Ok, so, this won’t be a security related post, but I recently got owned and will be sharing how I started taking personal finance a bit more serious and some of the lessons learned in steering my financial ship in the right direction.

But Why?

Well, to be frank, I’ve been quite fortunate. I started my career at a reasonably strong starting salary and it’s only gone up steadily as time has passed and my value to my employers has increased proportionally. This cash flow, for quite some time, was something that I took for granted. I always had a surplus of cash and often lived quite below my means out of principle and I never had a need to really pay too much attention to this kind of stuff.

However, in the past 2 years, I’d gone through some major life changes (moved states, bought/renovated/sold some houses, bought a new car and unfortunately got a taste of divorce in the mix) which had changed my personal finance calculus such that I woke up one day and I realized that even though I made decent money, I was cash poor and staring down the barrel of $+20,000 of contractor invoices.

Spending Less Than You Earn

It wasn’t really clear to me until about 1-year into this journey that even though I was making good money, I was still slightly overspending what I was earning. I think the way it happened was that my life style spending felt a lot of the same as the past, but major life expenses like moving, buying a new home, not having a second income, dating, and getting into a really gritty renovation project was slowly bleeding me dry.

I have a close work friend who I had been confiding in during this period, who knew I was struggling to get my hands around personal finance in general, and advised me to checkout this tool he uses called YNAB, which stands for you need a budget. I checked it out briefly, I found it a little hard to use, and it seemed a little too corny for me. I mean, after all, I had been “budgeting” like an adult in a spreadsheet for like 15-years and even though I was struggling, I felt some level of comfort that I at least had a budget unlike the majority of Americans.

I continued to struggle for a month or so, not making any major changes in direction until they prompted me again to try out YNAB, so I gave it another try. And color me surprised, on the second attempt, everything just clicked and I had nerded out and added all my budget categories from my epic budgeting spreadsheet loaded into YNAB.

One of the interesting things about YNAB is that it forces you into a slightly different mindset where by you only budget money that’s in your account, which is a bit jarring. Rather than budgeting for the whole month like I was doing with the spreadsheet, I could only budget money that I had in my account. So I quickly realized that after each paycheck that I didn’t have enough to fund the entire month. Additionally, with linked accounts in YNAB, I was finding it challenging to properly categorize my expenses that didn’t quite map to the numbers I had on my spreadsheet budget.

After a while, I had come to the full realization that my “live below my means” spreadsheet budget was a total lie and didn’t represent my spending habits. I read all the YNAB tutorials and watched all the YouTube videos and eventually, not without some psychological epiphanies, got a handle on my spending habits and started spending less than I was earning.

Slaying the Debt Monster

At this point, I was back to being cashflow positive for the first time in a few months, and “living the dream” within YNAB. I had been reading a lot of Dave Ramsey’s work and realized that even though I was cashflow positive, that that cash flow was significantly constrained by some of the debts I incurred in the past 2 years, mainly a mortgage on land, a mortgage on a house, a new car loan, and a recently acquired renovation loan I took to keep my contractor happy.

I had looked at two debt buy down strategies (avalanche and snowball) and decided that snowballing my debt, by focusing on the smallest debt first, was going to be the most psychologically rewarding and might allow me to maintain some momentum to keep going. I started with the land loan and paid that off first. I then used the money I was paying toward the land loan to double down on the renovation loan, and paid that off second. It felt so good each time I paid off one of those loans and it just continued to strengthen my resolve.

This month will mark my last payment on my car loan, which will officially make me debt free for the second time in my life, shy of the mortgage on my primary residence. It’s been an interesting journey buying down this accured debt, but the really exciting part about it is the additional cash flow that buying down all this debt gives me. In total, after buying down the renovation loan, the land mortgage, and my car, I will have increased my monthly cash flow by roughly $2,000 month. Now I don’t know about you, but to me, that feels like a huge monkey off my back and has me excited about what’s next.

Saving for a Rainy Day

Now, I think it’s fair to say that the corona virus has taken the whole world by surprise, but the next thing I’m really focused on is building out a cash reserve in the case I get sick and cannot work or in the case my employer was to lay me off. I used to keep a pretty sizable nest egg in cash, but of course in my ignorance and then in my craze to “slay the debt monster” I really haven’t built out much of an emergency fund.

Thankfully, since I have a much better handle on what I actually spend in a month and I know I can fully deploy these additional funds toward building up my emergency fund and how long it will take me to hit that goal without any windfalls. However, I had been trying to sell my land lot for quite a few months, but it’s scheduled to close tomorrow morning, which allows me to recapture the money I spent toward buying down by the mortgage and use the proceeds from the land to fully fund my emergency fund of 6-months expenses!

Having a Life-Style Plan

During this whole process, I was also doing double duty on few fronts. I was eating healthier, exercising more, investing in some career growth opportunities, and really being a true student of habit building. During that period of habit establishment, I saw meaningful gains on those fronts, I had lost 30lbs, I met my new life partner, I had landed a promotion, and I have taken full control of my finances.

One of the things I realized in all of this is that when I set goals for myself, wrote them down, and held myself accountable that in the beginning they felt very hard, but it didn’t take long for me to adapt to that new normal and it just felt like success became “easy” when I followed my plan. With that in mind, I’ve come to the realization that I really want to think bigger about designing my ideal financial life, where I can be free to do whatever makes me happy, even if that doesn’t follow a traditional path.

Here’s some moon-shot goals that I’m focused on now that I’ve got some of the basics covered and I’m unshackled from ignorance about how to use money as a tool…

  • Maintain or even decrease my current spending level
  • Take out debt on income producing assets only
  • Invest all surplus income into income producing assets (eg. Market/Real-Estate/Businesses)
  • Grow networth > 25% annually (double portfolio every ~3 years)
  • Become financially independant within 5-years (investments cover all expenses)