Retiring in 6 Years After 20 Years of Money Mistakes

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 213, where we interview Saul Tijerina from My FI Journey, and talk about reaching financial independence, despite making a ton of money mistakes early on.

Saul:
At the same time, it was so easy to just go finance another car that we were like, “Well, why not?” “Everybody else is doing it, this is the American way, might as well play along now, everybody’s playing the same game, let’s go ahead and play that game.”

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always, is my always knows just what to say Co-host, Scott trench.

Scott:
You put me on the spot, Mindy, I don’t have anything today.

Mindy:
You can’t win them all, Scott. Scott and I are here to make financial independence less scary less just for somebody else to introduce you to every money story, because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right, whether you want to retire early and travel the world, going to make big time investments in assets like real estate, start your own business or fix 20 years of financial mistakes. We’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards this dream.

Mindy:
Okay Scott, I am super excited to bring Saul in today because his episode is amazing and it’s also very long, but it will fly by as you listen because Saul really knows how to tell his story. And, it is fascinating. In a nutshell, self has made some money mistakes, and he is now fixed his financial misdeeds of the past and is on his way to financial independence.

Scott:
Yeah, this is one of my favorite episodes we’ve ever recorded. And there’s a lot of great ones, but this, I think Saul’s story is extremely powerful. His mistakes are extremely powerful, his cleanup is phenomenal and his vision for the future is awesome. I love this show. It is very long. So, let’s just go ahead and jump right into it. But, I think you’re really going to enjoy this one.

Mindy:
Yeah, I think so too. Saul Tijerina From My FI Journey. Welcome to the BiggerPockets Money Podcast. I’m so excited to jumped into your story.

Saul:
Thank you. It’s amazing to be here and to get to talk to you.

Mindy:
Well, let’s start right off the bat with where does your journey with money begin?

Saul:
Sure. So it really started in the year 2000, but let me back up a little bit because I was born in the States, but I didn’t grow up in the States, so I grew up in Mexico. And growing up in the 80s and 90s, at least in Mexico, there was no concept of financing anything. So if you were driving a car, it was because you owned the car fully. You weren’t making payments on it. If you lived in a house, you were either renting it or you owned it full, no mortgage payments. There was no such thing as a mortgage back in the 80s or 90. Right now, I think there is, but it’s not as easy as it is in the States, the interest rates are way higher. And also, both my parents were teachers, so there wasn’t really a lot of excess anything. I mean, we never went hungry, we always had a roof over our heads, but we never really went above and beyond.
We never had conversations about money management because at the end of the month, there wasn’t really that much money to manage. And, I just grew up with that mentality of, if you’re going to buy something, its because you have the money for it. So in 1999, I finished my degree, got my bachelor’s in electronic systems engineering in Mexico. And, I hear that this company in Virginia close to DC, is going to come over and do a recruiting event. So I apply, I get selected to interview and then I get an offer. And, the offer came in December of 1999. I think it was the first week of December. It came in for $45,000. And when I saw that offer, I just thought to myself, “I am rich.” Without thinking about anything else, I’m like, “Oh yeah, I’m doing this.” Not only was it 45-

Scott:
Can I ask a quick question here?

Saul:
Sure.

Scott:
You were born in the States, so you’re a citizen.

Saul:
Yep.

Scott:
And so that-

Saul:
Yes.

Scott:
Okay. I just want to… I think that’s a critical-

Saul:
Yes.

Scott:
… point for getting that job [inaudible 00:04:11]-

Saul:
Yeah. So they actually, they did go, they would interview people from Mexico. And it’s funny, because a couple of friends of mine also applied. They also got a job, but they had to start a little bit later because they had to wait for their H-1B visa, their work visas to come through. I was not in that situation, so I could apply and start working as soon as I wanted to. So also, the offer also came in with a $3,000 signing bonus, a one month of a car rental, and an apartment while you figure out where you would stay. But, it also came with a caveat that you had to complete and pass a eight week bootcamp training. If you didn’t pass, whether it was the training or the exam, you were very politely asked to go back. So at that point, I told that to my then girlfriend, I proposed, she said, “Yes.” The plan was, I’m going to come over, make sure that I can keep a job, wait the eight weeks, then we start planning our wedding. We get married, and then we can both live in Virginia, close to the sea.
So she accepted, and then comes January 2000, and that’s when it really all began. So, I remember the day because it was the coldest day ever for me, it was January 8th 2000. I get my rental, I get lost trying to find my apartment, because I had my… Back then, there’s’ no smart phones or smart anything. You have to print directions, everything looks a lot smaller. And back then, it was Yahoo! Maps. I got lost trying to find my apartment. Finally, I did it. And I’m like, “Okay, well, cool.” I started going to work about, I think this was January 10th was the first day. About two weeks in, so now it’s like January 24th, I can tell that I’m going to be able to make it, like eight weeks are going to be not easy, but achievable.
I’m going to be able to keep the job. So I called my wife, I’m like, “Yeah, we can…” “Let’s start planning the wedding, we’re going to be able to do this.” And also in my head I’m thinking, “$45,000 a year, that’s $3,750 a month.” I’m like, “I’m going to be good.” So, I started looking for an apartment. Being married or soon to be married, I didn’t want to really have roommates, so I wanted to look for an apartment just for my wife and I. I was able to secure one that was about a thousand dollars a month in rent. And because my car rental was also going to be due in a month, I had to go and find a car.
And, I was still with that mentality of you need the full amount of money to buy your car. So, I have $2,000 back then available to purchase a car. So I went to the first car lot that I found with used cars in it. I asked to see their used inventory and I could not find anything for less than 5,000. And I’m like, “Well, this is not going to work out.” But then the sales guy says, “Well, we got great financing opportunities for new cars.” And I go, “What do you mean financing?” I had no idea what that was. And he’s like, “Yeah, you can go home with a new car with no money down, you can take as long as seven years to make the payment on the car, it reduces your monthly payments a lot, come over, start looking at what we have.” So I did, and I ended up driving a new car.
It wasn’t a fancy car. It was a Dodge Neon. I don’t think they make them anymore. But, I do remember the monthly payment was about $250. So at that point I’m thinking, “Okay, 3750 a month minus 1250, I still got 2,500 left. And, I was projecting that over however months we’re going to get married in July. So I said, “Yeah, I’m going to have more than enough to pay for our wedding,” because we were going to be the ones paying for our own wedding, the plane tickets, for me going back and then for us coming back home. So I said, “Okay, we’re going to be good.” And then payday comes, the end of January comes in, it was going to be my first paycheck and it’s significantly less than what I thought it was going to be.
That’s when I found that I had this uncle named Sam, and that he enjoyed getting some money in the form of taxes. I had no idea about taxes or the fact that you got taxes withheld from your paycheck, or social security or Medicare. None of these existed for me growing up in Mexico. I mean, my parents, like I said, they were teachers. They got… Their pay was already after taxes. There was no tax conversations anywhere. I had no clue what this was. It actually came down to about, really $2,000 take home pay per month, so I’m thinking I only got 750 after the car payment and the rent, and that’s not counting food, insurance for the car, nothing, let alone just save enough to pay for the wedding, pay for trips.
And also obviously, our families are still in, so the whole concept of let’s move to Virginia came with a yes, but we are going to be visiting our families in Mexico during the holidays. And I’m like, “Yeah, of course.” So, I’m in a situation where I’m like, “What am I going to do?” It’s not like I can call my now fiance and tell her, “Yeah, you know what?” “We can’t get married because I don’t have enough money leftover.” So, what was my solution at that time? Credit cards, that’s what I ended up doing.

Mindy:
Wow. It’s like [crosstalk 00:09:25] you lived in America your whole life.

