DebtSlaveNoMore's Journal

Where are you and where are you going?
DebtSlaveNoMore
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Joined: Sat Feb 02, 2013 7:27 pm

Post by DebtSlaveNoMore » Mon Feb 04, 2013 7:10 am

Been lurking on this forum for a while now. So I finally decided to start a journal. I'm a 30 year old computer programmer. I currently live in the NYC area with my wife and our young son.
Growing up, I was taught to excel in school, go to the right college, get a good job, and work my way up the corporate ladder. These are all good values to have. But unfortunately, I was not taught to live below my means. So coming straight out of college, I landed a semi-decent job, but I was over 40K in student debt. Now instead of paying that debt off, I started enjoying my new found wealth. I went on vacations all over the country, bought tons of electronic gadgets, and of course bought a house near the height of the housing bubble in 2005.
Then for reasons that I can only attribute to the ridiculousness of youth, I decided to change jobs and move to the New York Metro area. The house I had just bought on debt was rented out in the mean time. Once in New York City, I rented out a high cost studio in the Upper East Side and continued living the high expense lifestyle.
The new job paid more than my old one, but I did not consider the higher cost of city living before making the move. As I began running a little short on money at the end of every month, I knew that something had to be done. Of course, I did the entirely wrong thing. Being a hobby gardener, my mistake was thinking that I could build a professional landscaping side-business on borrowed money. So I got into even more debt to start this business, commercial loans this time!
Right around this time, I met my wife. Our relationship bloomed over the next couple of years. My wife was in grad school with a huge amount of student debt at the time. About 2 months after we got married, the economy crashed, the value of my house tanked(wiping out my down payment), my side-business collapsed, and the interest payments on her student loans became due.
That was a really low point in my life. I realized that as a family, my wife and I had almost no money to our name. Additionally, the outstanding student loans, credit card, and commercial loans that we had added up to over $192,000 dollars!


J_
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Location: Netherlands/Austria

Post by J_ » Mon Feb 04, 2013 10:54 am

Please go on, never stop at a low point!


bulgaria
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Post by bulgaria » Mon Feb 04, 2013 11:28 am

I'm also interested. Quite some time has gone by after that low point I presume. So I'm very interested in what has happened since or what you have planned.
Although 192k $ is quite a lot of money, with 2 people working on 'good' jobs it isn't a unrealistic debt to get rid of.


secretwealth
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Post by secretwealth » Mon Feb 04, 2013 2:50 pm

Another New Yorker, welcome! It amazes me how many people in the city are on this forum.
$192k may be a lot, but don't let that stop you. There are a lot of ways to live cheaply in the city and save a lot of money, and many on this forum have shown that paying off debt and saving is an achievable long-term goal.


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Mon Feb 04, 2013 7:14 pm

So with that much debt, we were in heaps of trouble. It was around that time that I picked up a used copy of Your Money or Your Life. Reading that book led to an epiphany of sorts. I realized the huge mistakes that were made and decided then to take concrete steps to correct them.
So the debt pay down strategy was two-pronged. Income had to be massively increased, but we also had to become much more frugal. In my case, the first objective was much easier to achieve than the second.
My Income Expansion Strategies:
To increase earnings I began by updating/renovating the rental property. I did much of the renovation work myself. And since the house is near a transportation hub, I then converted some extra backyard space into an expanded parking lot. These updates greatly increased the amount of money I could get every month for that property.
At my day job, I was working with renewed vigor and obtained 2 promotions within 3 years. This led to an over 50% increase in my take home pay. My wife works with children with special needs, so her compensation was pretty capped during this time.
In addition to the day job, I started an online-based side business. I practiced the "Lean Startup" strategy and basically built this business on a shoe string budget(and absolutely ZERO debt). Of course this meant spending vast amounts of my own time working. Between the day job and the side business, I averaged around 80 work hours every week.
Finally, I made a wise decision to plow a significant amount of money every month into financial investments (401K and my own Brokerage account). Because I bought these financial assets, literally at the very bottom of a down market, I was able to reap pretty amazing gains over the last couple of years.
My Frugal-Living Strategies:
In the area of spending less money, we made significant strides. My wife and I had our first child which drove up our living expenses (larger apartment, childcare, formula, furniture...etc). Moreover living in NYC is an expensive proposition simply because most people around here are flashy consumerists. But we made some significant cuts anyways. We are brown-bagging all of our meals, we rarely go out to eat, we fix our own stuff, and we dropped cable. However, by not spending as much as "normal" people, we were perceived by friends and family as being poor or in need. This had caused my wife a great deal of stress.
How it all worked out:
So for more than 3 years, we systematically paid down our debts while increasing our assets. We focused on the high interest credit card debt and commercial loans first. After that we attacked the educational loans and the house mortgage. It was a hard slog, but at some point, our net worth became zero and then went into positive territory. This transition was helped in no small part by the gradual recovery of the housing and stock markets over the last couple of years.
So by the end of 2012, we had paid off all of our outstanding debts including the mortgage. At the beginning of 2013, the focus is now entirely on reaching a state of financial independence for myself and my family.


