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 John from Financial Freedom Countdown.
What degree black belt are you? (e.g. one million = first degree, two million = second degree).
I am a second-degree black belt with a net worth of $2.5M. I do love lifting weights but never obtained any trophies. This black belt is an honor.
Give us the break down on your current net worth. What is it invested in and do you have any debt?
To grow rich, one needs to not only accumulate assets but also diversify. My net worth is diversified across different asset classes. I also believe in diversification based on the ever-changing tax rules.
Since I live in one of the most expensive parts of the country; my primary home is a major component of my net worth at $1M.
Stocks including taxable, Roth, IRA are valued at $800k
Equity in my rental property (excluding debt) can be considered at $200k.
Other investments from Cryptocurrencies, crowd-funded platform are $400k
From a tax diversification strategy, I have over $300K in Roth contributions. I have been fortunate to work for large corporations in the last few jobs. A 401k with an after-tax contribution component is awesome. As a result, I contributed to the max 401k limit every year. In 2020 that was $57,000.Given that I already have a large Roth bucket, I am diversified between pre-tax, post-tax, and taxable.
The other diversification is by having some of my net worth in my Primary home. The primary home provides a certain level of protection from creditors in the form of homestead exemptions. When I need money, I can always do a cash-out refinance.
How was your childhood? Was your family wealthy, middle class or low-income?
My childhood was low-income or below low-income to be more accurate. Given the fact that I was born in a third world country; my parent's net worth at any point would not be comparable to the United States. We did not have much money but my parents were very conservative with their spending. They only spent what they needed to and saved the difference. Investing was never on the radar and that meant a higher percentage needed to be saved.
We could not afford to even have a TV in the house. Although we were poor, my parents made sure that my brother and I were never hungry. They always emphasized that we should focus on our education if we wanted to escape to a better life.
14 years ago, I came to the US all by myself with only $1000 and a dream. I was the first one in my family to actually travel out of the country, My only exposure to the US was watching episodes of FRIENDS 🙂. To be honest, it was scary and exciting at the same time. Looking back, there were a million ways it could have gone wrong. When I landed here, I did not know anyone or anything about the system. Growing up in a cash-based society, I had no idea of credit history or how important it was.
The hardest part was the first month where I was trying to get set up with a bank account, cell phone, and an apartment (after my 10-day initial hotel stay); in a foreign land with zero credit history and not knowing how to drive. It did not help that I had to also be productive daily at my job to make sure I was at my best. The scary part was that I knew that my $1,000 cash would last me at the most for a month if I did not get paid. Just enough for a flight back home.
The positive aspect of my journey is that once you are at such a precarious position; you push yourself mentally, physically, and emotionally because failure is not an option.
Did you go to college?
Yes. I did my Bachelors in Computer Science Engineering. Since it was expensive and we could not afford the tuition; I had to study hard to get a scholarship. I stayed at home and endured a 2-hour commute every day.
What is your fighting style? (Career path from first dollar ever made to present).
I credit my early career decisions for the success in growing my income. When I took my first job in the U.S. at a consulting group based in the Northeast, it didn’t take me long to realize that many of the American born employees didn’t want to travel to middle America.
As an immigrant, I didn’t have family in the U.S. and little affinity for the Northeast. I showed my flexibility by taking the assignments in Missouri or Minnesota or other less desirable locations. Not only would I take on the role, but also I would often move to the location, which showed the client that I was invested in their success. Clients loved it and provided positive feedback to my employer which helped with annual raises and bonuses
It also set me up for a big move to Silicon Valley, where I would see a significant jump in salary. In fact, over a period of time, I was in a position to not only negotiate my salary but also how my salary would be paid. For high-income earners; I would highly recommend this strategy of pursuing a Deferred Compensation Plan to save on taxes.
When we talk about fighting style; it might be an unpopular opinion but everyone needs to realize that life is unfair. Always think of yourself as the underdog in the fight. You can either complain about it or you can figure out what is my unfair advantage and how can I use it.
Being an immigrant and not knowing anyone was a big disadvantage for me. But I turned it around by being flexible and figuring out how I could provide value to my client. In a similar manner, I am hoping that many readers try to carry out some introspection and leverage their unfair advantage.
My black belt journey took a lot longer due to the fact that I was an immigrant working on a visa. The challenge with the US visa system is that your visa is tied to your employer, unlike Canada or Australia where it is tied to you and your skills.
