When we last checked in with our young aspiring early retiree, he was buried under a mound of mortgage debt, out of cash, out of hope, and spending his evenings playing David Gray songs on the guitar while imbibing gin and tonics so he could sleep
Will he forever be locked in the pit of despair? Will his employer cut him loose and the bank take the house?
Probably not, but no story is complete without a little drama
—–
“Everybody take the $100 bill we asked you to bring out of your pocket and hold it up in the air”
1 thousand arms go up, bills waving about rhythmically
The past two hours had gone by in a blur, with audience dutifully completing the speaker’s carefully crafted sentences. I felt like I might be at a Heaven’s Gate religious group cult meeting
But No… this was a get rich seminar, Open Your Millionaire Mind or some drivel like that
Volunteers were setting up tables at the front of the room with burning candles.
“OK, we are going to do an exercise. When I give the command, form a line leading to the table at the end of your row and place your $100 bill into the flame.”
“WTF!”, I thought. I looked around and saw countless others doing the same. The look of determination on some faces was disturbing
“OK, everybody get in line.” People started to line up, a surprising number of them. As the first made their way to the front, many of the undecided started to follow. I put my $100 bill back in my wallet and sat down.
As the lines grew longer, the staff blew out the candles. The lights came back on as the speaker said, “That’s it, the exercise is over. Everybody return to your seats. Take 5 minutes and think hard about your true feelings of this exercise, and write them down in your notebook. What does it say about your relationship with money?”
I’m pretty sure what it means is, if you got in line to burn $100 you are probably a good candidate to sign up for a $4,000 “special training”
Financial Education
I have fond memories of my childhood. I would ride my bike around the neighborhood, go swimming in the neighborhood pool, play basketball with the neighbor kids, climb trees and play in the woods, catch snakes and frogs, and run around in the dilapidated barn on the neighboring farm. In Modern America, all of these activities would probably be considered inappropriate for an unsupervised boy, but we just considered them normal
It wasn’t until later that I learned we were poor. I was born when my Mom was 16 years old, and she had to drop out of high school. She got married when I was 4 years old, and 3 other children quickly followed. I spent a lot of time with my Grandparents and nights sleeping at my Aunt and Uncle’s house while my Mom went back to night school. (Unfortunately my Grandfather passed away last year, but his name will live on via GCCjr)
It turns out poverty in America isn’t really poverty, at least not in comparison to what we’ve seen in our travels in the developing world. We always had plenty to eat, much of it from a garden or paid for by Uncle Sam. We had heat in the winter, except those few times when the furnace didn’t work. The school bus took us to school each day where we received a good education. The library was a source of endless entertainment, and Mom would read to us each night (which is probably why school was easy.)
The real world was also a great teacher. I learned not to ask for anything, because that would result in an argument and a lecture about how “we can’t afford it.” I learned that if you want to go somewhere, the best way to get there is by bicycle and the power of your own legs. I learned that people who got into debt were asking for trouble. I learned not to be wasteful, and that it is possible to fix just about anything with duct tape and/or WD-40.
But I also learned a lot of unhealthy and self-defeating money behaviors. The poor people I grew up with had some pretty messed up thoughts about money, and a general anger towards and mistrust of those who have it.
So as I started to accumulate savings of a size that you don’t just keep in a savings account, I didn’t have a road map to follow or even a really good sense of where to look for one. I was invited by some friends to a financial or real estate investing seminar or two. Which is a lot like a gazelle walking into a pride of lions and baring its neck. Seminars and Investment “gurus” prey on ill informed people like me
While my skepticism and distrust saved me from the worst of it, at one event I met a Financial Adviser
Hiring a Financial Adviser
It had been 2 years or so since the Big D. I had returned to my employer’s good graces by reverting to my workaholic ways, unknowingly following Dale Carnegie’s advice to work hard to beat depression from How to Stop Worrying and Start Living. And by good graces, I mean they didn’t fire me. I wasn’t yet worthy of a raise or a bonus
I refinanced the mortgage twice as interest rates fell and continued to contribute the max to my 401k. Net worth had grown to ~$200k, half of it in home equity or tax-deferred accounts, although the home equity part was suspect as the real estate market was still in decline. I didn’t know what to do with the savings I had, so why not hire a Financial Adviser?
