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.
What degree black belt are you? (e.g. one million = first degree, two million = second degree).
We’re a first degree belt and closing in on the second degree black belt. We recently “retired early” and are taking our monthly spending out of the portfolio, so I don’t know if/when we will hit that second degree belt.
Give us the break down on your current net worth. What is it invested in and do you have any debt?
We currently have 61% investing in equity mutual funds and individual stocks and 39% in cash/bonds. I share our full portfolio here.
How was your childhood? Was your family wealthy, middle class or low-income?
Our family was anything but wealthy. My parents divorced when I was three years old and my mom “worked” in the restaurant business. We waffled between low income and middle income after she married my step-dad and they subsequently divorced. Unfortunately she never wanted to work or showed interest in a career and the household’s finances suffered. She fell into the “restaurant trap”. Its a great way to make money in your 20s but a tough path when you get into your late 30s and on. I was fortunate to have grandparents who went to college and helped me understand the value of an education and career.
Did you go to college?
Yes – I went to a lower tier state school and got a business degree. I was funding college myself and picked the school based on it being reasonably priced and in a low cost of living area.
What is your fighting style? (Career path from first dollar ever made to present).
I started working in high school at a grocery store but quickly moved on and found work at a local Staples. I got my first taste of sales working the cell phone counter and getting extra sales commissions on top of $7/hr and was hooked. I then worked for a bank between my junior and senior year of college and was able to navigate my way into their training program. From there I grew my income on the “commercial” side of the Bank, which is a fancy way to say we loaned money to businesses. I stayed in that same field for seventeen years, working on larger and larger transactions and eventually leading a team of people.
Would you recommend people to pursue the same career path? Would you choose a different job if you could go back?
That’s an interesting question I haven’t answered before. I’m certainly happy with the amount of money I was able to make over a seventeen year career, but with the benefit of hindsight my path would have been a little bit different.
When I was picking a major and going through college, the two sectors that made good money were tech or finance. I enjoyed technology but hated programming and thought all tech jobs required programming. I had no idea that a business degree or sales were valued in the technology field. I should have changed careers out of finance one I had 5-7 years of experience and gone to work in technology sales and leadership.
Banking/Finance stopped being an enjoyable profession after 2008 and still suffers from a flight of talent. That left me with two issues in my career, dealing with more and more bureaucracy while being surrounded with less talented people. On top of that, the various company’s stocks have trailed the market for the last 10 years so the equity and restricted stock compensation didn’t turn out as advertised. I think if I had it to do over I would have enjoyed technology sales and leadership more than banking.
Have you had any side hustles?
No. One of the restrictions of my job was explicitly prohibiting outside employment and having to ask permission for any involvement in a private company or outside income. Its kind of a unique restriction that many in finance and accounting carry.
If you have a spouse, how have they contributed to your net worth?
I like to say there’s offense and defense when it comes to money. My spouse is the ultimate defender of money. She graduated with a veterinary degree and earned good money for her seven years working, but her bigger contribution has been in defending our money. She drives an eighteen year old vehicle and makes saving money a game.
At what age did you start seriously saving money?
We were always decent savers and fully funded our retirement accounts early because we wanted to save money on taxes. I would say our savings turned “serious” in 2013. We had turned 30 and had just under $500,000 invested by the end of 2012 but were still carrying a mid five figure student loan balance at the time. Our investment timing up to this point wasn’t great, we had withstood a pretty terrible market in 2008, watched it recover some in 2009, but overall it didn’t seem like we had made much progress even though we had been saving/investing for eight years. We kept putting money away hoping that one day the market will return that 8-10% annual return all the finance books I had read said it would do.
2013 came around and we experienced the first big year for the stock market in our lifetime where we actually had some assets invested. The S&P returned around 30% for the year! Our net worth grew from just under $500,000 to over $700,000 in the year and it hit us that we actually had money. This motivated us to start thinking about what we want to do. Do we pursue a career? Do we design some changes in our life to make it more enjoyable? Money gave us options and freedom! We were officially on the FIRE train by the end of that year.
What has been your investment strategy?
I’ve been a combination of an index fund and individual stock investor. I get the academics and validity of index fund investing and try to keep around half our net worth in index funds. At the same time, I used to loan money to companies for a living. I like companies that own tangible assets, produce cash flow, and return that cash flow in the form of dividend and share buybacks. I think over time this will provide me a similar return to the market while not having the same level of volatility as the index. I just can’t get over technology companies that don’t make money yet hold a $15bil market cap. Sure, it may be the next Amazon or Google, but those are two companies out of hundreds of tech companies out there.
My five year return in the account I use for individual stocks was 13.26% per year as of June 30th 2019 while the S&P returned 10.71% over the same period of time. This out performance probably won’t continue now that I have a higher cash allocation, but I left my career and my investment goal is now weighted more heavily towards the preservation of capital vs. growth of capital.
Who was your financial sensei? (Most influential person/source of information in your financial life).
I’ve had a couple of financial sensei’s through my life. The first would be my grandfather, who told me that by “working hard, spending less than you make, watching what you eat, and exercising daily” I would be ahead of 90% of people in the country.
The second was from a “failed” early retiree. He left his career in banking and after being retired for eight months, started and grew a company for his second career. I asked him one time why he still worked if he didn’t need the money. His response was “At this point its for the love of the game (business). I get to come in every day and play a game I enjoy, surround myself with good people, help them grow and enrich their lives, and money is the scorecard I receive to show me how well I’ve played the game”.
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 declared ourselves financially independent once our net worth surpassed $1.6mil and I worked another nine months after that to pad the number. I will not return to my full time career in banking and am in month five of early retirement and have not brought in a dollar of additional income.
