Being a black belt in finance means to have a net worth of a million dollars.
Just like a martial arts dojo, Your Money Geek is a place where we can learn about personal finance and eventually become financial black belts ourselves. In this series, we get to hear the stories of actual millionaires and see what it took for them to get to that level.
Today’s guest is Ed from Educator FI. Ed is 45, married, and lives in the western US.
Now for the interview:
What degree black belt are you? (e.g. one million = first degree, two million = second degree).
Currently, a first degree black belt working my way to second degree. That’s our financial independence target so we’ll probably stop focusing on it there.
Give us the break down on your current net worth. What is it invested in and do you have any debt?
Our current net worth is a little over $1.25 million in a mix of real estate, investments, and cash equivalents. I use rounded numbers because market fluctuations make anything else just fake precision.
The % breakdown is:
Real estate: 23%
Retirement Accounts: 42%
We have about $295,000 in real estate net worth. That’s a single-family rental and a vacation home that we use personally and rent out as a short-term rental. The short-term rental doesn’t cash flow, but it is basically buying itself and we still get to enjoy it several times a year.
Those two properties are valued at $510k, and we have just under $215k in mortgages. No other debt.
We are currently holding about $200,000 in cash or safe assets as we determine what we want to do long-term about our housing situation. After downsizing, we decided to rent for now while we plan and consider our options. This money is in a mix of high-yield savings accounts, a 1 year CD, and a money market fund. After one year of renting we will decide how to deploy it.
We hold $20,000 in an emergency fund.
The rest, about $750,000 is in paper investments (primarily index funds) in retirement and brokerage accounts.
My wife and I both have great options in our 403b and 457b accounts (https://educatorfi.com/403-vs-457/), so we are maxing those out every year. That goes 75% into index funds and 25% into bonds. We currently have $490,000 in those retirement accounts and just over $30,000 in Roth IRA (VTSAX.)
That leaves $230,000 in our brokerage account where we hold a US index fund and an international index fund.
We also have a pension benefit, but currently don’t assign value to it because of the number of variables we’d have to assume. Even with conservative assumptions, it’s likely a million-dollar asset. To keep ourselves aggressive and balance out the uncertainty, we are currently saving as if it doesn’t exist. As we get closer to considering career changes or retirement, we’ll tighten up our assumptions and include it in our plans.
How was your childhood? Was your family wealthy, middle class or low-income?
My childhood was both adventure and poverty. On one hand, most of my childhood was defined by roaming around our small town with friends building forts, getting into fights, and playing sports.
On the other hand, there were times of deep poverty. My father left my mom with three kids when I was in elementary school. As a single mom, she worked a minimum wage job while she went to nursing school. At each step of certification she made a little bit more. As the eldest, I had a lot of responsibility since she was always working.
Times were tight and there were days without food, nights sleeping on floors, and wearing some pretty beat up clothes. But, my mom always made sure we were okay. She’s my hero and watching her drag our family out of poverty with education is clearly tied to the career I’ve chosen today.
For the most part, I’d say it was a great childhood and think it helped make me who I am today.
Did you go to college?
I did. A few times – ha! Originally, because of the poverty I’d grown up in I was consumed with the concept of making money. My first stint at college I was an economics major and planned to go through graduate school and work in the world of finance.
A family medical situation required me to drop out a year and work to help my mom pay the bills. When I went back, I finished the economics degree, but chose not to go to grad school after that.
It was worth it for lots of reasons – but primarily because that’s where I met my wife. She’s an important part of my life and financial journey!
What is your fighting style? (Career path from first dollar ever made to present).
I worked basically as soon as I could. I started with a paper route, then worked in the farm fields around my house, and finally did some woodworking as my high school job.
After I left college the first time, I did a few things including running a small business and working in factories, before finally starting a career in finance. My wife had already become a teacher by then, so on my off days, I’d volunteer in her classroom.
Education and service have always been important to me. I made the decision to go back and get my teaching degree despite taking a pay cut immediately and a much lower earning trajectory.
My wife and I started out as two broke teachers together with about $130,000 in debt and making a total of $70,000 a year. Teacher wages are usually determined by a combination of years of experience and education.
We both worked hard to cap out our available salary and made more money each year. We’ve also always had side jobs to bring in extra money. We worked hard to pay off our debt and have been debt-free ever since. Unfortunately, we didn’t start saving and instead let our lifestyles inflate.
After about ten years of teaching, at the urging of colleagues, I decided to become a school principal. That was about a 40% bump in salary.
I’ve been doing that work for about a decade now. My wife has reached the cap of her teaching wages. We now make almost 3x what we started out making.