At first glance, the Financial Adviser value proposition looks pretty good. Trade as much as you like, there are no trading fees of any kind. Mutual funds waive up-front fees and offer lower expense ratios. A friendly and knowledgeable guy will take you out to lunch, help you learn about stock options, and fill in any knowledge gaps you might have. They even validate parking
My one question before signing the contract with my new CFO was, “Do you need to work for a living?” At one point his wife was worth $400 million from her employer stock options, but they only cashed in on 10% of that before the 2000 crash. He was there because he enjoyed the work. His fees were only 1% of assets under management, so roughly $1,000 per year on my $100k.
Over the next few years we would spend an hour together every 2 – 4 weeks, and we became good friends (he later moved to Boston and asked if I would mentor his son who was staying in Seattle.) I would call regularly with questions and send detailed questions ahead of our meetings. I learned a great deal from him and my net worth continued to climb (how could it not, we were once again in a bull market.)
For the most part, we worked well together and he was open and honest. When he did recommend something with commissions, he would tell me. Once he presented an option to open a life insurance policy to allow more tax-deferred savings, where all fund options in the policy had 4.5% up front fees (only disclosed in the small print’s small print.) I told him to never try something like that again, and he didn’t
Another time he offered a closed-end fund that was building some hotels. Shares could be purchased at a 10% discount to maturity value, and would pay 7.5% on the face value. I bought $20k of them with money borrowed from a credit card at 0% and did well. Later in life, I wondered why companies like this didn’t just borrow money from a bank at prevailing market rates. It would be a lot cheaper. And then I realized, the banks wouldn’t lend them money… so probably not a wise investment for me either
In total, I probably paid my Financial Adviser $5,000 in direct fees for his services, maybe more maybe less. It was a lot cheaper than my college education and equally as valuable.
What I paid him in indirect fees through higher than necessary mutual fund expense ratios and hidden commissions, plus taxes on active trading and lagging performance to the index I don’t even want to know.
The advice I would give my younger self is to read Jim Collins’ stock series and be done with it
I terminated our relationship after maybe 3 years as I became a more confident investor and realized that index investing was the smarter play
My First Adult Vacation
As a child, life is well balanced. You go to school 5 or 6 hours a day. Maybe you play sports or take music lessons. And you have a healthy amount of vacation
With Spring Break, Winter Break, and Summer vacation, plus numerous 3 day weekends, 30-40% of time is unstructured free time, time to refresh and recharge.
As an adult, all of that is tossed aside. You are a man now, time to be responsible. Now you work 40 hours a week for 50 weeks out of the year. Or in my case, 70-80 hours a week, 52 weeks out of the year.
All through college I worked. I started my first job on Monday after graduating on Friday, moving myself over the weekend. I did the same before starting my job in Seattle, although this time somebody else did the physical labor. 3 years later, I took the first vacation of my adult life, going to the Philippines with a girl I had started dating (her idea, I didn’t really want to go)
The first week, I could not stop thinking about work. I was on an incredible beach on a beautiful island, SCUBA diving by day and eating fresh seafood chased by tropical drinks at night, and all I could think about was work. My brain knew nothing different, and refused to consider that it could rest
The second week, I started to relax. I checked email less often. I slept a little longer. I laughed a little more
By week three I was starting to think, “How can I do this every day for the rest of my life?”
