cash or a debit card, so we try to keep “shopping” to a minimum and only on items that we truly need.

Living the life:

It is a very freeing feeling to know as a self-employed person, that I don’t have to kill myself every single month to meet my expenses.  Now, if I have an off-month, I don’t have to stress out.  With expenses of $3500, I only truly need to make $60K a year in order to cover our expenses with enough left over to invest. Every nickel over that amount I make goes into the retirement fund and gets us that much closer to full retirement.  Mind you, we live in a very expensive part of San Diego for the school district.  We don’t have a big house, we have a nice air-conditioned 2 bedroom townhouse for the 3 of us.  Sure, the kitchen is not “modern”, it is circa 80’s oak with white appliances, but it’s functional and plenty big enough for us.  I guess I challenge all of you to re-think what makes you happy.  Is it a big house?  Is it a fancy car?  A remodeled kitchen?  Is it luxury vacations?  Are these things worth you being a slave to your job for the rest of your life?  Which ones could you give up?  I think most people given the choice and really thinking about it with an open mind would prefer to work less and give up the rat race.

Wife interjection:  Boy, I never even considered that I would be “free” at the age of 47!  When hubby gave me the choice of keeping the condo and continuing to work full time at a career that I hated, or selling it and reducing my job to only managing our rental condos, I said “let’s do it” without any hesitation.

The journey continues:

You might think we are “there”.  That is not the case, we are still working towards full retirement and over the next few years will make even more changes to get there.  Once our son goes off to college, we plan to reduce our expenses even further by moving to a lower rent area in San Diego.  The goal for full retirement in the next 4 years is to be fully financially independent and travel the world at a slow pace spending at least a month at each destination and keeping to a rent of no more than $1000 per month at each location. In this era of airbnb, it is a very do-able goal.

 

 

From financial ruin to financial freedom in 8 years (the short version)

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.

Budget cuts: 

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?