RealPerson
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Post by RealPerson » Mon Feb 04, 2013 7:24 pm

You made a smart decision to enter the market when it was down. Some courage, smart real estate moves and hard work have paid off. Congratulations on the terrific results so far. Now the key is to keep it up and not let social pressure push you off track.
Your story is inspiring for anyone who started off on the wrong footing financially.


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theanimal
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Post by theanimal » Mon Feb 04, 2013 8:29 pm

Wow..what a great transformation! Keep it up and I'm sure you'll quickly reach FI!


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Tue Feb 05, 2013 4:58 am

So now I want to get into some numbers for the month of January 2013:
Income: $19,200

Note that the tax status of the income sources are a little confusing. The tech consulting and teaching income streams represent our day jobs and are thus after-tax. Everything else is more or less pre-tax.
Financial investments represents the appreciation of my ETFs/MFs/REITs, dividends, 401K contribution/company match, and interest payments from Peer-to-peer micro-lending.
Physical Asset appreciation represents increases in the market valuation of physical assets (e.g house, gold, silver).
Expenses: $6,291

On the expense side of things, please note the high cost of housing, childcare. I had a major issue with my car in January which accounted for the thousand dollars in auto costs. For household harmony reasons, I have an agreement with DW such that in exchange for putting up with my frugality, she gets $800 a month of play money to spend on clothing, gifts, and other stuff she likes.
Savings Rate: 67.3%

Total Assets: $459K

Years Living Expenses: 6 years


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Tue Feb 05, 2013 5:33 am

@J, @Bulgaria @secretwealth
Yeah it was extremely tough to pay off the debt. But where there is a will there is a way! :)
@RealPerson
I was so freaked out about investing in the stock market back in 2009. In effect I was taking money away from debt reduction to invest in a market that had just crashed. It got to the point that I had trouble sleeping at night. However, this high risk move really paid off for me. The vast majority of my investments from that time have more than doubled in value, some of the investments have more than tripled in value.
@theanimal
That is the goal! I'm certainly going to try my best at this! :)


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My_Brain_Gets_Itchy
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Post by My_Brain_Gets_Itchy » Tue Feb 05, 2013 7:24 am

@DebtSlaveNoMore:
Very inspiring how quick you turned things around.


bulgaria
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Post by bulgaria » Tue Feb 05, 2013 8:52 am

I agree, it is very amazing what you did. Not only the amount of debt that has been dealt with, but also having the courage to start and the stamina to persist.
And seen your wealth producing power (income-expense) I'm sure you are going to reach FI in the very near future.
Personal tip: Don't forget the feeling of being overcome by debt.. and treasure the 'moment' you got rid of it all. I still do it with my college debt.. I have payed for it last year in one go.. and I still treasure the moment that this debt was gone because it caused me so much stress and other negative emotions. So don't forget what you did and where you came from.


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Mon Mar 04, 2013 4:04 am

Here are my numbers for February 2013:
Income: $17,482

Expenses: $6,230



Monthly Savings Rate: 64.5%

YTD Savings Rate: 65.9%

Months Living Expenses: 76


The Good:

This month the software side business has increased earnings. This is due to the expansion of my products into a new marketplace. I have yet another marketplace expansion effort in the pipeline, as well as a new product nearing launch. So next month, I suspect even higher earnings in this sector. Additionally, financial investments remained very strong this month, with several large dividends as well as acceptable asset appreciation across the board.
The Bad:

There were some layoffs at my day job. That freaked me out and put my side business efforts into overdrive. I don't really like being stressed, but it sucks (_|_) to see older developers in their 40s being chucked to the curb. I need to avoid having the same fate.
This month, spending on gifts, luxury products, and hobbies combined was a whopping $1,852 dollars! My DW has gone a little bit overboard in terms of spending. The big ticket expenditures included $500 to throw her father a party, and another $400 on a wedding gift(giant crystal bowl) for her cousin. I'm generally fine with her having a few small luxuries every month. But I think spending anything over $800 a month just for pleasure is a little bit too much, so I kinda yelled at her. Now I feel bad.
The Ugly:

I did my taxes last week, and realized that I have to pay the government a huge amount of money in March. This is the 2012 taxes on my small business and rental income streams, and it's damned high. It kind of grates on me that I need to shell out so much money just to maintain grossly inefficient infrastructure and institutions.