Not bad for two people that chose careers in public education.
Would you recommend people to pursue the same career path? Would you choose a different job if you could go back?
One of the main reasons I write is to support educators on the path to financial independence. I believe it’s really important work and push back against the common impression that educators are doomed to poverty.
I love teaching and believe deeply in the mission of public education. I wouldn’t choose a different job if I could go back.
One change I might make is to stay in teaching rather than move into administration. At the time, I believed I’d have to cover some expenses for my mom in her retirement and we weren’t smart with our money so the extra income was necessary.
Looking back I can see that if we’d been more intentional with our finances and started saving earlier, we’d be ahead of where we are now even if I hadn’t made the move into administration.
I like the work and enjoy supporting great teachers, but you don’t get the same connection with kids. There are a lot of social and political costs to the work. If I could do it all over, I might choose not to pay those costs for the extra income. I could be in the same place without the additional toll.
Have you had any side hustles?
Yes. We’ve always earned extra income. We’ve done some completely different second jobs, but most of it has been related to our primary jobs – but they’re still extras. Summer school, teaching extra classes, after-school duties. I’ve worked as an adjunct professor teaching leadership at a local college. Most years we’ve brought in $10,000 – $20,000 above our base salaries.
If you have a spouse, how have they contributed to your net worth?
You can probably tell by my answers and the fact that I have a hard time saying “I” instead of “we.” We recently celebrated our 20th-anniversary and are equal partners in finances. She’s always worked hard and earned more than me when we were both teachers. I earn more now, but all our assets are jointly held and we do all our financial planning together.
Two public educators working together can build wealth. It’s possible, but would be more challenging, for a single teacher to do it.
How old were you when you became a financial black belt?
I think I hit the first million when I was 43, but I didn’t consider it hit until the equity was cashed out of our primary residence. So, let’s say 44!
At what age did you start seriously saving money?
Well, our current definition of “seriously” is saving more than $120,000 each year to make up for lost time. We’ve been doing that for the past two years.
I first started investing a small amount monthly at 34, but that was almost an accident that came as part of my first administrative contract. That started some wealth-building, but we weren’t saving anything extra.
We had massive lifestyle creep for years but finally started straightening out at 40. Then we just got a bit better each year as we understood our finances better, learned more, and reversed our lifestyle inflation.
What has been your investment strategy?
We have great tax-advantaged options in the 403b and 457b. The 457b is great because you can access it upon separation from service so it’s more easily accessible should we decide to retire early. Our strategy now is to max out both of those each year, then contribute everything else into a brokerage account.
We hold a single-family rental because we converted our first house into a rental. That’s turned out to be a good investment but was honestly blind luck. However, it’s always cash flowed and the house has appreciated by 80%. We don’t currently plan to add any more real estate to our portfolio.
Outside of the single-family rental, our investments go into index funds. Our target allocation now is 80/20 stocks: bonds. This will continue to be our primary investing strategy for the foreseeable future.
Who was your financial sensei? (Most influential person/source of information in your financial life).
In all honesty, I haven’t really had a financial mentor in my personal life. I kind of stumbled into the whole concept of financial independence at 40 and then pieced things together reading across a number of blogs and books.
Two major influences on my thinking have been JL Collins (in the original stock series and then his book The Simple Path to Wealth) and Karsten from Early Retirement Now for the Safe Withdrawal Series.
I continue to read all the millionaire stories I can find like this fabulous series and one on ESI Money. The variety of backgrounds, approaches, and philosophies in these interviews is inspiring and often challenges my own understanding and approach.
So, I guess my mentor could be named “online personal finance content.”
Are you pursuing FIRE (financial independence/retire early)? If so, how much money do you plan to retire on and are you going to quit working for money altogether?
We love our jobs and believe they matter so we embrace FIOR (financial independence optional retirement.) We’ve recently set a FI goal of 2022. At that point, we’d be able to retire but currently don’t plan to. That can shift at any time and is the power of FI – we’ll work as long as our jobs are fulfilling.
Our FI target is that second degree blackbelt, though we could almost certainly stop at less once we consider our pension benefits. We aren’t concerned about overshooting our mark because we aren’t desperate to get away from our jobs and any extra will simply allow us to give even more than planned in retirement.
Mind over matter
Do you think psychology plays a more important role than math with finances?
As someone who experienced a childhood of poverty, started marriage over $100k in debt, and then wasted more than ten years spending every cent I earned I answer this unequivocally yes.
So many of my choices were based on psychology I wasn’t aware of at the time. At least half of my financial turnaround is the result of becoming more reflective about my relationship with money.