So you can’t switch jobs easily since every new employer needs to file papers with USCIS to get another working visa for you. Anyone who has dealt with any government agency knows how long that takes! As a result, many firms would not be willing to wait.
Also, you can’t work for exciting startups or smaller firms since the firm needs to post the job you are applying for in newspapers, bulletin boards etc for others to also get a chance at applying. Detailed records with the method of job postings, other potential candidate evaluations, filing papers etc need an immigration attorney on the HR staff. This adds an additional cost and burden to the companies which I can totally understand why they would be reluctant to hire candidates on visa.
Absolutely no side hustles or earning any other income on an immigrant visa since you need another visa (even for reselling on eBay or being a personal trainer).
Despite these challenges, I am grateful to have made it this far.
Would you recommend people to pursue the same career path? Would you choose a different job if you could go back?
Yes. Even today I would absolutely recommend the same career path. Given the fact that technology is moving at a rapid pace, you might be wondering; “will robots take my job”? Since every industry is ripe for disruption, it is better to be technologically savvy. As they always say “If you can’t beat them, join them”
Also, the recent pandemic has taught us that the Technology industry is well suited to work remotely. And it is almost recession-proof.
Have you had any side hustles?
I blog about how to achieve Financial Freedom Countdown in a high cost of living area. It is a loss-making side hustle at this point. I do not run any ads or have sponsored posts. I do get affiliate commissions based on sign-ups. However, I only recommend free products that I personally use and truly believe will benefit my readers.
If you have a spouse, how have they contributed to your net worth?
How old were you when you became a financial black belt?
I was 34 when I became a financial black belt. To be honest, I was still worried that everything would fall apart; at any point in time. When you have been poor; it takes a while to stop looking over your shoulder continuously. I am still paranoid and keep planning on how to prepare for an upcoming recession.
At what age did you start seriously saving money?
I have been OK with saving money, just not focussed. I did start seriously saving around a decade ago. This was inspired by a distinct memory in my working career. I remember my VP who is in her 70s mentioning that her sister was not keeping well. I naturally assumed she would visit and asked about her travel plans. However, she did not want to take time off given that we had a huge product launch coming up.
Two weeks later, when we were in a meeting; she received a phone call. Her sister had passed away:(. The fact that although she was a VP, earning at least 3X more than me; and yet was a “wage slave” hit me like a tidal wave.
What has been your investment strategy?
My investment strategy has been to invest in various assets that provide me enough passive income. Never put all your eggs in one basket. All of these were developed over a period of time by investing the difference between income and expenses.
My current annual passive income streams are
Rental property income = 20K. I do like Rental properties because they have a number of advantages. The recent Tax and Jobs Cuts Act has a huge positive in terms of QBI Deduction for Rental Property.
Private accredited platform investments = 10k
Dividends from my stock investments = 10K
My crowdfunded real estate = 10k. This was a lot of trial and error involving painful experiences. I finally learned how to evaluate Real Estate deals that will help avoid losing money.
Who was your financial sensei? (Most influential person/source of information in your financial life).
My financial sensei would be Peter Drucker. “What gets measured, gets managed”
It is so easy to drift aimlessly and not have any focus. Until my wake-up call based on my VP’s experience, I didn't even know if I was making progress.
I then started taking things seriously. Introduced automation. Checklists such as Financial Freedom Checklist to track early retirement were quite helpful.
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?
I am a huge proponent of pursuing FIRE. Even if you do not want to retire early, I would challenge everyone to at least hit their number and then decide the next steps.
My number was $1M in investable assets and a paid off house. Given the great streak of luck we have had in both the stock and real estate market; I have exceeded that goal and retired.
My only regret with retirement is that once you no longer have a job, access to credit is hard. With the dropping interest rates, my monthly mortgage payments would be lower. Yet I have struggled to get a Mortgage Refinance without a job.
Mind over matter
Do you think psychology plays a more important role than math with finances?
“You are the average of the five people you spend the most time with” – Jim Rohn
We are greatly influenced by our environment – whether we like it or not. It affects our thinking, our decisions, and our support structure. While ideally, it would be great to be supported by all positive reinforcement, it is also important to be around people who are not afraid to provide constructive criticism and push us to our limits so we can grow. We can’t choose our family but we can certainly choose the people we spend time with.
