ESI Scale Interview 42

Today we continue the ESI Scale Interview series where people answer questions about their success at working the ESI Scale.

In short, the series focuses on what the interviewee is doing in the areas of earning, saving, and investing. They also get an opportunity to ask ESI Money readers for suggestions if they choose to do so.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

With that said, let’s get started.

My questions are in bold italics and his responses follow in black.

OVERVIEW

Please tell us a bit about yourself.

Hi, I’m a 27 year old living on the east coast of the United States.

I was born and raised in the south, and had a modest childhood.

My mother is a teacher, and my father was in the military.

I have an awesome fiancé who’s still in school. We don’t have any kids or pets, but we may consider it in the next few years.

I started college while living at home in 2007, and I graduated in 2011 with no debt.

The job market where I lived wasn’t very promising, so I decided to start a business. The whole process was surprisingly easy, but as I was getting started I unexpectedly had the opportunity to matriculate into a top-40 political science graduate program, so I suspended my business plans, and started school that fall.

The school was in-state, but by graduation I had accumulated $43k of debt. I considered working on a PhD, but was burned out by the time I finished, and I needed to start earning money.
Eventually I found a job as a health policy analyst. It only paid $35k per year, but I enjoyed the work, and I felt like my work made a difference.

Navigating through the typical government bureaucracy came with a steep learning curve, and I found this to be the most frustrating part of the job. After about six months I applied for a promotion, and shortly after, I moved onto greener pastures; this time with a lot more autonomy, responsibility, and authority.

The pay was still pretty low at $41k per year, but it was a step in the right direction. I ended up staying in this position for about a year, and during that time I frequently found myself working with the organization’s attorney. The adversarial, yet cordial interactions made me a better manager, and it also jumpstarted my productivity.

One day, the attorney encouraged me to consider a career in law. The way he described his jobs over the years sounded super interesting, but I couldn’t stomach the idea of accumulating any more student debt. Instead, I earned a commission in the United States Navy, and I’ve been on active duty for about three years. It hasn’t made me materially wealthy, but I’ve been challenged in ways that couldn’t be replicated anywhere else.

What is your current net worth?

$38k

Assets:

• $19k in stocks and ETFs
• $10k in cash savings
• $6k fiancé’s car
• $15k my car
• $10k personal property

Liabilities:

• -$3.5k student loans
• -$4.5k used car loan (fiancé’s car)
• -$14.5k used car loan (my car)

No credit card debt.

How did you accumulate your net worth?

The vast majority of my net worth came from earned income, and while it’s not very high right now, its growth trajectory is on a steep incline.

It wasn’t until a year and a half ago that I started to see significant progress in my efforts to pay down the debt and get a good financial routine going.

I was always a good saver, but one thing I would have changed is to have developed a better understanding of the financial system a bit earlier because I maintained a negative net worth (or as I call it, ‘debt worth’) for a lot longer than I should have.

I don’t have any regrets about how I’ve spent my money because I’ve had the chance to travel a lot and try many cool things that I could only dream of as a kid. It also helps that the market has done well over the last few quarters.

EARN

Tell us a bit about your career.

I’ve worked in a variety of government roles since I began working full-time. The pay isn’t the best, but the benefits are pretty good and the size of many agencies makes for good promotional opportunities.

However, I get discouraged sometimes when I see lousy performers get promoted based on longevity rather than merit, but that’s just the nature of the beast.

Currently, my gross salary is approximately $73k, and by this time next year, I project it to exceed $80k. I feel like I earn a good living, but I think I can dramatically increase my earnings in the private sector. I plan on waiting until my fiancé finishes school before I start executing some of my high-risk, high-reward plans.

So far, my time in the military has gone by quickly, and lately I’ve been dedicating a large portion of my time to developing new skills and cultivating passive income streams.

I put a lot of energy into the perpetual balancing act of living life ‘in the now’ while simultaneously paying off debt and saving for retirement.

Do you have a side hustle?