Saul:
I know, right. The interesting thing was I started getting those pre-approval letters in the mail and I was like, “Oh, well, I’m pre-approved.” I figured out if I can get a car without putting a single dime down and take it home, of course, I’m pre-approved for a credit card.” So, I filled out an application. Back then it was still snail mail, there was no… Or if there was an online application, I don’t think it was that safe to do, so it was still through the mail. A couple of days later I get declined. So, I submit another one and it gets declined. And, I keep doing this for seven or eight times. And every single time, I would get a decline. And I’m thinking to myself, “Well, how is this possible, am I not pre-approved to have this credit cards?”
So I tell them one of my coworkers about this and they’re like, “Oh yeah, it’s probably because you don’t have any credit history.” “You just moved back to the States, there’s no history for you, you just have the car payment.” “You’re probably going to need somebody to co-sign with you, so that you can get approved for a credit card.” And that’s what I ended up doing, I asked somebody at work who was fortunate or not fortunate, but graceful enough to actually co-sign for me to get a credit card. And, that’s what I ended up doing. And I wasn’t really… Like, I never paid attention to how much am I going to be paying in interest, what does this really mean. I just thought, “You’re putting it on a credit card, you’re able to pay it over time, and I need this because I got a wedding to pay for, I got trips to pay for and my salary right now, it’s not making it up.”
I said, “Once I get the wedding out of the way, I can cut my expenses more because it’s not like I’m going to pay for weddings every single year, so I’ll bring that balance down.” Well, first year, I mean, we were probably like close to 10 to $12,000 in credit card debt, because obviously you’re newly wed, you’re not just going to be saving money, like you want to… It’s a new place, it’s a new area, you want to go to museums, go to restaurants, hang out with friends that finally made it back after getting their H-1B visas, dining out. Keep in mind, they have roommates, so their rental expenses is probably two to $300, whilst ours is a $1000. So, they got more money available to go out every week or every other week, we don’t, but we still do it.

Mindy:
The way you tell this story, on the one hand I’m like, “Yeah, that’s how it is.” And on the other hand hearing you tell it, it sounds so predatory. Oh, I know I can finance a new car because everybody does it. But when you say, “Oh, I thought I had to buy it with cash,” and they’re like, “Wait a second, you can finance it.” He’s like preying on you and your naivety. And, that just sounds mean, and then the coworker who co-signed for you, it feels like he’s doing something great for you, but now he’s giving you the opportunity to be in debt. And, it sounds like the company’s sending you these credit card, I get so many credit card offers in the mail and I just rip them up and throw them away. But it’s just part of life, and for you to say, “Hey, they were sending me these, I guess I’m pre-approved, this is great.” It’s not great. This is mean.

Saul:
I know.

Mindy:
Welcome to America, here’s a boatload of debt.

Saul:
Exactly.

Mindy:
What a horrible experience.

Saul:
Exactly. And I wish I knew, I mean, I know that now, but it’s 21 years later. So thanks a lot, nice and welcome back if there. And then also, so my wife came over and she was not born in the States, so she couldn’t just go and start looking for a job either. She had to wait for her work permit to come through. And also, she had a [inaudible 00:13:14] degree in food science engineering, but she couldn’t really find… We’re in the DC area, it’s more of a corporate government, IT focus. And hers were more on the food science industry, so I guess FDA could have been something. But here it’s more corporate and office, it’s not the actual food sciencey part of it. So, she ended up going into real estate. She got her license for Virginia.
She didn’t really get it until mid 2001. And at that point I’m thinking, “We’re great.” I mean, house prices here, they’ve always been higher than pretty much everywhere else. Definitely in Texas, which is where I kind of also knew about from growing up in the border town. But it was just me thinking, “As soon as she start selling those high price homes, she’s going to bring…” “She’s going to start coming home with a lot of money.” And the mistake there was, I was already spending money she wasn’t even making, we weren’t even bringing home. And we were already planning, “Okay, this is what we’re going to do with it.” The fact that he became a real estate agent meant we had to find another form of transportation because with the one car, we tried to make it work. We tried having her drop me off at work.
Then she would go do her open homes or whatever she needed to do. But the hours were just not working out for us. I would come in really early in the mornings, and then she would come pick me up really late at night. And it was just hard to go by and at the same time, it was so easy to just go finance another car that we were like, “Well, why not?” “Everybody else is doing it, this is the American way, might as well play along now, everybody’s playing the same game.” “Let’s go ahead and play that game.” So before you know it, we got another car and it was a new car. Because, that’s where the better finance, I guess, deals are or were, or so we were told. And, it just keeps getting deeper and deeper.
You’re thinking, “Oh, well now, it’s been another year, your wife is working, you can bring down the credit card.” But as we started making more money, we just found a way to spend more money every time, it didn’t matter. And, I think it might be possibly because me growing up, we never really had any extra money. So now that I had extra money, I just didn’t know what to do with it, other than, well, what can we buy? Can we get a better car? That’s when in 2002, we finally bought our house. We only put, I think it was a 3% down or something like that, 5% down. And I’m thinking, “Well, my wife’s a real estate agent, she knows how this works.” I told my wife, “I just need to know how much is the down payment and how much do we need to pay every month.”
I didn’t really understand interest rates. Over 30 years, we’re really paying twice, if not as much for the actual price of the home after you factor in everything else, closing costs, agent fees, none of that. I figured if my wife is okay with going ahead and buying the house, she that is a real estate agent, we’re going to be good. It’s, we’re going to be okay. And so we did, I mean, it made sense thinking from it, from moving to renting to actually owning a home. Just because as far as the payment goes, it wasn’t that… It was probably like a hundred, $150 more every month for the mortgage. Grant that it was probably an hour away from work, versus 15 minutes. But we figured again, this is the American way, buy a house, get a car.
We had to start soon and we found an opportunity to start within two years of living in the U.S., we figured, “Hey, we’re ahead of the game, we’re able to buy a home now.” And obviously, you moved from a one bedroom rental to a three bedroom home, it feels empty. So of course, now you’ve got to buy stuff. You got to bought that formal dining room, furniture for the other bedrooms, a bigger couch. And it’s just, it kept adding. So that was basically our journey, the credit card just kept… The balances just kept getting bigger. My line of credit started getting bigger. I mean, I think that for the first year, I only had like a $12,000 limit, it grew to up to $35,000. I’m like, “I don’t like…” It was a point where I didn’t feel comfortable having that much credit, because I knew the damage that I could do, just not knowing what I could get into.
And then unfortunately me growing up with not having a lot of stuff or my family not really having a lot of stuff, and here just being so easy to get stuff, everything is financeable. We got into a loop of getting a new car finance every two to three years, we’re actually on lucky number 13 right now. Which is by the way, the last car that I’m ever going to finance, we have two cars. One is paid off, the other one’s going to get paid off in a year and a half, and we’re going to run those guys until they stop. But then, the same thing happened with homes. The one that we bought in 2002 was pretty far from work. In 2004, we decided to start looking for something closer and it was a good year, we did make a profit. That’s when I learned about the capital gains, and the fact that if you stayed for two years in your primary residence, you didn’t have to pay any capital gains on anything you made on the home.
So, we basically used that money to putting in a down payment for a home that was closer to work. In that home, we stayed for 10 years, from 2004 to 2014. We put in a lot of money into it. And I mean, a lot of money, like we replaced windows, ended up replacing the kitchen, the bathrooms, we spent, I don’t know. It was probably like a fifth of the price of the home, just in remodeling it. But then it came a point in time where every single month there was something that had to be fixed in the house, a water leak, electrical, roof leaks. And, I just felt like I was spending money equivalent of having a new home, but spending it on an old home that I wasn’t really enjoying because there were so many issues that have to be fixed. The AC broke, I had to replace that, the water heater broke, I had to replace that. Everything kind of got together in the last year.

Scott:
This is the home you bought in 2002 and sold in 2004, that we’re talking about? So, this…

Saul:
No, no, no. This is the one we bought in 2004.

Scott:
Okay. So you bought the 2004 home and had problems for years with the 2004 home?

Saul:
Yes.

Scott:
Oh, okay.

Saul:
Correct. So 2014 comes around, and that’s when I’m realizing, “You know what?” “I’m spending the same amount of money as if we had a new construction, like a new home that is not going to have any of this issues.” “And I’m not enjoying that new home life, because I got to fix something.” “I got to worry about something new every month.” So we decided to sell that house and go into… Look for a new construction communities. My wife was not a 100% on board, but I just felt like so, maybe not unhappy, but just frustrated of the fact that I was spending so much money in something that I wasn’t feeling like I was enjoying, that we ended up just going for it. We bought a new home. We ended up selling that home for the same price we purchased it. Pretty close to the same price we purchased it in 2004.
So, we didn’t recoup anything that we did to make it better, so that was a huge mistake right there. We just lost, I mean, if I say a hundred grand, it’s probably pretty close to that based on the home prices over here. So, we moved to this new home and it was great for the first couple of years. No plans on moving anywhere, but then we… And by the way, through these year’s, we’re replacing cars every two to three years, because that’s the American way.

Scott:
So 2004, your journey began in 2001 or 2000, 1999. Which year did it… 2000. Okay.

Saul:
2000.

Scott:
Okay. Oh, January 2000. Yeah. Okay. And, when you first moved to DC, you were making 45 and your wife was making zero, and then she became an agent and all that. How has your income changing over this 15 year period that we just kind of moved through?

Saul:
Yep.

Scott:
We talk about mistakes, but it sounds like there was there… Maybe it could be your career was going pretty well on that part.