Psychology matters more, but math matters a lot, especially the power of compounding. Time is the most important variable and I regret not investing significantly for most of my career.
But, I’ve come to understand the reason I didn’t was only partially lack of knowledge – the other part was mental. Since my childhood, money has always been a source of fear and insecurity. I could never earn enough to feel secure. So, my goal was to never think about money. Consequently, I just earned more so I could spend without having to think about it.
It was only when I started tying money to a greater sense of purpose that I realized I could link math and psychology together to create a sense of security. Now, we’re pursuing financial independence and spending less than we did when we were 30, but experiencing a higher quality of life.
What was your toughest mental opponent on the path to your black belt?
I went into this a bit in my previous answer, but money and fear are linked in my mind. I will always have a scarcity mindset when it comes to money. This can make it difficult for me to take risks. It also means I become irritable when we are overspending or if we miss a financial goal we set. I feel like I’m losing ground or becoming less financially secure.
This, of course, is ridiculous when you look at our financial progress. We can afford a few slips and still be okay.
Now that I’ve become aware of the challenge I can talk myself down by simply running the numbers and referring to our long-term plan. This will also help me avoid any panic during the next market downturn.
I don’t believe in a full abundance mindset – that simply thinking abundantly will deliver money to you. But I now recognize that having an optimistic view of the financial future combined with a reasonable long-term plan is necessary.
There are a lot more financial white belts than black belts out there. How do you think differently than the average person when it comes to money?
I’m always careful when comparing myself to a mythical average. I think sometimes people set those battles up to feed ego or justify some mistake.
But, I’ve been that person who was both deeply in debt AND who was spending every penny they make. I think there are far too many people out there doing it. So, I can compare myself to that past average me.
The difference now is that I think of money as having a long-term purpose. We’ve experienced runaway spending and realized that more isn’t always better.
We spend less but spend it on exactly those things that we value in life and have dramatically increased our present happiness while also building a very secure financial future.
What does wealth mean to you? Should everyone pursue it?
Wealth to me means security. It means having enough that money doesn’t keep me up at night. It means eventually having enough that I can choose to work if I find it fulfilling and not to work if I don’t. For me, that’s a financial independence number where my assets will produce enough to cover my expenses.
It’s definitely worth pursuing, but others may have a different definition of wealth. I think everyone should figure out what their definition is and then pursue that. Be open to changing that definition as life changes around you.
Should people follow their passions or just do something practical?
The extremes of both will ultimately end in failure. If you pursue a passion that doesn’t provide you with enough to live it’s literally unsustainable. If you pursue a practical job that you hate only for the money to fund some future passion pursuit, you’ll burn out and fall short.
The ultimate win is to find a passion that provides everything you need (and more) financially. I think even then, it will feel like work at some points. My job is pretty close to that, but there are many days where it’s still rough. I don’t think a pure passion exists when tied to the need for income.
I’d encourage people to find a balance. Do something that provides what you need, and figure out how to balance things so you enjoy life now. Maybe it is aspects of your job, outside hobbies, or a focus on a goal.
Whatever it is, don’t sacrifice years now for years later – one is a sure thing, the other isn’t.
What is your weapon of choice? (favorite money tool/app)
I’ve tried a lot. I have to admit a good spreadsheet is still most effective for me. There is just something so satisfying about building one from base assumptions, adjusting calculations, and adding new wrinkles as the picture becomes clear.
I come back to Excel every time. Old school fighting style?
What has been your favorite way to earn money?
As a teacher, I used to get paid for running an afterschool leadership group. It wasn’t huge money, but it was the best money I’ve ever earned. I got paid for helping kids do everything they could to try to make their school and community a better place for nothing more than joy and experience.
It was great, and the type of thing I may do for free when I finally walk away from a full-time job.
What’s your favorite way to use money?
Travel. It’s still our major budget leak. We balance out our busy work lives by traveling frequently. Travel is a significant part of our financial independence plan and represents almost 25% of our projected post-retirement costs.
What’s your one piece of money advice to us financial underbelts?
Get started, then optimize.
This is important for two reasons. First, starting as soon as possible is critical because of time and compounding. Starting badly at 20 is better than getting it perfect at 30. That’s why starting early is always the first piece of advice people share.
Even more than that though, understand that what you think, believe, and plan for today almost certainly won’t be exactly what you think, believe, and are shooting for a few years down the road. Be open to changing your assumptions, actions, and goals on a regular basis. Once you’ve started, you’ll build greater understanding, and you can integrate new information more easily. But, you can’t optimize until you’ve built your foundations.
Get started, then optimize.