Scott 2
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Post by Scott 2 » Mon Mar 04, 2013 5:55 pm

A $400 bowl??? I would be extremely frustrated. My issue wouldn't be the amount of money spent, so much as what was obtained with it. Whoever sold to her made a huge profit, at your expense. More respect should be shown for the time that went into earning that money. At least buy from Craigslist and get 2-3 crystal bowls for the same money, you know?
Overall, you are doing fantastically well. Make time to live too. Most of your expenses are paying to have a wife and kid. Enjoy them.


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Tue Mar 05, 2013 1:36 am

Thanks Scott2! I'm trying to scale down the amount of work I put in.


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Thu Apr 11, 2013 5:11 am

Here are my numbers for March 2013:
Income: $18,200


Expenses: $17,932


Monthly Savings Rate: 1.5%

YTD Savings Rate: 44.5%

Months Living Expenses: 76
The Good:

March was an excellent month in terms of revenue from both the side business and financial investments. Several funds that I own paid out large dividends in March. Another snippet of good news is that I apparently survived a round of layoffs at my day job. When they announce a bunch of guys were getting let go, it scared the crap out of me. So I think our family's main cash cow is safe for this year.
The Bad:

This month was extremely costly in terms of expenses. I had to pay income taxes on my 2012 small business and rental property earnings. The tax rates seem to be higher this year and the number of deductions that I was allowed take seems to be smaller. 12,000 dollars is a huge hit and it totally wrecked our savings rate this month.
Another downer is that things came to a head with DW over her spending. She blew through another $1,300 dollars in March on non-essentials. After a fairly heated argument I think I understand where my wife is coming from. Basically DW is tired of living frugally now that our debts are paid off and she wants the freedom to enjoy her income every month. Moreover, there seems to be tremendous pressure on her from her friends and female relatives to consume at "normal" American levels.
Thankfully, we have worked out a solution. Basically, DW will give up half her take-home pay every month to cover her share of household essential expenses. The rest will be her play money. While this will mean a reduced overall savings rate for our family, the good news is that this will allow me to track our "essential" monthly spending with much greater accuracy.
Another good outcome of this decision is that DW's increased spending may end up saving us money in the long run. This is because none of her friends and female relatives are financially strong enough to spend more money than they currently do. None of them can afford to shell out $1600 a month on pure luxuries. The majority of them are living pay check to pay check as is. So if they attempted to match DW's spending, it will only result in debt and ruin. Whereas for us, blowing $1600 every month(while painful to me) will not significantly impact our long term wealth building plans. It is in fact entirely possible for many of my wife's friends to spend themselves into poverty trying to keep up with her. So in a really messed up way, this problem may end up solving itself!
The Ugly:

In early March, I went to the doctor's office for a physical. It turns out that I'm pre-diabetic. There is still time to reverse it, but it requires a complete transformation of my diet and exercise regime. My father had diabetes at 40 and my grandfather got it when he was 42. So to beat this thing I will need to give it my all.
In practical terms it means my grocery expenses will go up as I will need to eat much more fresh fruits, vegetables, and lean animal protein as opposed to processed grains.


frugaladventurer
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Post by frugaladventurer » Thu Apr 11, 2013 5:46 am

Ask your doctor to check your iron levels - with diabetes occurring fairly young in your family, you may carry the genes for hemochromatosis (iron overload). This can be one cause of type 2 diabetes.
ALso - check out www.marksdailyapple.com. A great Paleo diet resource - this is the diet that will fix your prediabetes.


DebtSlaveNoMore
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Joined: Sat Feb 02, 2013 7:27 pm

Post by DebtSlaveNoMore » Fri Apr 12, 2013 3:50 pm

Thanks FrugalAdventurer! I will definitely check it out. :D


tmb246
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Post by tmb246 » Fri Apr 12, 2013 7:02 pm

I would also recommend the book "Eat to Live" by Joel Furhman which I see as the nutritional equivalent of "Your Money or Your Life" in helping me radically change my nutritional plan. It takes determination to follow but you have really shown that in your amazing story. I admire your ability to see the big picture in terms of your wife's spending. I'm fortunate that my wife shares most of my efforts to save and become financially independent.