That being said, I enjoy the game of business and earning money. At some point I expect to have additional money coming in, be it from consulting opportunities I would do for free or through a hobby that becomes something others would call self employment. I am only 37 and have another 40+ years of a hopefully sharp mind.
Mind over matter
Do you think psychology plays a more important role than math with finances?
Yes and no. Finances don’t have to be complicated, but it is difficult to remain disciplined. Every day the average person is bombarded with people and companies trying to extract their money. Buy this shiny object, drive a newer car, spend this money to be more attractive. Invest your money with this company and they’ll only charge 1% of your assets a year. Its difficult to be disciplined on expenses every day.
The same goes for staying in the market when front page news is screaming at you about how much money you lost. They write “this time is different” and the person who’s been calling for a market crash for the last twelve years is suddenly getting all the air time because the market actually crashed. Early in the days of internet personal finance, a wise man posted “when the bear rears its ugly head, I just throw money at it until it goes away”. There’s lots of ways to look at handling a downturn, but this was sage advice I will always remember.
What was your toughest mental opponent on the path to your black belt?
Corporate politics. I was faced with a choice in my early 30s to either remain an individual salesperson or to tolerate corporate politics in exchange for an opportunity to increase my compensation by another 50%. I took on the challenge but it was draining on my life. I was way past my Coast FI number and in hindsight that was an enemy I could have avoided all together.
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?
The distrust of “the stock market” amazes me. There are so many depictions of the stock market as gambling because those are the dramatic moments that make front page news or that movies are made out of. I had a friend’s spouse who held an MBA from a prominent university say blatantly to me “I don’t believe in the stock market, its gambling”. I think the culture of “wall street is bad” has only furthered this belief. It doesn’t help that “wall street is bad” continues to fester in our country’s political arguments as that belief permanently enslaves people into trading their time for money.
Its even more amazing to me that some of the most educated countries in the world can have a ridiculously low equity ownership percentage. I saw recently that the direct equity ownership percentage in Germany is only 7%. This is one of the wealthiest per capita countries in the world and only 7% of its citizens directly buy stocks. The country has negative interest rates on savings accounts yet the yield on the German stock market is over 4.5%. Sure, the daily prices of what you own go up and down, but that cash flow comes in year after year.
I believe there’s only two places you can put your capital and earn a rate of return greater than inflation over the long term: Income producing real estate or ownership of companies. Owning a total market index fund merely means you own a slice of every 6,000 publicly traded companies. Let Corporate Darwinism take its course and these companies are forced to grow earnings faster than the rate of inflation or go out of business.
The only way the average person will ever get out of selling their time for money is to accumulate wealth and invest that wealth in assets that generate cash flow.
What does wealth mean to you? Should everyone pursue it?
Freedom. Having money doesn’t make you happy, but it removes the unhappiness of being broke. I saw this first hand growing up. Yes.
Should people follow their passions or just do something practical?
I get a lot of blowback for this answer, but I believe growing skills and income should be the focus of everyone in their 20s. Go sell something, go learn business, and go outwork everyone around you. You only get one shot to live/work your 20s, don’t blow it. You have more energy and can live on less. Develop the relationships that will last you a lifetime. While you’re doing all that, you will figure out what you enjoy doing and what you don’t enjoy doing.
If you do all of that right, you could potentially put away $500,000 by the age of 30 and reach the point of retirement inevitability. Go do whatever you want and just earn enough money to live on and you’ll still be a multimillionaire by traditional retirement age.
What is your weapon of choice? (favorite money tool/app)
Fidelity Investments. I find it to be the best combination of a low cost financial services company while still providing a high level of service. I love what Vanguard has done for the world, but try to go into their office when you need something.
What has been your favorite way to earn money?
My favorite way to earn money is with a successful investment in an individual stock. Over the long term, a company’s stock rises through that company increasing it’s earnings per share. The company may be growing total earnings or it may generate so much cash flow it can reduce its share count and increase EPS. I get unique satisfaction from researching and developing an investment thesis and being rewarded with a higher than market return for being right. I’m usually a value investor, so being right is more about being greedy when others are fearful.
I’m a huge fan of Costco and when Amazon bought Whole Foods, Costco’s stock tanked. People were still lining up at Costco to get in the door, so I bought more of their stock. Cord cutting and ESPN left Disney for dead at $50/share, but we’ve happily held our shares and been rewarded. Small, short term issues with great companies you follow can create buying opportunities. I’ve gotten plenty right and plenty wrong and this is NOT for everyone, but I find unique satisfaction in getting it right and only need to be right a little better than 50% of the time to generally match or beat the market.
In the words of Marie Kondo, it “sparks joy” when I get a big dividend or log into my account and see a stock position up 100% or more from what I bought it for.
What’s your favorite way to use money?
My favorite way to “use” money is to invest it in income producing assets.
If the question is what do we value spending money on, its living in a nicer area, buying quality food, and enjoying experiences in the form of vacations. We are also okay with spending money if/when it involves being around other people we enjoy.
What’s your one piece of money advice to us financial underbelts?
Start referring to your money or net worth as capital. Capital is precious and you should treat it that way. Capital can only be created by selling your time for money then having gap between what you make and what you spend.
After you generate this capital, it must be put to work. Buy an index fund, buy a good company that pays a dividend, and/or consider buy an income producing piece of real estate. That capital then generates monthly/annual cash flow for you and the best part is that cash flow generally goes up every year. There are a couple of stocks I bought seven years ago that now pay me a dividend of 8-10% per year on my original investment. (they’ve also gone up nicely in value). I don’t know if the first ten thousand, one hundred thousand, or million is the hardest, but it is hardest in the beginning. Celebrate those small victories and take care of your capital.