The girlfriend didn’t last, but the idea did. It was October 2002, and the clock had started on 10 years and a day
—-
Things are looking much better for our aspiring early retiree. His quest for knowledge and financial success is not without a few road bumps, but each mistake is a learning opportunity
Slowly but surely the number of things being done right is outweighing the mistakes, most importantly saving a high percentage of income (maybe 25%.) And best of all, the idea that building wealth isn’t for a vague notion of retirement far in the future, but potentially for a very specific purpose in the near term is starting to take form
And just around the corner, he is about to meet somebody that will change his life forever. Come back next time and see how it all plays out
“Or in my case, 70-80 hours a week, 52 weeks out of the year.”
I was thinking about this the other day… if asked how I reached financial independence at an early age I would most likely answer that I saved 70% of my income and invested consistently over the years. But it would be just as true to say that I just crammed 45 years of work into 20 years by working 70-80 hours/week and not taking any time off.
Loving your story!
Thanks Andrew! I wish I was in sales or something, because then all of the extra work would directly translate into higher income. In this case though, I was basically able to front-load a lot of experience which resulted in higher salary later
You are living everyone’s dream, but I wonder how feasible your plan is for the long term. You are drawing about 4% from your total, and hoping the market will return 6% every year on average. What if there were to be sudden spikes in healthcare costs — what if, god forbid, one of you fell sick with a difficult illness and needed a lot more money than 4% to cure it? In other words, I wonder if you have planned for a rosy scenario for the rest of your life..Because you worked for Microsoft, I am sure you are smart, and would have thought of all these possibilities.. can you kindly share your plan?
As for working 70-80 hours.. oh, boy! Any techie would tell you that they have done it at some point. The sad part for me was that I did it for many years without any bonus, overtime pay, comp time or salary hike. In fact, the last hike I got was in 2001, I think. Got a couple of bonuses since then, but I have worked 15 years since then!
Like you mentioned, if I had worked for a consulting company or as a contractor, I could have retired too. But, I couldn’t take the heat the clients generate at such jobs.
Hi RW
The idea of hoping for 6% return is a bit oversimplistic. There is a great tool that can be used to model retirements over history, so you can see what would have happened in the great depression or the high interest period of the 70s (http://www.cfiresim.com)
It tells us we have a 100% success rate, and will likely die with a large endowment
I know random people on the internet in comments on Yahoo and MSN predict our demise. I’m not worried in the least. The data is on our side
So now I am curious what was the purpose of the $100 exercise?
I’m not really sure…
Great story Jeremy. Can’t wait to read the next installment!
Thank you Sir!
“OK, we are going to do an exercise. When I give the command, form a line leading to the table at the end of your row and place your $100 bill into the flame.”
Hilarius! Glad you remained seated, would have done the same!
These days I do this all the time, every time I light a cigar or get the fireplace going. Since the market is up I’m thinking of upgrading to $1000’s haha
I used crisp $5’s. I call them Lincoln logs. Something pretty cool about burning rolled up $5’s and proclaiming “look kids, I’m burning Lincoln logs!”.
I think I’ll stick with my cigar lighter until I hit FI….Maybe I’ll just call my cigars Lincoln Logs instead.
My first thought when I read this was ” WTF! I hope this guy doesn’t get up. If anyone asked me to do that i would have left but Its a great example of human nature and the way people invest in the market, ill carry with me for life. Thanks Jeremy
I’m really enjoying these super honest and personal posts. I think it’s important for people to know that you can screw up in life and recover if you’re determined. You killed about a decade of savings and still managed to turn it around faster than 90% of people who followed conventional wisdom from Day 1.
Charlie Munger was divorced and broke at 31 and burying his son who died of cancer. It would have been easy to give up on life then, but instead he ended up married with 8 kids, grandkids and one of the most successful men in the world.
Thanks Adam
Charlie Munger has an amazing story. His book Poor Charlie’s Almanack is a must read
A friend recently told us that we will make great parents
Naturally I’m a little nervous about it, and I replied, “I’m sure if there is a parenting mistake to be made, I’ll make it”
“But that’s what will make you great parents!