Saul:
Yeah. So being in the DC area with an IT background, and I was lucky enough to start in IT with email systems. And pretty much from 2000 to 2007, email became the new phone. Nobody would call anybody, they would just email everybody. Now it’s whatever, WhatsApp or texting, or whatever the new thing is. So, there was high demand for that. I got all the certifications that I could in order to be the better candidate moving forward. And, I was able to… Like, I’d been changing careers because I worked with a lot of government agencies. So either the contract ended, I had to find something else. And every time, my salary kept growing. So yeah, over this 14, 15 years, it probably grew three times fold. But here’s the thing, every time I made more money, I just found ways of spending it. I didn’t really have a goal for that…

Saul:
I didn’t really have a goal for that extra income, I just figured I make more money, I can get a better car, I can get a better house, I can get a bigger TV, I can get a better whatever. That’s what I see everybody else doing. I basically got in the trap of keeping up with the Joneses, right?

Scott:
What was happening to your wife’s income during this period as well?

Saul:
So it started low, because starting as a real estate agent, she went working with [inaudible 00:23:30] company, so she got the, “Oh you’re going to go show this house,” but she was basically part of the team, she wasn’t the main listing agent, I don’t think she got her first listings for about two to three years, so it was getting better, it definitely helped, and actually we did do something right in the midst of everything, and I think it’s also based on the fact that I grew up in another country, and in Mexico it’s very … or it’s not very uncommon, at least not in the ’80s, of having the father figure or the man be the provider, right?
So I kind of grew up with that mentality of, “I don’t want you to have to work so that we can live the way we want to live,” so what I told her is whatever money you make, you know, put in a separate account that I don’t get to see, because I don’t want to think I have that money, and that helped us now, but yeah, back then she started working at that, the only issue was also … or not the issue, but she also changed careers from a real estate agent to more of a mortgage processing or loan officer type work, which I don’t really understand what the difference of those are, but she did, but it was a more stressful job for her as well. So it was … it got to the point where the stress was just too much for both of us, and we decided that she should take a leave of absence from working, just because it was … you know it was affecting her sleep.
At that point I was also working at a place where I had to be there by 6AM and it took me about an hour to get there, so I had to wake up at 4/4:30 in the morning, so that wasn’t helping her because she was probably not really falling asleep until 1/1:30 in the morning and then two or three hours later I was waking her up. You know I was trying to be as quiet as possible, but it definitely didn’t help. But by that time I was making enough money that it really wouldn’t affect our current lifestyle.

Scott:
Awesome. Thank you for adding that context. I was just curious about that because you know, that was happening behind the scenes even while you’re saying, “Hey I’m buying better stuff.”

Saul:
Yes.

Scott:
It sounds like there’s something going really well, where you have a really good career going on here. Yeah. So.

Saul:
Yeah, I mean my career has gone really good. Professionally I don’t think I’ve made many mistakes, but it’s the financial side where I just had no idea, like I didn’t know what to do. I knew what I saw everybody else doing, and I figured that’s what this is all about, right? You know, I had … my other issue was I really … like I said, I didn’t have a goal, I didn’t have a purpose for now that I’m making more money, you know, I’m trying to get to this point. I didn’t have that point to go to to look forward to. I just figured, “Okay now what? Oh look, something shiny, let’s go buy it.”

Scott:
Well let’s pick up back at 2014 when you’re changing homes again, and I’d love to continue the story and then I’m excited to hear about the pivot point for you, when you kind of-

Saul:
So we’ve got a ways to go, yeah. So in 2014 it’s a bigger home, so obviously it’s back to the, you know, move from the smaller place to the bigger place, oh you’ve got to buy more stuff now. Now instead of being a three-bedroom it’s a four-bedroom, well, we’ve got another bedroom to furnish. So every time, right? Something came up that we had to pay for. And two, three years into that house … I changed careers in 2015 to the company where I’m employed right now, and I am not leaving this company, at least not by my own accord, until the day I become financially independent and decide whether or not I want to stop working or not, but once I get into this company, I find that there’s another opportunity, professionally it’s a really good move, but it requires us to move to Seattle.
And I don’t get any relocation assistance, like if we do decide to take it I’ve got to move on my own, and it’s all on me whether I want it or not. So I tell my wife, she’s definitely not wanting to move, but I guess I’m more stubborn, and we end up moving anyway, and first we started thinking, “Okay let’s rent,” because neither my wife or I really had spent any time in Seattle, we didn’t know the neighborhood, we didn’t know anything about the area, so we started looking online for rentals and we started noticing that the rental prices were pretty close to what a mortgage payment would be, so I’m thinking to myself, “Well why spend money renting when we can purchase, get that tax advantage of being able to develop the interest.” At that point we thought it was the best move, so we ended up doing that.
We sold our home in Virginia in 2018, and we moved to Seattle in 2018, however, when we … we didn’t really went to Seattle ahead of time, we had … we worked with a real estate agency that did basically showings through FaceTime, that’s how we saw the home that we purchased in Seattle. We never saw it ahead of closing. The first time we actually saw it in person was the day we got our keys, and we were just shocked once we came in, because there were … it looked a lot better in video than in person. Immediately also the fact that my wife was not fully onboard, I knew I had to make it up to her any way I could, and she started complaining about the house, oh the kitchen is horrible, the floors need … you know, “I don’t like them.”
And I don’t know if it was just the fact that we were not in agreement, we were not on the same page here, that it was kind of her way of telling me that this was a bad idea, and my way of trying to fix that bad idea was to try to do everything to the house that she wanted to be done, just to get some form of acceptance of the fact that we moved. So it kind of became another 2014-type home, where we spent a lot of money in fixing it, we had friends from Virginia visit us in the summer of 2019, and when they left both my wife and I said, “Yeah we’re not going to be able to stay here,” we missed our friends from 18 years way more than what this career opportunity was bringing me, right?
So we ended up selling that home less than two years of living in it, not that it mattered because we ended up selling it for less money than what we paid for it, and that’s not counting the fact that we spent a lot of money remodeling it. Huge financial mistake, I think that was probably one of the worst, as far as the amount of money and the amount of time that we basically just threw out the window. I mean I think if it had not been for that particular one, I could probably be financially independent right now, instead of having to wait another five years.

Scott:
How … when did you sell the home in Seattle? What year?

Saul:
This was … we actually put it on the market in 2020 … actually no, 2019, but it didn’t sell … we didn’t actually close until March 11th of 2020, right after COVID, and it … I was like, “I hope they don’t back down,” like that was really stressful, because also we had already put a contract on a home here in Virginia, so while I qualified, right? Because qualifying is easy, you know? Getting approval for stuff is easy, I found that out, just because we qualified for two mortgages, doesn’t really mean you can survive on two mortgages or pay for them if you don’t have a handle of your cashflow. If you don’t really know how much is coming in and how much is going out.
I found that the hard way. Well it’s been about a month or a month-and-a-half, two months, with both homes because we closed in our current home in January, so February and March I think were the two months that I ended up paying two mortgage payments, and luckily it did sell in March, otherwise I don’t think we would be having this conversation right now because I would still be learning from my mistakes.

Scott:
So you’re in March or April of 2020, pandemic is raging with that, and it’s … I’m sensing that a turning point is coming here in your-

Saul:
Yes, it has to, right?

Scott:
Yeah.