Yes, occasionally I drive for Lyft and Uber.

I’ve always been a night owl, so it’s nice to be able to capitalize on the surge pricing on nights and weekends.

My previous side hustles include tutoring, officiating sports, and mowing lawns.

Sometimes, I find my side hustles to be equally as enjoyable as my day job, and I’ve met some really interesting people in the process.

If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?

6.

I come from a low cost of living area, and $45k is considered a large salary there. I think my pay and benefits package is reasonable for a non-STEM career field, but I know that my work ethic and job-specific knowledge is worth between $90k and $115k; maybe even more in a high cost-of-living area.

What are your future plans regarding growing your income?

Earlier this year I developed a health condition with a few complications that will likely inhibit my ability to do certain types of work as I get older.

This has altered my long-term career plans, but I still have plenty of time to determine how to best overcome it and continue to grow my earnings.

I project that my investment gains will play a key role as time goes on, and I hope to semi-retire in about 12 years to pursue some part-time work in consulting or teaching.

I get the most satisfaction out of hard work, especially when it helps others in the process, so I don’t think I’ll ever stop doing some form of work.

In addition to investment gains, I have a few business ideas that I would like to develop, and there’s no better time than now to set the long-term plans in motion.

SAVE

What percent of your gross income do you save?

Generally, I allocate about 30% of my net income to paying down debt.

I’m trying to lower my debt-to-income ratio, so when possible, I pay even more. I consider paying down principle on debt to be a solid form of savings with a guaranteed rate of return. I know I could get better returns in the market by paying the minimum on the debt and investing what I have leftover, but I want to free myself of all debt as soon as possible.

To help me decide, I’ve created a table in my Excel spreadsheet where I can calculate my passive income. It’s helped a lot, and over the last 18 months, I’ve gone from passively losing $125 per month on debt interest to passively gaining $135 per month.

As for my retirement savings, I opted-in to the Blended Retirement System (this is the military’s defined contribution retirement plan).

Under this system, they match the service member’s Thrift Savings Plan contributions up to 5%, so currently that’s all I’m contributing. I used to contribute significantly more, but my main focus is eliminating the debt and building up my emergency fund by about $2k per quarter.

One thing I like about the TSP is that it has great expense ratios. My returns have been great, but I hate that I can’t touch the money until I’m 59 and ½. I also have a Roth IRA, and this will be the first year that I’m able to max it out.

How did you get to this level?

I used to only put my money in a money market savings account, but as I later learned, with inflation and low interest rates, I was taking a net loss.

One day, I was having a conversation about personal finance with a coworker, and he insisted that I read some of the Mr. Money Mustache blog. I ended up reading several of his articles, and it ultimately led to my discovery of several other personal finance blogs including ESI.

As I continued to read, I started changing my spending habits and tracking my finances in Excel. Eventually, I ended up with several sheets in the Excel workbook, and my favorite one is set up to calculate how my passive income cash flow will change based on where I allocate each future dollar earned.

I use this tool often for budgeting, and it really brings to life the effect of my decisions before I execute them.

Another thing that has helped me track my savings is to consolidate my accounts to only a few institutions. I used to use a couple different banks, but now I only use one. I keep a few other accounts with minimal funds in case I need them in the future, but so far it’s made things much more simple using just one bank.

Near-future action items that will improve my savings include:

1. Finish paying off my student loans
2. Paying off the cheaper car
3. Getting married (less taxes)
4. My fiancé starting his career
5. Making better use of my bike instead of driving everywhere

If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?

8.

I gladly forego many things in which my peers indulge, and I find it really rewarding when I exceed my projected financial gains.

I still have a long way to go before I have F-U money, but I think I’ve done a good job lately at staying disciplined when it comes to ‘paying myself first’.

The frugal habits I’ve developed over the last couple of years have helped too, and if all goes according to plan, I should be debt-free within the next 18 months.

What are your future plans regarding saving your money?

2018 has been a very challenging year for me. In fact, aside from my engagement and spending a little more time than usual with my family, it’s been the most challenging year ever.