I don’t know if he is right or not, but there is definitely something to being willing to make mistakes and learn from them
Only $5000 for a solid education in managing your own investments? Man, I think I paid $10,000 in tuition to the school of investing back during the dot com boom/bust. I save more than $10,000 per year now though since I manage my own investments with a 0.1x% expense ratio. :) So like you, I figure thousands of dollars is relatively cheap to learn some solid lessons given the long term pay off of DIY. :) And way cheaper than college too.
But who knows what I paid in indirect costs
From kicked in the noggin by a crazy lady to kicking arse and kicking it with a great gal carrying your kiddo….Rocky Balboa would be jealous of your comeback story! :) Thanks so much for sharing…
She must have finally kicked some sense into me
I can’t believe you gave that financial advisor another chance: he basically tried to rob you.
On the long list of life mistakes, this one doesn’t even make the Top 20
This really is fantastic! I just wish I would’ve gotten the same lesson 10 years ago. And I need to get to the Philippines someday.
I got started a little late too, but better late than never
Quote: By week three I was starting to think, “How can I do this every day for the rest of my life?”
Isn’t it amazing how most people never have this epiphany and don’t try to figure out how to achieve financial independence? Maybe this is why everyone only gets 2 weeks vacation/year?
There are certainly a lot of people who think they want to work every day for the rest of their lives. It’s weird
I stayed out of seminars like that, since I’ll probably questioned the $100 and going to burned, but I’ll have to follow the herds. Then, I’ll kick myself for being stupid. Hehe. I know I’ll figure it out if I was given enough time to make the choice. You seem to have very good sense, not just about money, but in life in general.
I’m pretty sure 99% of the people involved in seminars are frauds and charlatans. But I didn’t realize that in the beginning, I just didn’t know where to get started
Right after I responded, NPR had a segment. My following the rest of the people to line up to burn $100 on command is normal in that situation. It’s call herd instinct, herd psychology, herd mentality, herd behavior. It’s true that they have their own people line up, and their people sign up for their obscene program,/workshop, so the rest of the people would follow. This method works, that’s why they keep using it.
It’s Sunday and I’m supposed to be working on a spreadsheet… but instead I’m reading blog posts. FI can’t come soon enough.
And it’s scary how they can use “adviser” in their title. Most of the time it seems they are only advising you on how to pay them more in commissions and fees.
Even the advisers that are genuinely good people, and want to help you be financially successful have a conflict of interest. They could say just invest in Vanguard index funds and wait… but hard to do when you are being offered commissions
This is a good read, thank you.
However, it is the hard work, the long hours and the high salaries that enabled us to save and invest te get to FI. The cost may be high but without it the saved money had to have come from somewhere else.
Hard work, long hours, and high salaries definitely make it easier. Although I know a lot of people that work hard and make a high income but don’t have any savings, and I know people that have relatively low income that save a lot
I started investing when I got my first real job in about 1996. I read books but also hired a financial advisor at a traditional firm with its own high fee mutual funds called Waddell & Reed. My wife could hardly care less about saving but said, “If we’re going to do this, find us a woman advisor”. Done. On the positive side, she convinced my wife to start saving in her 401k and fund an IRA, and so was a very positive force in that way. Like you, I continued to read personal finance literature and began to be an index fund convert. When I asked our advisor about indexing, she blurted out in exasperation, “Who is ever going to pay me to sell an index fund?!”. That was enough for me to understand whose side Waddell & Reed is on, and I transferred everything to Schwab, and later Vanguard. Thanks for your entertaining and enlightening writing!
Thanks Markola
This is why I’m torn on advisers… what price tag can you put on taking action? The majority of people have no interest in becoming an expert on investing, and might just do nothing if somebody doesn’t give them a push
But there is certainly a conflict of interest
I had a stock broker at one time with just a small amount of “Play” money. That was a learning lesson and read issue after issue of Money Magazine and educated myself. FI at 46 or really just acting on it at 46 I am really enjoying the freedom of working when I want and if I want. The stock broker had me in and out of the same stock several times and knew he was just churning the account. Watch out for those “Advisers”.