Saul:
We’re running out of time. So it was actually in 2019 when we decided to sell the home and come back to Virginia, we actually drove back during Thanksgiving and we stayed with friends while we were looking for homes. We were not going to do the FaceTime anymore, we were like, “No, we’re looking for homes in person,” learnt from that mistake. So we were staying with friends and there was one day where I was just … like started looking back at everything that I’ve gone through, and out of the blue like I started thinking well, you know, what am I going to do when I retire, right? Like am I going to … do I even … am I even on track to retire at 67, which is my retirement age … full retirement age.
So I take a look at my accounts and I started looking at the money and I’m … you know, I’m maxing it out at that point. I didn’t really start maxing it at the beginning because I had no idea that that was a thing either, and also I didn’t even have enough money at the beginning of my career to even put towards retirement and pay for the wedding, but at some point I started contributing to my 401K and I had been maxing it out for like a couple of years, but there wasn’t enough money there, right? So I started … I actually stumbled upon financial independence while I was looking on, you know, how much money do I need to retire, and I’m thinking, you know, how much money do I need at 67 for me to retire?
And then I saw a video of, you know, yeah this is what your 401K should look like based on your age, blah blah blah, and I noticed, and if anybody hasn’t, you know the more you see a topic in YouTube, the more videos about it that you start getting in your feed as suggestions, so one thing led to another, I start looking at … there’s this couple that I heard about, you know, they retired in their twenties, that’s the headline, right? “Became financially independent and retired in my twenties,” first thing that came to my mind was, “Well what kind of money did you inherit?” Right? Because there’s no way. There’s just no way. So I started watching that and while the lifestyle was probably not something that I could have done, I started thinking, “Okay this is achievable,” right? It doesn’t matter … I can see that it doesn’t matter the level of income, financial independence is achievable.
And that’s when I started realizing, like that’s going to be goal, right? My goal is going to be to become financially independent. So now I had a goal, I said, “Okay well now I need a plan,” like how am I going to get there, right? So I start looking at, you know, if I want to not only become financially independent, but also stop working or at least maybe move to a more rewarding, less stressful, but potentially lower paying job, you know, what do I need to do? Where do I need to actually put my money? Because you know, 401K money you can’t really touch until 59-and-a-half, well, if I want to become financially independent at 50 or 55, what am I going to use for that gap between that time and 59-and-a-half? And at that point all that money that I’d mentioned my wife was keeping in another account had grown to about 150K, but it was standing on a high-yield Money Market 0.3% interest, which was not really giving us much.
And I … you know all the videos that I was seeing were about people investing in the stock market, you know, ETFs and whatnot, I had no idea what any of that was. My first encounter with the stock market was I think back in 2004, when somebody from work, a friend of a friend from work said that this one company was supposed to be doing really good in the coming months, and that the price was expected to go four times what it was. So the only thing I did is I bought … you know I opened one of those broker’s accounts, I don’t even remember which one it was, I had about $5000 in a … like what then was my emergency fund, and I said, “Hey, it’s supposed to go three or four times what it is, right? So let’s go at it.”
I put the money there, two weeks later the stock goes down, turns out the company was actually going bankrupt. I didn’t do any research, I just was going on what this friend of a friend told my friend, who then told me, obviously the stock … you know, 5000 turned into 3000 in two weeks, I freaked out, I sold everything, I’m like … this is like … I’m not touching … I’m not investing, I’m not dealing with the stock market anymore, it’s a really quick way of losing money. And I think the problem there was the fact, obviously one, I wasn’t knowledgeable enough to either know what I was doing, and two I was using money that had no purpose being invested, right? That was my emergency fund, and what I was seeing was my emergency fund go from 5000 to 3000, so I panicked and I was like, “Well I don’t want it to go to zero,” so I just got out. But now I’m going though all these videos and all this information and I’m … you know I figure out what I don’t know.
And that was the big key, like there’s so much things that I just didn’t know existed, right? So I just started learning, you know, going into Investopedia, checking out … turns out my broker’s account has a couple of webinars just to teach you, you know, how do ESBPs work, how do stock purchase plans work, how does different … like what are covered calls, covered puts, all of that information, like I just thought the stock market were companies, right? You know, having stocks. I didn’t know index funds, mutual funds, none of that. So I started learning, and that’s basically what happened between end of 2019 to date, I’m still learning, I’m still following podcasts, that how I found you guys.
And what was so inspiring from you guys was all the stories of everybody else that you know, were very similar to mine. I mean even the last two that I heard from the last two Mondays, it’s like I was hearing my story through them, right? Now I think fortunately for them, they learned at a younger age than me, but nonetheless, I think I’m to a point where I actually identified what my goal is going to be, which is become financially independent by December of 2026. I’ve created my plan, I know what I’m doing with the excess money, I’ve corrected all the mistakes, I’ve learned what it entails to sell and buy a home, it’s not just how much you’re going to put down payment, you know, it’s closing costs, it’s agent fees, it’s repairs, right? It’s cheaper to repair something than to buy another one, right? If something is wrong with your car, yes it might be a lot this month, but it’s not the same as just extending your car payment for another five or seven years, and it’s probably going to be a higher car payment, right? Prices are only going up.
So every time you get a new car, unless you’re going from a huge SUV to a compact car, chances are you’re going to be spending more every month on that new car. It was just … my excess money after covering what I call my essentials, you know, housing, food, and insurance and utilities, they didn’t have a goal, they didn’t have a purpose, so I was just like, “What do I do?” And I would just chase the next shiny new thing, now my goal is become financially independent, so now that money has a job, and that is get invested, right? Go into pivot and paying ETFs, go into index funds, and then I’m projecting … I’m a pretty big geek, so I created my own spreadsheet, being in IT, being in the security space I don’t trust really using like those tools where you have to link your accounts … your bank accounts to it, just because I don’t feel comfortable just putting in that information there.
I decided to create just my own, I have no problem keeping track of that, so I projected, you know, taxed it, I projected everything to figure out when can I become financially independent.

Scott:
So I have a couple of things I want to point out here. So first, you had a great career and you were investing to a certain extent prior to this revelation in 2019 with a couple of those things, so you beat yourself up a lot but I think there’s a lot of people who are in much worse positions than you and I don’t think you did everything wrong, I think you just didn’t have these mental models around financial independence with that, so I just want to say hey, this has been a fantastic story and I think that you’re doing … sounds like doing a lot of the right things here with this, and you don’t need to beat yourself up quite as much as you are with some of these things.

Saul:
Well yeah, I mean it’s just the fact that had I even known of the financial independence possibility sooner, right? I could have probably course-corrected I don’t know how many years ago. It was just the fact that I came from a different background, different country growing up, different culture, and not really knowing what was possible, just what I would see everybody else doing, and thinking that’s what I was supposed to do.

Scott:
That’s the problem, right? Is you know, for whatever reason, I stumbled across financial independence, I’m comparing myself to you with this because that’s what we have to do … we can only do it from our personal experiences to some degree with that, but like I discovered this at 23, you know, making 45 … I was making $48,000 a year at my first job, right? So you were in a much better position upon graduation than I was with a lot of those things, I just happened to stumble across Mr. Money Mustache and the Mad Fientist and Bigger Pockets and a couple of those things, then, and what an advantage there, and that completely allowed me to have all of my dollars go to a purpose, and not accumulate debt and those types of things, and that I think is the thing we need to remedy, and why I get so excited about what we do every day at Bigger Pockets is this, because if you can enable that for more people early in life, you can have all of these things coming forward, and I think it’s just so powerful for you to share this story because people can hear that and say, “Great, when I’m starting out, let’s not do some of those things, and let’s pivot.”
And it’s not too late at any point to go ahead and do this, you are not very far away from reaching FI, even after this, what you call … you know what you kind of seem to think of as 20 years of poor decisions financially with a lot of these things. So I think it’s very powerful to hear this, I don’t think you did a lot of things wrong, and I think the fundamental problem is not that you made bad decisions, but that for whatever reason, the frameworks about how to be successful financially are not widely available still, and that’s slowly changing, but how do we change that as a society for all new workers, high school graduates, those types of things, that folks have a playbook that can lead to success and frameworks.

Saul:
Yeah.

Mindy:
No I was going to say you introduce everybody you know to the Bigger Pockets Money Podcast, go ahead, share this with everybody.

Scott:
That’s right. Yeah that’s not self-serving at all but [crosstalk 00:43:34] that’s exactly what we-

Saul:
It’s funny you actually … you mentioned it, because I … we don’t have any kids, but a lot of friends do, and I started asking them, they’re like 14, 15 years old now, and I started asking, “What do you want to be when you grow up?” And the first thing that they answer is, “Oh I want to be a doctor because they make a lot of money,” or, “I want to be a lawyer because they make a lot of money.” And I was like, “Okay but I didn’t ask you what you wanted to work on, I asked what do you want to do?” And it was just … like I could see myself in them answering the same thing, like, “Oh I want to do this career because it makes a lot of money.” Like the goal is still you’ve got to make a lot of money, it’s not really managing that money, because it doesn’t matter how much money you do if you don’t manage it properly.
I mean how many super sports start go broke after a year or two when they retire or they get injured?

Mindy:
Everyone.

Saul:
Because they’re not … well there are a couple that haven’t, like [inaudible 00:44:42] Magic Johnson, you know, but they manage their money, right? They don’t spend every dollar that comes in, and obviously I’m not making anywhere near what those guys were making, but if all the dollars that come in, go out, and maybe even a few more and you start getting deeper and deeper in debt, it’s just a never-ending cycle there.

Scott:
And the other thing I want to point out is that when you discovered this, it’s at least an 18 month deep dive that you’ve kind of gone down the rabbit hole with since 2019 with this.

Saul:
Yes.