DebtSlaveNoMore
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Joined: Sat Feb 02, 2013 7:27 pm

Post by DebtSlaveNoMore » Sun Apr 14, 2013 2:19 am

Thanks for the advice Tmb246, I will check the book out. It's harder to do FI alone, but I also need to keep the peace in my household. :D


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Fri May 03, 2013 4:08 am

Now that April has rolled around, it's time for an update!
Income: $14,233


Expenses: $5,412


Monthly Savings Rate: 62.4%

YTD Savings Rate: 49.2%

Months Living Expenses: 89
The Good:

So April was the first month that my wife and I started managing our finances separately. I have to say that this decision has led to an immense improvement in the atmosphere of our household. The number of arguments have almost immediately plummeted to zero, and things are good again.
On the frugality side of things, we are deciding to moth ball one of our 2 cars. We barely use one car so there is no point in paying insurance and state inspection on the other vehicle. If I can just mothball it carefully, it should save us an additional $300 a month.
Another positive note is that apparently my day job is giving me a raise. This raise does not take effect until June. Now I'm not sure why they are giving raises after laying off a bunch of people, but I'm not complaining...:D
Finally, the new diet and exercise regime is beginning to have an impact. I read Eat To Live and started eating way more nutritiously dense foods. And I have to say that it is definitely making me feel better, and I lost over 8 pounds this month which is pretty awesome.
The Bad:

My new software product(for the side business) has been delayed again due to development/testing issues. Moreover the existing product marketplaces are entering the slow period of the year, so income from this area has dropped significantly.
My day job is getting harder. The environment is aggravating and there is constantly a ton of work to be done. Increasingly, I'm not very motivated to do it.
The Ugly:

I started my vegetable garden in early April and now there seems to be an infestation of weeds. So I'm spending an awful lot of time pulling the damned things. Hopefully I don't suffer a crop failure this year.


noskich
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Post by noskich » Fri May 03, 2013 5:39 am

I would be very interested to hear what is your average return on the financial investments? 2-3K per month sounds amazing, with a 4% ROI that would require 600K invested!

Also, what kind of software are you selling, is it only one application or multiple?

Definitely amazing turnover and great position you are in right now. I could live just off the ROI you get on financial investments including partner and child.


DebtSlaveNoMore
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Post by DebtSlaveNoMore » Fri May 03, 2013 5:42 pm

@Noskich

Well that 2-3K number can be broken down into the following:
About 1K comes from my monthly 401K contribution and Company Match. So if I stopped working my day job, that would go away.
A good chunk of investment income comes from dividends and appreciation on my mutual funds and ETFs. The YTD average ROI for these is around 14%(appreciation+dividends).
Finally, a small but significant portion of the income is from Peer-to-Peer micro lending(via Lending Club and Prosper). The YTD ROI is around 8% for me.
For the side business, I'm currently selling a large number of smartphone apps and reusable software frameworks. I also own 3 websites that are monetized via adsense, affiliate traffic, and direct e-commerce purchases.


secretwealth
Posts: 1949
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Post by secretwealth » Fri May 03, 2013 6:55 pm

I really like how your income streams are nicely diversified, which theoretically should shield you from risk. OTOH expenses are massive, especially childcare--any way to get that down?


secretwealth
Posts: 1949
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Post by secretwealth » Fri May 03, 2013 7:02 pm

I really like how your income streams are nicely diversified, which theoretically should shield you from risk. OTOH expenses are massive, especially childcare--any way to get that down?


Scott 2
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Post by Scott 2 » Fri May 03, 2013 7:19 pm

Congrats on getting the money situation worked out with your wife. My wife and I have had separate accounts since day 1, with each paying according to their ability.
It makes life so much easier. The only money fights we have, occur when household expenses go up or she gets a raise, and it's time for her to contribute more per month.
Someone I know who is insulin resistant, but not diabetic, has stopped taking metformin, by following the nutrition guidelines outlined here:
http://www.amazon.com/Insulin-Resistanc ... 0071499849
The book boils down to balancing carbs with protein at each meal, using the forumla:
(Carbs - Fiber) / 2 <= Protein
As long as they eat regularly and respect that formula, they're good after a meal. Big swings in mood and energy levels result when they ignore it.


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