After 705 days of obsessively tracking my credit card debt, I stared at an empty cell, B707. I didn’t need to enter data into cell B707. I had paid off over $20,000 in credit card debt in the past 705 days. The crisis had passed.
The spreadsheet offered me no direction nor advice on where to go from here. I hadn’t planned beyond a debt balance of zero.
I got into trouble with debt by trying to get out of the rat race with “get rich quick” fantasies:
- Penny stock trading
- Online poker
- Selling sports collectibles on eBay
My motivation to work hard and earn more had been satiated by crushing my debt. I still had student loan debt but it was at a low fixed rate that I’d pay off in less than five years.
Frustratingly, I was back to my original problem of not understanding my introversion. The workday was draining me and I wanted to pursue intellectual and challenging hobbies that did not pay the bill.
I needed my next mission. My next worthwhile pursuit.
I’m Out of Debt. Now What? Spend.
My new motivation was eventually financial independence. I did not know it yet.
This is the part where I tell you I slashed my expenses, invested in low-cost index funds, and rode the bull market to prosperity.
I actually had to spend money at this stage in my journey. Poker and paying off credit cards brings no tangible value. I still didn’t value money.
To motivate myself to a worthwhile goal, I had to find things I valued and learn how money could help me access or create that value.
Some things I started to spend money on that improved my life:
- Skiing out west
- Going to National Parks
- Getting involved in committed relationships
(Not that this costs money, but the relative stability in career and finances allowed me to open up to long-term relationships.)
Increasing Income and Taking Risks
Now that I saw money as a means to add value and reclaim time, I endeavored to build wealth in a sustainable way. I was no longer just making money and paying down debt.
A large part of my wealth building was taking risks and making investments in myself. Some are advisable, other are not. The point is I took actions that I thought would help first pay down debt and then build wealth. Here is a brief summary:
|Quit job in 2010 to pursue a new field while in grad school||(100%)||29*|
|Took internship in new field of interest while in grad school. Later negotiated a salary for three days a week of work||(48%) from previous job||30*|
|Joined a small consulting firm of three people in new field of interest in which I had very little experience||+50%||31*|
|Worked hard and long hours while going to grad school to learn new field and provide value on small team||+33%||32*|
|Finished grad school with two advanced degrees and another year of experience at small firm||+25%||33*+|
|After realizing I had no chance of equity in the consulting firm after being there 3.5 years, and the firm growing around me, left the firm for a new organization in a niche field that I had been slightly exposed to as a consultant. Worked long hours under a lot of stress to learn new industry and develop strong relationships.||+40%||34+|
|Raise at current organization after taking on more responsibility and hiring a team||+18%||35|
|Under stress of external and internal factors, left organization to pursue position more in line with long-term interests and stability.||(24%)||36+|
|Small end of year raise||+0.5%||36|
|In second half of 2017, negotiated to work as a contractor for current organization and consult for new organization in the niche from previous job. Earned almost two full-time salaries for second half of 2017.||+61%||37|
* Denotes years with no access to a 401(k). Traditional IRA contributions only.
+ Denotes years I drove Uber at times back when it was highly profitable before drivers flooded the market. Point is, nothing was below me to earn some income to attack my debt and build wealth.
Main Takeaways from Increasing Income:
- I took risks to better align my interests with my career – including some drastic salary reductions and leaving stable jobs.
- Sometimes you don’t know exactly what you are preparing for as you work your plan. I took some detours that seemed unrelated but ultimately got me the two contracts I have now. The most menial of tasks should be done with pride and competence.
- I got those two contracts through making and maintaining high-quality relationships. Your reputation and integrity are vital to people hiring you at higher and higher levels. Add value on the way up and treat everyone with respect, including yourself. Note to fellow introverts: This took a lot of effort.
The Frugality Part of the Equation
If I had simply inflated my lifestyle at each step, I would 1) not have been able to take the risks I did and 2) not been able to save money to increase investments.
In 2015, I found Mr. Money Mustache. I devoured every blog post. My mindset on ordering takeout food, the need for cable, and being a smart and more patient consumer changed drastically. To be honest, I was probably too restrictive to where it depressed me for awhile as I was “catching up” (to who?).
I have now found a good balance between frugality and consumption. That balance is valuism.
For example, I place tremendous value on spending income on a personal trainer because I view it as an investment in my (and my wife’s) future self. He is our coach. He keeps us accountable and strong. What is the point of financial independence if I cannot ski, surf, hike, walk my dog, and wrestle with my kids?
An Investment Plan. Not a Good One. But a Plan.
Looking back on it is laughable. I set up a spreadsheet and using compound interest figured out that I needed to only trade my principal balance 150 times at 3% to get to a million dollars.
I figured I could do this in about ten years. At the time, I didn’t realize what an amazing feat this would be if actually accomplished. Ignorance and luck kept me afloat.
For a few years while I had no 401(k), I traded the measly $14,000 I had left over from when I cashed out my IRA to go to grad school.
I followed a biotech investor that seemed to do no wrong and basically copied his trades and built that balance up.
Luck turned my way on one of the biotech investments. My balance was still pretty low after that trade (~$60,000) but I had had enough of gambling on biotechs. I’d been convinced low cost index investing was the way to go.
Riding the Bull with Low Cost Index Investing
Now that I had a solid income and no debt, I started to max out my 401(k) and make contribution to my IRA.
I used FutureAdivsor (not an affiliate link) to determine which low cost index funds to put my money in and how to allocate my assets. I’ve stuck with this method to the present day. I made the trades in my E*TRADE account myself, which was cheaper than paying the roboadvisor fee.
Following the advice of FutureAdvisor was a big mindset shift. I had to let go of the thought that I could trade into riches and that I somehow knew better than other people.
What’s the prayer that they use in AA? I think its pretty appropriate when it comes to investing.
God, grant me the serenity to accept the things I cannot change, Courage to change the things I can, And wisdom to know the difference.
Low cost index fund investing was the way to go. Timing the market was impossible. Picking individual biotech stocks was gambling. It was time to be a disciplined index fund investor.
Index fund investing helps me sleep at night, focus on the things in life that I value, and increase my income production, something that is much more in my control than the movements of the stock market.
Negotiating the arrangement to work for two organizations certainly has allowed me to save a lot of my income over the past several months. Setting up a Solo 401(k) allowed me to put a large portion of my income into the tax advantaged account. I am both the employee and employer in the Solo 401(k) and so I can put in the employee deferral of $18,000 and an employer deferral of 25% of my net income up to a total of $55,000. The Solo 401(k) is an absolutely huge wealth building tool! (Look into it for your side hustles as well)
I am hopeful the arrangement lasts through 2018 (and beyond?) I only can control how much value I bring to each organization. External factors and internal politics are beyond my control.
4 Steps to Creating Wealth
Okay, so what did that story have to do with you? Let me break down the content above into four easy and actionable steps for you to build wealth.
- Refinance and pay off debts.
- Increase income by taking risks that align with your professional interests, becoming competent and demonstrating value, acting with integrity to build and maintain relationships.
- Spend less than you earn so that you have the flexibility to take risks and reduce income.
- Work an investment plan. The easiest and most likely for success is low cost index investing.
There you have it. That is how I built a some wealth from nothing in three short years.
Do I wish I had started earlier? Of course. I also wish I’d bought Bitcoin a year and a half ago.
Dwelling on the past, your stage in life, or circumstances will not build wealth. Working the four steps above will.
Get after it!