Scott:
And during that time, okay, wow, the colonel begins at some point, you’re like, “Oh, that sounds interesting, I’m going to explore that,” then the rabbit hole plunge, and then behavior changes simultaneously as you’re developing frameworks, because nobody has a complete mastery of the financial journey at first with this, you don’t know what the different between a Roth and a 401K, you might know it, but you don’t really fundamentally understand it and have a reason behind what you’re doing, until time goes by and you really get adjusted over time with that.

Saul:
I mean just three weeks ago I learned about Roth conversions.

Scott:
New tool.

Saul:
Right? From Roth … you know, traditional IRA to a Roth IRA, and I was like, “Oh well that’s interesting. It doesn’t make sense now but maybe like the first year that I retire that I’m not going to have earned income, that.”

Saul:
… that I retire that I’m not going to have earned income. That’s probably something good to look at, right? That happened three weeks ago for me. I have no idea about that.

Mindy:
Let’s go a little deeper in that. So the Roth conversion ladder, once you take it from the traditional and you convert it to the Roth, you’re paying taxes on that. In five years, you can access those funds. So you need to be thinking about how am I going to live from the time I retire till the time I can get the funds after five years. So that’s another thing to look into, and the Mad Fientist has a really great article. I’ll send that to you about the Roth conversion ladder. It’ll give you a lot of step-by-step information on that

Scott:
We actually had the Mad Fientist here on the BiggerPockets Money podcast on show 161, that’s biggerpockets.com/money show 161.

Saul:
I’ve heard every single podcast from you guys. That’s what I hear when I’m driving now or when I’m walking or biking. It’s what I do. It was so funny because we went on a short three day weekend trip with my wife and it got to a point where she was like, “Can we hear music just for a little bit?” I’m like, “Sure, we can.” That was the other thing that I wanted to mention. Right? So me learning about the ability to become financially independent, talking to my wife about it was not like her going, “Oh yeah, let’s do this.” Right? Because her history with us of 20, 21 years was, “Yeah, right. We can barely save any money now. Right?” So it took me a while to have us both on the same page, let alone the same book when it comes to becoming financially independent.
I showed her my spreadsheet of, “This is what we have now. This is how much income we’re getting. This is how much we’re spending. Do you agree with everything that I’ve shown you?” Then I did the 4% rate of return projected over X number of years. If we start saving the bonuses and all that, this is what it looks like in five years, in 10 years. When she saw that she was like, “I don’t believe it,” and I’m like, “That’s the magic of compound interest, baby.” If you understand them, you earned them. If you don’t, you pay them. So now we understand them. Now we’re putting compound interest to work for us. So it’s just now we have a goal, now we have a plan, we’ve got to act on that plan to achieve the goal.

Scott:
Well, let me go back one second here and say we’re talking about in 2019, you discover the rabbit hole. You go really deep. Wow. 200 episodes at BiggerPockets Money, woo-hoo, and all these tools are coming in one by one as you’re absorbing this information, right? The playbook is under construction at first with that. Can you walk us through some of the big changes that you’ve made here? I mean, you’re starting with some retirement accounts. I imagine a lot of debt in various different areas, but 150K in the bank that you haven’t touched. You’re getting your wife on board. What are the big moves that you begin to make and what does your position look like today?

Saul:
So I think we actually … the first year that we had no debt other than the car loan and the mortgage was 2018, beginning of 2018. We did at some point ended up just paying off the credit cards. That was the goal at that time and we did it, but then after that, it was like, “Now what?” At work, there is a community, there’s a group within our work that just talk about investing. So I decided to join that group and just start reading the posts and learning and that’s where I learned about ETFs. So I started researching. I did invest a little bit of money in an ETF that paid about 7% in dividend income. I’m like, “I’m just going to put like $1,000 and see how that works.”
I still had my 2004, 2005 experience in the back of my head. I’m like, “I don’t want that to happen. I’m just going to put in $1,000. If it goes down, okay, it’s $1,000. It’s not my entire emergency fund.” And it started growing. So this is back in … I want to say just a couple of months after COVID hit, like probably May timeframe 2020 when I put those $1,000 there. I decided because it was dividend paying and I had to reinvest those dividends, it just kept growing and growing. Then the price of the ETF started to grow as well. Luckily, the dividend payment didn’t go down. So the yield did go down, but that’s just because the ETF price was coming up.
It’s closer to November now, November, 2020, and I tell my wife like, “Look, what’s happening. This is working out.” By that time, I’ve researched more ETFs, more index funds. I’ve been tracking them or the year thinking I don’t really want to invest any money right now because I don’t know where COVID is bringing things, even though it started to go up. I’m not sure if it’s going to continue to go up, is it going to correct. What are we going to do? But it’s November, December timeframe, 2020, and I tell my wife, “I’ve made more money with $1,000 in the CTF than our 150K money market has done the whole year. Are you okay if we move some of that money over? Let’s not move all. Let’s maybe move 50K and see how that works out.”
So we do, and then we start noticing the growth. I mean, just going from $1,000 at 7% yield to $51,000 at 7% yield that jumped right off the charts. Then you start reinvesting that, it just keeps growing, and now my wife’s getting excited at what she’s seeing. Right? She’s the one who says, “Well, how about we move more money into the investment, and why didn’t you find about this sooner?” And I’m like, “I don’t know, but I’m glad I did now.” Right? So what we’re starting to do is we still have our emergency fund. I actually like to call … Emergency fund is one thing, and then I have my rainy day fund. So my emergency is cash that I need to pay today. Right now I have the money, I’ll pay you if I need to.
Then I also have six months worth of what I call my essential expenses, which is essential utilities, insurance, food, and housing. Then everything else, if that is covered, everything else goes into either an ETF index fund. It gets invested. It gets invested. The nice thing about having your emergency and your rainy day fund covered is you leave emotions out of the house when it comes to investing. After the Fed announced, they were probably raising interest rates in 2023 and it took the dive, I was okay with it. In fact, I was kind of upset I didn’t have any more money available to invest and buy under depth. Right? Or at a sale price. I’m like, “Man, if I only had a little bit more money that I could put into it.” Right? Before I would have been panicking, just selling everything and trying to keep my money.
I had no emotions anymore. Like I had a goal, I have a plan, I’m sticking to it. I’m following through. So that’s basically what we turned into. Yes, the spreadsheet that I talked about, I have my two buckets, I have my brokerage account, which is where our money is going to come from the day we decide to stop working until we turn 59 and a half. When we know now we can tap into our IRAs, 401ks. We are thinking about transferring from traditional IRAs to Roth IRAs, but not until we stop making or earning income so that we can potentially do that at a lower tax bracket, because we do have, like Mindy said, we do have to pay taxes on that transfer. But then from there, all that growth is free. Our plan is we’re planning on spending that money last, right? As long as we’re in a low tax bracket, we’re taking taxable money out of our accounts and letting the tax free money keep growing as much as it can.

Scott:
Can you walk us through how you think about using tax advantage accounts and what your order is? For example, do you take a company match and then ESPP or what do you do there?

Saul:
Yes. So I take a match on 401k. My company actually gives you 50% of any amount that you put in. If you max it out, they put in 50% of the max contribution. So I do the max. I know, it’s great. My previous companies, they would only do up to 3%. So if you do 6%, they’ll do 3% and that’s it, that’s their cap. My current company is 50 cents on the dollar as many dollars you put in. Obviously if you max that they put-

Mindy:
Wow.

Scott:
Do you have a Roth 401k and a 401k?

Saul:
So we have the ability to do a Roth after tax contribution. It’s really a pre-tax contribution to a 401k that then gets converted to a Roth 401k every day. I’m not doing that right now. I’ve gone back and forth on it. I’ve looked at the numbers. I don’t think it really makes sense for us. Because of the options that we have in that 401k, I think it’s better suited to take that money and just put it in the brokerage account for now. But I do want to do the IRA. We do have an IRA from when I transferred jobs. We just put that money into the IRA. So I am planning on transferring that money, do the conversion once I stop working so that I’m in a lower tax bracket. But yeah, we’ve looked at the Roth 401k. Based on the numbers that I’m getting, it doesn’t really make a lot of sense to do right now.

Scott:
So you’ve got a phenomenal 401k match and benefit that you’re taking full advantage of. Love it, and great explanation there. What’s the next thing you do with the money after the match.

Saul:
So we also have ESPP, employee stock purchase plan. We get a 10% discount on that. I think the limit is up to 22,500 that you can contribute towards it. So it’s really 25 thousands of purchase price. So that includes the 10% discount. So you can really only contribute 20 to 500. So I tried to do the maxed out, just that’s 10% of [inaudible 00:56:42] money.