I try to learn from every experience, and this one has made me realize just how much I value my health and relationships.

Going forward I plan to save even faster so that I can be completely financially independent in the next 15 years. I also plan to max out my IRA every year, continue to get the full employer match on my retirement account, and I hope to purchase a home soon.

INVEST

What are your main investments?

Right now, my investments are all in Roth TSP, Roth IRA, or a taxable brokerage account.

Together they equal only about $18k; half in my Roth TSP, and the other half in my Roth IRA.

I have a couple hundred dollars in the taxable brokerage account, but this is petty cash that I use for experimentation and learning.

For the TSP, I have a mixture of the C, S, and I-funds, and in the Roth IRA, I have a mixture of individual stocks and low-cost ETFs. The stocks and ETFs all pay dividends that are automatically reinvested, but eventually I will branch out a bit to see if I can invest in a few less established companies with a higher growth potential.

If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?

4.

When I was a kid I used to love to talk about money and investing with my grandfather. He died when I was 16, and after his death I had nobody to guide my learning of investments.

When I turned 18, I opened my first brokerage account without a clue about how to get started or what I hoped to achieve. I ended up buying a few random stocks, even dabbling with penny stocks, but as you can guess, I lost most of my money.

In frustration, I sold my positions and didn’t feel ready to start investing again until last year.

This time, I have a mentor who happens to be a tax pro, and I have a much better understanding of what I’m doing.

I also make sure to invest based on math and calculated market research rather than guess work or emotion.

What are your future plans regarding investing?

Soon I’d like to try investing in real estate.

I recently spoke with a local investor and he was very passionate about his work. He manages all of his own properties, and had a really strong sense of pride in providing his tenants with quality housing at an affordable price. Rehabbing houses and taking care of tenants sounds like something I’d like to learn, and any parts I end up disliking, I can contract out.

When my fiancé starts earning a significant income, I’ll be able to dedicate more time and money to trying new experiences, hobbies, and projects.

I don’t have a specific goal at which I will immediately retire, but if I had to pick a pie-in-the-sky net worth I hope to achieve in my lifetime, it would be $10 million. Between inflation, earned income, compound interest, and future scalable business ventures, this may actually come to fruition. I don’t know anyone with an eight-figure net worth, but maybe I’ll be the first.

WRAP-UP

What money mistakes have you made that others can learn from?

I’ve made three significant financial blunders that I hope others can learn from.

The first was not having a job lined up after finishing graduate school. I worked part-time my whole way through school and lent too much credence to an internship that I thought would morph into a full-time position. It didn’t happen, and instead I spent the summer after graduation stocking groceries while looking for a good job. The lesson here is to always keep several options open.

The second mistake was not making any IRA contributions between age 16 when I started working and age 25 when I finally started making contributions. The whole time I had money in savings that could have gone into an IRA, but I didn’t know what I was missing out on. The lesson I learned here was that opportunity cost is sometimes the greatest cost.

The third, and most recent mistake was financing my ‘Ensign Mobile’. People in the Navy joke about buying a fancy car after they commission, and against all common sense, that’s what I actually did. I got a reasonable deal on an old school muscle car, and bought it without thinking the whole thing through. It’s really fun to drive, but it caused me a lot of grief every time I had to hemorrhage money to replace parts. When I finally decided to get rid of it, I took a substantial loss. One day I’ll buy another classic car, but right now I have plenty of other things that are much higher priorities. The lesson here is that part of being an adult is not allowing yourself to cave into peer pressure.

In conclusion, the single best piece of advice I have for adulthood success is to think twice before borrowing money. If you must borrow, have a plan to pay it back as fast as possible. You’ll thank yourself later.

Are there any questions you have for ESI Money readers regarding any parts of your finances?

I don’t have any questions per se, but I welcome any feedback.

I have learned a ton from financial blogs like ESI, and I hope that by sharing my story I can motivate others to take charge of their financial future. Thanks for reading!