There are some really bad advisers out there. “I advise you give me all of your money!”
I’ve been read your articles on and off as they were linked to through places like MMM and MF for a while now, brilliant stuff. Decided to commit and subscribed a while back and have been reading all your stuff ever since. Just wanted to drop a comment to say how much I have been enjoying this series so far. Thanks a ton for taking time out to write for all of us. Keep Writing!
Wow, thanks JT!
I also come from a poor family background. My parents were very careful with the money they had, but they don’t know how to grow it. And you’re right there is anger from poor people towards the people that do have more money. I’ve myself have had had mistrust, but meeting great people who have shown their awesomeness has helped get rid of that.
I got lucky. In high school, I started working for a nonprofit. My boss taught me a lot, including my first lessons on investing. He helped me open a checking and savings account, taught me about credit cards, and helped me open a brokerage account. He said even $25 a month investing will grow in the long term.
That’s great that you had a boss that took the time to point you in the right direction. A good role model is worth their weight in gold. It’s incredible how much a few dollars invested at a young age can become
When I was managing younger people, I would talk with them about investing and saving as well. Sometimes they were confused about why, but years later they were always grateful
You know how to tell a story, and that’s a rare thing.
Looking forward to the rest. I really do need to visit the Philippines some day.
Thanks dbf! I guess those AP English classes were good for something
I really like the Philippines. I became a mango aficionado while there, and am a better man for it
Mangos = my middle daughter’s most favorite thing about our upcoming summer in Mexico. They are pretty sweet (literally and figuratively).
I just read all 3 posts in a row and realyl enjoyed it. I saw some similarities in few cases with my career and life. Also, I enjoy the Princess Bride reference.
It never ceases to amaze me how pitiful our personal finance education is in America. Even people in corporate finance (like me), are in debt up to their eyeballs and make poor moves with their money, but they manage it for a company!
It is pretty crazy, isn’t it? Even though I had economics and finance classes, there was zero education on practical real-world use of that knowledge
So I could calculate a mortgage payment, it wasn’t clear that the first 10 years of payments were mostly interest or that over 30 years I would pay for the house 3x
I’m loving this series! It’s so interesting to see your personal financial evolution. And, I like that you had that early inkling of how great retirement could be–I felt like it’s a much more amorphous concept until you have a concrete experience of “I want to do THIS!” Thanks for sharing!
Thank you Mrs F
After that trip I knew was I was running towards (THIS!) as opposed to what I was running away from (work that I didn’t love.) Running towards something is a far more powerful motivator
I have started looking forward to these episodes in my mailbox, thank you! :-)
Thanks Dawn. Another one is coming shortly :)
Funny that you mentioned the MMI exercise. Mrs. T and I went to that workshop a few years ago and that workshop literally opened our eyes when it comes to personal finances. We have not looked back since.
Did you burn your $100?
I spoke with one of the volunteers who could not say enough positive things about the organization. She was very excited about how she was investing aggressively into 2nd mortgages because the yield was great, and how she never would have done this without the seminar helping her. I’m not sure how well that did in 2008
I didn’t but was feeling uneasy about the exercise. The workshop concept is good and I learned quite a lot from it.
These posts are awesome. I’m really enjoying reading about your backstory. Very entertaining. Also, who the hell would burn a $100 bill just because some “guru” told them to?
The same suckers that pay $499 to attend one of these seminars in the first place.
No offense to the previous incarnation of Jeremy (or others that did so and now realize it’s a sham). $499, even $599 if you burn your Benjie F, is still a moderately low price to pay to learn you can handle this stuff on your own.
Haha, Benjie F. Nice. I guess if they actually learn how to handle their finances themselves its a small price to pay. I wonder what percentage actually DO manage to glean enough to take charge of their finances.
Judging by how easy it is to be a charlatan and how wealthy they grow, I would say very few ever figure it out.
Otherwise, our world would be covered in early retirees.