Scott:
Hallelujah. Thank you. That’s awesome. Love it.

Saul:
Yeah. So that’s 10% right there. If I do sell it, yes, I do have to pay taxes. Yes. It’s going to be a short term.

Scott:
Then you could just dump it into an index [crosstalk 00:56:58].

Saul:
Exactly. I’m okay paying the 23%, 24%, whatever the bracket it’s going to fall into in taxes, knowing that it’s just going to continue to grow. Because at the beginning, when I joined this company, that was the only place I had money in my brokerage account, was the ESPP. Right? But it was a single point of failure the way I see it. Being in IT, you’re always thinking a single point of failure. So I do have some shares of that or I try not to keep a lot. Just as soon as I can, my ESPP, rebalance the portfolio, go into index funds, go into to ETFs, just diversify a little bit.

Scott:
Love it. What next?

Saul:
I think that’s it. We don’t qualify for Roth IRAs. By the time I learned about the Roth IRAs, we were over the income limit for a Roth IRA. So we can’t really contribute to them, but it’s really just the brokerage. I mean, like I said, anything extra … Now the way we see it is we have to … I mean, I’m sure everybody here knows about the 72 rule, right? The amount of time it’s going to take to double your money. Well, I have another 72 rule and that is the amount of hours I’m going to wait before I buy something. The way I see it now is is this object or thing that I’m buying, is it going to work for me in the future? Right? Whether it’s an object, where it’s an ETF, is it going to work for me in the future? Is it going to make me a better life or is it just something that I really want right now, but I don’t really need?
So that’s why I’m giving myself 72 hours. Mindy, I know in the last shows we’ve talked about Amazon Prime and free delivery. It’s so easy to buy. I mean, it’s like a credit card, right? Your phone is a credit card for Amazon right now. So I wait 72 hours. I put it in the cart and I actually move it to the save it for later, just so that I don’t mistakenly click the buy it now. Then three days later I go, “Okay, do I really need it?” If I do, okay, then I’ll buy it. If I don’t, I’m like, “Ah, well then let’s move on,” and see how much money that was going to cost me and maybe set it aside for my next deposit into my brokerage account.

Mindy:
We’re going to call this Saul’s rule of 72.

Saul:
Yes. So yeah, I mean, that’s what we’re doing right now to try to … we’re trying to put more of, “Is this going to work for me?” I can’t remember who it was that said people who have wealth look at buying things that are going to make them wealthier, that are going to make them more money. That’s why they made the comparison about people who go on vacation and they buy the little fridge magnet and what have you, the little remember this strip type souvenir. He’s like, yeah, wealthy people don’t spend money on that because that is not making them any money in the future. Right?
So I started to look at things like that. I mean, I still buy the magnet because it’s a nice souvenir. Who knows when I’m going to be able to go to that place? But now I’m thinking about it, right? I don’t do it mindlessly. I know now I have a plan and I know how this action is going to affect that plan, but I analyzed it and I determine can I do it or should I put my money somewhere else? Where’s the best place for that?

Scott:
What has your household spending changed from on an annualized basis or monthly, however you compute it, from before to now, whatever you kind of defined before as?

Saul:
So that’s a tricky question because before we weren’t really tracking it. It’s funny you mention that because there was an event that I do want to touch upon slightly. In 2007, when my wife was still in the mortgage business, she met a financial advisor and we met with him but he just wanted to sell a specific product, like a fiduciary. He wasn’t a fiduciary. The one exercise that we went through was your income versus your expenses. I had no idea how much money I was spending. Right? I mean, I went with what I thought it was. He goes, “Okay, well, according to this, you should have $20,000 by the end of the year. Where are you putting that money?” My wife looks at me and she was like, “Yeah, where are you putting that money?”
There is no $20,000. It doesn’t exist. Right? That’s when I learned I had no idea how much money I was spending. I did started tracking it for a while, but there was no purpose for me to do that. There’s no goal, “Okay, I’m going to be spending it. For what?” Until I started reaching [inaudible 01:01:41], that’s when I started noticing how much money I’m spending. Right? So I mean, we are pretty high up there. Not counting what we’re saving, we’re probably spending anywhere between 7,000 to 8,000 a month. That’s including mortgage, transportation, insurance. It is a pretty high cost of living area, but we are more … I mean the biggest delta on month to month was definitely online shopping and eating out.
Now, I know I’m probably going to sound horrible, but COVID forced us to save more money. Right? If there was anything good that came out of it was it forced us to save money because we couldn’t go out. We couldn’t go out and spend money that we were … I mean, we were easily eating out two to three times a week and not looking at how much money we were spending. Right. Credit card, just sign it and go. I never really looked at, “Oh, I spent $50.” Right” then two days later I spend another $50, and then at the end of the month, it’s like $1,000, $1,500 in eating out. That you’re thinking I’m just spending $300 a month in restaurants. No, you’re not. You’re spending five times that. You’re just not tracking that. Right?
So I am doing my cashflow now. Every month I look at my statement and I compare it to the month before and I go, “Okay, that means that I should have an extra $200 that I can put into my brokerage account and spread it across my holdings.” That’s something that I didn’t do before and every month I’m trying to make it better. Once I finished paying the card, that’s going to be $700 that are going to go every month into that brokerage account. Right? It’s the combination of having a goal and a plan and the tenacity or ability to follow it. Right? That is motivating me just to keep going. Right? Because back in 2007, with that financial advisor, I have no motivation to keep going. I actually felt that as an attack from the financial advisor towards me of, “You don’t know what you’re doing. He was probably right, but I wasn’t looking to being called out on it.” Right?
Now, it’s on me. I’m the one that wants to do it. I’m not being forced by anybody else to do it. I want to do it. Because I want to do it, I’m putting the effort on it. Right? I think that was the biggest difference. Just having that goal. Everything kind of clicked in 2019, every single thing is like, “Oh, now I know this. Now I know this. You start learning more and more because now you have a goal. Now you can see that it is achievable. You see the other examples of everybody else who’s working on it or who have done it and you’re like, “Yeah, we can do it. We just got to stay focused on it and not lose track.”

Mindy:
I have nothing to argue with on all of that, except your monthly spending. But all of that is absolutely right. Until you’re ready to make these changes, you’re not going to make these changes. Nobody can make you do this. You have to be ready, willing, and able to do this, and now you are and that’s fantastic. So you did just casually mention that you spend $8,000 a month and you live in a very high cost of living area so I’m not sure how much lower you can get that, but I am going to challenge you and it’s not my business, but I’m nosy so I’m going to do it anyway. I’m going to challenge you to track your spending in an every single dollar manner. Make a spreadsheet, get a notebook and just write down every single thing while you’re doing it. Not at the end of the month, when you go back and review. While you’re doing it, while you’re in the month, write down what you’re spending.
Maybe there’s not that much to cut. Like you said, it’s a very high cost of living area, the DC area, but maybe there is a little bit here and there that, “Oh, here’s an extra $50 that can go into my brokerage account. Here’s an extra $100 dollars over several things.” Go and reevaluate your insurance costs. What are you spending on your home insurance? Can you increase your deductible a little bit to reduce your monthly payment or your annual payment? Same with car insurance. A lot of people, I think the default is $100 deductible on car insurance. Well, what is that going to pay for? A new windshield wiper? That’s not going to pay for anything, but your premium is much more expensive than when you have a $2,500 deductible. You have to have full coverage because it’s still financed, but can you increase your deductible because you could weather that hit, that $2,500 hit, and then now you’re saving the equivalent of $500 a year on your insurance. Maybe you’re a really great driver and you’ll never get in that kind of car accident where you have to pay $2,500.
So there’s a lot of things to think about. What kind of internet do you have? Do you need that great of internet? Can you get a different plan? Do you have more providers than just the one? In my city, there’s two. One is Comcast and one is the city itself. The city’s like, “Hey, for a dollar, we’ll give you super fast internet,” and Comcast is like, “Hey, for $1,000, we’ll give you super slow internet.” So it was an easy choice for me. It’s not quite that big, but it is pretty big. Longmont has fabulous internet. Hurray for Longmont and your wonderful internet. But there’s … Who was it? J. Money on Budgets Are Sexy did this thing called the challenge everything challenge, where you go and you review every single expense that you have, and you challenge yourself to get it down lower, and saving $10 over the course of a year is not super amazing, but it’s still $10 in your pocket. Well, now it’s in your brokerage account earning 7%.

Saul:
That’s right. And in eight years, it’s going to be $20 on its own.