If your circumstances are not conducive to having access to smart individuals, you can start by using books, blogs, and podcasts to learn, plan your next steps, and motivate yourself. Gradually as you acquire more knowledge and develop interests you can then reach out to individuals in the real world.
Given the constant barrage of media distracting us, it is also good to develop the muscle of focus and concentration. It is a constant battle on how to get stuff done even when you don’t feel like it.
What was your toughest mental opponent on the path to your black belt?
Learning about a new investment and getting excited to not go all in; was the biggest mental challenge for me to overcome.
Once I went down the rabbit hole of Bitcoin, it was only a matter of time before I decided to delve deeper into other Cryptocurrencies. A lot of tokens came into existence and were offered as ICOs. These were known as “altcoins” and once they failed the moniker changed to “shitcoins”.
The premise of these tokens was that it could be used for a variety of use cases. Some for accessing a decentralized internet, others for accessing file store and few were blockchains themselves used for interoperability.
Needless to say during the Crypto winter from 2018 onwards; a lot of these firms ran into funding issues. Most of them are worthless now and unable to deliver their roadmap. Some founders genuinely tried and failed. Quite a few founders did an exit scam. The ICO scams became so blatant that the SEC has a spotlight section on their website highlighting the cases.
I would estimate losing roughly $200K of invested capital in ICOs.
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?
You cannot get rich by only working. Your job or your business entails exchanging time for money. And you have finite time.
Build a rock steady emergency fund. Invest the difference between income and expenses in a wise manner. You work hard for your money; make sure your money is working hard for you!
Buy assets which either increase in value or provide a steady cash flow. Define your risk tolerance. Invest only after you have analyzed the pros and cons of each investment.
When you are working, be aggressive and take as many risks as you can handle. Don’t be afraid to invest in some Moonshot Companies. Position sizing is very important; so you do not lose it all. Diversify as needed.
Once your nest egg grows larger; dial down the risk and capital preservation becomes more important. I have made plenty of mistakes along the way. As long as you learn from them, consider it money well spent. In fact, I openly share my 4 worst investments and how you can learn.
What does wealth mean to you? Should everyone pursue it?
A certain level of wealth helps you attain financial independence. Everyone should pursue financial independence because you are no longer trading time for money. Rather you take back control of your life and can decide to spend your limited time with family and friends. Or pursuing activities you enjoy.
Should people follow their passions or just do something practical?
Follow your passion if you are already rich. If not, then do something practical.
At the end of the day, we need to create something of value for the world to reward us with money. It is very rare to have a well paying job or gig which coincides with your passion.
The internet has now opened up several opportunities for everyone. Pick something which is practical and you enjoy doing. If you want to get wealthy, major in subjects which are in demand and pay well. Work in sectors that have the highest income potential.
What is your weapon of choice? (favorite money tool/app)
Since I believe it is important for individuals to invest, I would pick an investing app. I wanted an ideal platform that had zero fees, very low minimums, and automated investments with automatic rebalancing. I also recommend choosing an app with some pre-built asset allocations to get one started. I did a side by side comparison and finally picked M1 Finance.
What has been your favorite way to earn money?
I accumulated most of my net worth by working. Once I had sufficient funds, it was my investments that propelled me into the next orbit.
On a risk-adjusted basis, I would say my primary house is my best investment. If you consider the fact I bought my house with a conventional mortgage; the cash on cash return is much higher.
A primary home purchased with a fixed-rate mortgage is leveraged trade where you never get any margin calls.
Outside of my house, I would say investing in the aftermath of the Great Financial Crisis. It was scary doubling down in Citigroup as it kept falling, but I persevered and got lucky. Of course, I lost my money in Bear Stearns; but you win some and lose some.
What’s your favorite way to use money?
Travel is my biggest splurge. I travel for 2-3 months every year internationally and spend $20K to $25K. Africa and Antarctica are the only 2 continents I have not yet visited.
What’s your one piece of money advice to us financial underbelts?
I am a firm believer in maximizing your Human Capital. Often a lot of clickbait headlines focus on frugality and not drinking lattes. All these efforts pale in comparison to the money you can make by growing your career.
The best way to increase your Human Capital is by investing in yourself.
Here are 6 ways to accomplish this goal.
- Learn new Skills
- Add value outside of your team
- Ask for that promotion
- Network with recruiters
- Attend interviews for jobs one level above your current title
- Keep your bridges open
I talk about how I used each of these tactics in my own life. Several of my readers have used these strategies and had tremendous success already.