Scott:
I have another question here as well. Mindy, and you actually brought this up in our show notes here, so I’ll give you credit for coming up with the question, but Saul, you said you spend 7,000 or 8,000 a month, which is between $85,000 and $100,00 dollars a year. So if it’s $100,000 a year, you would need $2.5 million to retire on that, according to the 4% rule. So I would love to know kind of what your plan entails for you to get to five by the end of 2026, as you’ve kind of …

Saul:
So yeah, we’re not reaching the 2.5 million. However, I’m focusing right now on the brokerage account, which is paying a significant amount of dividends. It’s an average I’m getting as of yesterday, because I haven’t looked at it today, I’m getting about 11.5% yield on all my holdings. That is cutting the 4% rule. I would only need 2.5%. So that’s what I’m basing it on. So I’m using the dividends or that income that I’m going to be receiving-

Saul:
… the dividends or that income that I’m going to be receiving from either dividend ETFs, dividend stocks, mutual funds that are paying those dividends to offset that four percent rule, and then not need the two-and-a-half million dollars, but need more like maybe one, one-and-a-half. It’s a combination. Like, I’m not looking at having the amount of money in one single place, right? I’m keeping track with my contributions for my 401k, my ESVP is also keeping growing. So, there’s always more money going in, it’s just getting spread across. In five, six years, while I’m not going to get close to the two-and-a-half million dollars or actually meet it, it’s going to get pretty close. What I’m looking at is how much money do I need in that brokerage account? Because that’s where the majority of the money is going to come between if I decide to stop working altogether and 59-and-a-half.
The more I think about it, the plans are changing every month. The first month, it was after a really bad day at the office or at work. I’m in my office right now. I was like, “I’m done. I can’t wait to be fired,” so I just stopped working. Then later on, I was like, “Well, I could probably still stay in IT, just work for the county, the local school county district.” A lower paying job, but I’ll still have some sort of health coverage. At that one, maybe I can start adding money to a Roth IRA at that point, take a lower paying job. The nice thing about it is I have options, but right now the goal that I see is, yeah, if I keep the way I’m going right now for the next five, five-and-a-half years, I’ll have enough money to cover pretty much forever at the current expenses.
Now, my expenses will go down once I do finish paying the car. That’s going to be significant. So, that’s going to be about 750 that is going to go down per month. Then I do have, as far as the home, we are planning on moving to a more affordable location, because I don’t really need to be closer to DC anymore, so we can move farther away. We’re still within driving distance to see our friends, like maybe just an hour away, but it drops significantly. It drops like 30%, right? So, right now, I am planning as if I were staying in this house with my current expenses, which is definitely not going to be the case in five years. It’s going to be significantly lower. But I’d rather have that extra cushion in place.

Scott:
Love it. So, you’re going to reduce your expenses, and you have a very high yield investment that you believe in with that. Okay, what are you investing in that is earning 11.5% yield?

Saul:
Let’s see, I’m investing in QYLD, which is a cover called RYLD, XYLD. They’re all covered calls, ETFs.

Scott:
Can you explain what these are?

Saul:
The QYLD, they’re all covered call ETFs. They follow a specific index. So, one of them follows the Russell index, the other one follows the NASDAQ index, and the other one follows the SMP 500. I mean, without getting into the details, it’s similar like an index, except they put an expectation on a price. Because of that, there’s a fee that goes with that, that’s where the covered call comes in, and that’s where the dividends come out of. At the same time, depending on the holdings that those ETFs have, the prices of those companies go up and down. That’s how the ETF behaves as well as far as prices. I also have a fund, a couple of funds. CLMs is one of them. My real estate investment comes in the form of REITs, real estate investment trusts. I just don’t like dealing with tenants, so that’s how I do real estate, in REITs.

Scott:
I’m ignorant of QYLD, RYLD, XYLD and the strategies behind that. I’m familiar with the concept of a covered call. Where can I go to find out more, and where can listeners go to find out more about these strategies and read about them?

Saul:
I mean, what I do is I just go to Investopedia. I go to any website that offers you information on any company, like dividend.com is one of them. You can even, if you go into your own brokerage, just look up the ticker, QYLD, it’ll give you all the information, what the holdings have, what the earnings per share, all of that technical information that you can then decide if it makes sense for you or not.

Scott:
Okay. Then lastly, with a yield like this, I’m assuming that’s your dividend deal. That’s your income you’re reproducing.

Saul:
Correct.

Scott:
So, $100,000, you’re making 11,500 per year in dividend income with this strategy. That is going to be taxed as ordinary income, I guess.

Saul:
Correct.

Scott:
Are you doing this inside of a retirement account, or are you doing this in your brokerage account?

Saul:
No. Right now it’s going into brokerage account. I know it’s going to go really on top, so whatever tax bracket I am right now, it’s going to get hit at that tax, but it’s something that, for me, it makes sense. It’s not available inside a 401k. It’s not available unless I do a brokerage link account on my 401k, but that involves fees, and the fees really outweigh the benefits of the tax savings at that time, at least from what I saw right now. So, right now, it’s going on the brokerage account. I’m okay with it as far as paying taxes right now, because my plan is get to a point where those dividends are high enough that I can cover maybe 50% of my current expenses. I know that money, it’s getting taxed like at 22, 24% right now, but I know it’s there, right?
I don’t really need that money now. It keeps getting reinvested, it keeps growing. Sure, I’m going to have to pay more taxes on it. All I’m going to end up doing is two months at the beginning of next year, I just won’t reinvest that money and I’ll use that to cover taxes. But in the meantime, it just keeps growing. It keeps growing, and it’s going to grow to a point where I can now stop working, and now all of a sudden that income is going to bring me maybe to the 12% bracket.

Mindy:
Okay.

Saul:
So, yes, I’m aware it’s probably not tax efficient right now, but it’s getting to the point where it makes sense five years time.

Scott:
Are you comfortable with Vi?

Saul:
Yes.

Mindy:
Okay. This is also new to me. The more I do this show, the more I realize I don’t know squat about this, and I always thought I knew quite a lot about this. But I would ask the people who are listening right now if you have experience with covered call ETFs. And maybe some tips for maximizing returns, we’re going to post a question in our Facebook group at facebook.com/groups/bpmoney asking this question. Please share your information and tips with us so that we can all learn more about covered call ETFs and also covered calls. I know just enough to be dangerous. There’s more volatility than just owning something and holding onto it. So, if you have any tips for things to watch out for, or cautionary tales or anything like that, I really want to learn more about this covered call ETF. That sounds very, very interesting.

Scott:
Thank you, Mindy. I think that’s a great idea, and I would love to learn about that as well. I’m not sophisticated enough to comment more intelligently on this, and I would love an education from our community on this, in addition to the research I’ll do shortly after the show. I love this story. What a phenomenal pivot in the way you think about money, and a sweeping set of changes that you’ve enacted over the last year or two with this. You’re off to the races in terms of moving towards buying. You’ve got a whole bunch of incredible frameworks, a plan, as you’ve said, a plan for where every dollar is going to go. I have one last question with this, which is around, it sounds like you kind of dived down the rabbit hole a little bit first with Vi, and had to educate her or bring your wife along to join the same mentality with this, and there was a bit of a proving stage to that. Can you walk us through that? Also, can you let us know if your wife is working here at this point in time?

Saul:
Sure. Yeah, it took a while to just get my wife on board, right? Not necessarily on board, but have her think that this was even possible based on the last 20, 21 years. She didn’t at the beginning, she thought I was crazy. Like, “There’s no way. We barely have money saved in the bank right now. There’s no way we’re going to be able to be financially independent early.” But like I said, we went through the plan, I showed her the spreadsheet, the projections, what was possible using conservative growth estimates based on the previous 20 years of stock market and the 401k and all of that. Then I just showed her what one percent difference was on my 401k balance, and she was like, “How is that possible?” Right?
I mean, it just went crazy. Right? I’m like, “Interest.” So, at that point she was like, “Okay, let’s do this.” Right? So, she is working, she’s working part-time for the local county school system. She’s working part-time, so she doesn’t really have any benefits. I’m the only one that can cover into our 401k. But now it’s funny because now she talks about her salary as she’s bringing in her own dividends, right? We’re focusing on dividend investments, and she gets paid every two weeks, and is like, “Oh, this weekend I get my dividends.” You know? “Are you going to deposit them? Where are you going to deposit them? How much dividend yields is that going to give us?” So, we’re both on board, and that makes it super easy, because now it’s easier to have conversations about money because we’re both on the same page. We’re both following the same goal.

Mindy:
I love it. I love that you showed her what was happening, and now she’s so excited about it. This is such a great end to this story, because it started off really with people preying on your lack of knowledge. I don’t say that to be mean, I mean, there’s plenty of people who grew up in America and don’t have any more knowledge than you did when you were first starting or don’t have as much knowledge as you have now. I think that being hungry for it and really wanting to better yourself is going to be the big difference in achieving financial independence and just, “Oh, that’d be nice to have,” and then never doing anything about it. You took action, and that’s fabulous. I love this whole story.

Saul:
Thank you.

Mindy:
I can’t wait to see what happens to you in a couple of years.

Scott:
Yeah, me neither.

Mindy:
Well, I think we’ve reached the point in our show where we get to the famous four. Saul, these are the same four questions we ask of all of our guests. Are you ready?

Saul:
I am ready.

Mindy:
What is your favorite finance book?

Saul:
That has to be Your Money or Your Life. I can’t remember which step it is, but it’s the step where she makes you go through your earnings throughout your career, and then you have to see what you have to show for it, that I realized, “Oh my God, if I combine all my income and I really don’t have much to show for it when it relates to becoming financially independent.” Right? I started thinking, “Where did all the money go?” That was one of the key things that kind of lit that light bulb on.

Mindy:
Yeah. That sounds like a scary step.

Saul:
Yeah.

Scott:
Well, we really are big fans of that book as well. We actually had the pleasure of interview… and you’ve already listened to all of them you said, but for those listening, we actually interviewed Vicki Robin on episode 98 of the BiggerPockets Money podcast, the author of Your Money or Your Life. You can go check that out at biggerpockets.com/moneyshow98. What was your biggest money mistake?

Saul:
Well, since there’s so many to choose from, really, I think really the biggest mistake was not understanding the consequences of the actions that I was taking. Right? Not understanding the consequences of keep financing a new car every two to three years, or selling and buying a home just because I felt I was spending too much money on repairs. It was just the fact that I was just going through the motions, just following the flow, instead of really understanding what consequences financially happened to put a high purchase item on a credit card, and not understanding the impact of that, I think that was the really the biggest mistake.

Scott:
We never heard it articulated like that, but lack of knowledge or ignorance being the biggest mistake I think is a phenomenal way to phrase it. That was the root cause behind all of the problems you had, and that has now been resolved, and you’re off to the races with this. So, I think it’s a really smart way to put it.

Saul:
Thank you.

Mindy:
What is your best piece of advice for people who are just starting out?

Saul:
I think it’s a combination. I think it’s really a three step approach. First is you need to have a clear goal defined. I think this applies for everything, not just financial. You can apply it to losing weight. You need to have a goal. Be financially independent in 10 years, five years, whatever it is, and then start working on your plan. Obviously, that plan is going to involve understand your cashflow, because you’re not going to be able to take action on your plan, which is the third step, take action on the plan in order to meet that goal, right? Having a goal and having a plan by itself is not going to get you anywhere. You have to act on that plan. Then obviously, you’re probably going to have to make adjustments as things change, because things inevitably change. But I think having that goal, a plan, and most importantly, act on that plan is what everybody should start doing.

Scott:
That was awesome. Plan, measure, act. That’s phenomenal. I’m stealing that.

Saul:
Trademark.

Scott:
Yeah. What is your favorite joke to tell at parties?

Saul:
Typically, I am the joke at the party, but I like to say, “If you ever think you’re kind of down, like nobody really cares whether you exist, try missing a few payments. You’re going to become really popular really quick.”

Scott:
That joke is a real credit to the show. Thank you.

Mindy:
Okay, Saul, where can people find out more about you?

Saul:
Like I said, I just started a YouTube channel recently where I kind of go more into detail as far as my journey right now, all the mistakes I did, how it happened, how I got out of it. Also, as I started learning more, I kind of give a quick video of, just like I learned about the Roth IRA conversion thing, I made a quick video about it. So, it’s on my YouTube channel. You can just go YouTube slash my first name, last name, all single word, or you can just search for My FI Journey. That should also get you to that channel.

Scott:
All right. We will link to all of this in the show notes at biggerpockets.com/moneyshow213. That’s another time I’m giving that with all the links to the other episodes here today. But this has been fantastic. Saul, before we go, I have one question for you, which is you’ve mentioned a spreadsheet that you used to show your wife some of the power of this kind of stuff that really has your whole plan involved in that. Would it be possible to get that spreadsheet or a version of it that has redacted information or something like that to post to our file place where people can maybe use that as a tool?

Saul:
Yeah, absolutely. I’ll just clean it up a little bit, make it easier on the eye, because this spreadsheet took two years to build, and I kind of just started patching it up. So, yeah, I will work on that tonight.

Scott:
Well, awesome. No need to do a lot there. We can edit this out if you are uncomfortable with that. I think some people might like that.

Mindy:
Yeah. Awesome. Saul, thank you so much. This was such a fun story, and I’m so, so excited for what the future holds for you. You are going to just crush it, because, A, you’re thinking about it, and B, you’re taking action with the plan that you have formulated, and your wife is on board. Together, the two of you are just going to conquer the world, and I’m so, so, so excited for all the things you guys are going to do. I want to check in with you in a couple of years and talk about your journey from now until then. I want to see what have your brokerage accounts done, what is going on with your job, your wife’s job, all of those fun things. I’m really, really excited. I’m going to put a note in my calendar to reach out again in a couple of years.

Saul:
Yeah, sounds good.

Mindy:
Okay. We will talk to you soon.

Saul:
Thanks so much.

Mindy:
Okay, Scott, that was Saul with My FI Journey, and holy cannoli, that was a long but amazing episode. I don’t love everything about it. I’m sad that he made all those money mistakes, but I love that he fixed it. Did you hear him say that he’s going to be financially independent in six years? Like, six or seven years after starting his financial independence journey? That’s huge. That’s phenomenal. I love it.

Scott:
Yeah. I mean, like he mentioned, I think that the biggest theme I heard was he had no plan and no reason to invest or save money, and no frameworks behind that, and they were never presented to him. He never came across them with that. It’s not an intelligence thing here with this. It’s a, hey, if if you’re not introduced to these things, if you don’t learn about them and discuss them and debate them and develop your toolkit with money, you have to invent a way to live life, which it’s almost impossible, right? There’s very few people out there, and it’s like a stumbling thing, Vicki Robin is an example of one of those few pioneers who figures this stuff out and invents it first off to a certain extent. Right? And pioneers and movement with that. Right?
It just doesn’t happen. Right? I never would have done any of this stuff or known about it if I hadn’t come across Mr. Money Mustache, the mad scientist in BiggerPockets early in that. Once you find this, once you kind of understand it, then you can act on it, form that plan, and begin moving towards it. It’s immediate, and he’s applying his considerable skillset and intelligence and abilities to this, and it’s a five-year journey, even after 20 years of what I think he described as a financial mismanagement or mistakes that he was making.

Mindy:
Yeah. You know, near the end of the show, he casually commented that he’s planning on living off of his taxable accounts while he’s in the lower tax brackets and letting their Roth accounts, the tax-free accounts, grow as long as possible. When he said that, I was like, “Well, yeah, wait a second. I’ve never heard anybody say that. I’ve never heard anybody put that into words.” I just wanted to make sure that those who are listening caught that. He’s going to, once he has no income anymore, he can then start to take out of his accounts that he will have to pay taxes on while allowing his accounts that he’s not going to have to pay taxes on continue to grow. Every time we talked to somebody, I learn something new, and that was something that makes total sense, but I didn’t even think about before he said that. So, thank you, Saul, for teaching me something, because that is not something I ever thought of.
I love that he has an emergency fund, money that he’s going to spend, totally liquid, can spend it today if necessary, and an additional six months of expenses rainy day fund. I love the way he thinks about these things. He did make mistakes in the past, but he’s on his way to a fairly bright future, and we will absolutely refer to this episode in a couple of years when we bring him back to share more about his story, because I have a feeling his story is going to sound amazing.

Scott:
I’ve been asked today for some of our listeners before we go, Mindy, which is, can you please leave us a rating or review on iTunes if you’re listening to the show, or wherever it is that you listen to podcasts? Those reviews and ratings really help us out. We often forget to ask for folks to update and populate those, but we really appreciate those and read every one, so give us one of those reviews on iTunes or wherever it is that you listen to podcasts if you enjoy the show.

Mindy:
Thank you, Scott. Yeah, I always forget to ask that, but I agree. It would be lovely if you could review our show. That helps more people find us and find the content that we’re sharing. Okay, Scott, this was a super long episode and we should get out of here. Are you ready?

Scott:
Let’s do it.

Mindy:
From episode 213 of the BiggerPockets Money podcast, he is Scott Trench and I am Mindy Jensen saying happy trails.