This blog post will be very different from the previous blog posts published on this site. Typically, the articles highlight clinical aspects of PT, but for this one I will speak to the personal financial aspects that we have lived through by working in this profession.
The odds of becoming extraordinarily wealthy while starting with nothing were not very high
I come from very humble beginnings. My first job was at the age of 13, which consisted of working as a ranch hand for Jim P. Both Carl and I were initially hired, as Norm F. recommended both of us to work for Jim. After the first day of baling hay and stacking hay in the loft, Carl didn’t return. It just wasn’t for him. Jim was paying me $5/hour and this was in 1995. I felt rich! After leaving his house with $20, I would ride my bike down to the gas station and buy an ice cream. I’d put the rest away into my savings account at the bank. This job was manual labor. I would “muck” horse stalls (This is a really nice way of saying pick up the shit and clean out the horse piss). I’d have to give the horses hay and grain at night. The most important part of the job was building an outdoor rodeo arena. See…Jim P was a calf roper and he needed a place to practice. I believe that we built an outdoor arena that was 300’x100′. It had the alley for the cattle to come back to the shoot. I remember learning how to use a cattle prod at a young age.
I continued to work for Jim P for almost 4 years while working other jobs. I worked for minimum wage, again with Carl, at an ice cream shop. (remember me saying how I would spend my money on ice cream…now I got it for free!). This job was working for the former mayor of Elwood Mr. C. both Carl and I got fired from this job by the end of summer. We were young and dumb (not much has changed but our ages). Carl was leaving for a summer trip to France as a part of his foreign language course in school. Before he left, we had a banana fight! You read that correctly…a banana fight. The ice cream shop, which shut down shortly after firing us, would use the nice bananas for the banana split and the soft bananas for the shakes. We took the soft bananas and started throwing them at each other. Mind you, we both played baseball with strong arms. We though that we cleaned everything up before leaving for the night, but we were wrong. Apparently, there were two electrical lines right above the light switch at the back door. The space between the two lines was less than 1/2 an inch. There was banana stuck in that small space. When the owner returned, he saw this and went back to watch the surveillance video. Since Carl was in France, I was the only one to officially get fired. Because both Carl and I were early “influencers” in our little town, the ice cream shop business went down after we were fired. By influencers, I mean we volunteered at church, taught vacation bible school, helped coach the boys Jr. High basketball team, were on the town’s baseball team and were just overall helpful to anyone that we would come in contact with. Those were the days. Again, from this job I put my money into a savings account at the local bank.
Finally, we move on to the first “big boy job”. I just turned 16 and Tom, my next door neighbor and brother from another mother, got a job at Sam’s Club (who’s number one…8298!). The three of us (Carl, Tom, and I) worked for Sam’s Club for years. It was here that I started to learn more about merit raises, management, business and responsibility. When I went for the interview, I remember the manager Jeff asking me some questions:
Jeff: So I see that you are still in high school. Are you worried about your studies at all? Taking on an extra 25 hours per week may impact your grades.
Me: Nope!
Jeff: You are either really smart…or really dumb. You’re hired.
I worked my up the ranks at Sam’s Club and went from making just below $8/hour up to $14/hour. As a youngster, I was rich. I quickly accumulated thousands in my savings account and then gave it to family to help buy some land.
If I knew then what I know now, I would’ve bypassed a savings account and just put the money into the stock market and let it ride. Also at this time, I was buying $10/pay period of Walmart stock. It doesn’t sound like much, but by the time I was ready to take it out to pay for some college expenses, it worked its way up to $15,000. I still remember Mr. Tire, Leonard T, sitting a younger version of me down and telling me to invest in the stock market. This guy was in his 50’s at the time working full time as a firefighter and full time as Mr. Tire. As a matter of fact, there were many guys that I worked with that used Sam’s Club as their investment money.
I worked at Sams from 1996 until about 2003, at which time I got into PT school.
All of this brings me to after I graduated from PT school. I immediately had $80K in student loan debt and then bought a house for $275K. My monthly bills totaled about $2700/month. My first job as a PT paid me $62,500. After paying my bills, I had about $500 left per month for food, clothing, gas, retirement savings, etc. I was very much house poor.
At that time, my net worth in 2008 was NEGATIVE $355K. By the time that I moved from that house, it lost $50K from the housing bubble bursting. The story isn’t all doom and gloom. To put it into perspective, we are no longer in the negatives and well on our way to Millionaire Next Door status, but more on that to come.
Anyone who has amassed a fortune on his or her own is often viewed with suspicion, as if the only pathway to financial success requires either high levels of “economic outpatient care”, winning the lottery, or dishonesty.
The older I get, the more I realize that it’s not very hard to become “wealthy”. Again, I wish I knew then what I know now. Just by living on less than we make and investing the rest, we are increasing our net worth month to month. It’s getting to the point that the money we invested is growing at a rate that’s higher than the amount we invest month to month. The goal is to eventually be able to use this money to substitute a salary. This should be everyone’s goal, unless they literally plan on working to the grave. I think back on the mistake of buying a house that was out of my price range, in a neighborhood that was populated by mostly retired folk who already had a lifetime to accumulate that wealth. I didn’t fit into that neighborhood, AND I was going broke in the process of staying there.
I have yet to win the lottery, unless you count the “winnings” of the stock market as playing the lottery. I am not deceptive or dishonest in how I earn money or compound our savings. I have yet to borrow a dime from family members and have yet to inherit anything of monetary value…outside of a strong work ethic which allows me to make money.
I make more money now with my investments than working, and people have no clue. I like it that way.
My non-retirement investments, which are also my emergency fund, are making money daily. The money is invested as follows: 40% currency (such as crypto and a little bit of gold), 30% single stock, and 30% ETFs. In order for me to retire, I need this money to make at least $5,000 per month. Currently, it is making about $160/month invested in the fashion above. To put it into perspective, the money is making about 13% per year. I understand that this is not a lot of money, but we just started investing in the previous 4 months. The goal is to get to the point that the investments will allow me to buy back some of my time from work. I’d be satisfied when I can buy back 1 week of time per month, which means that the investments will need to make about $25K/year. As a business owner, I don’t have “personal time” or vacation time. I need to make money in order to afford to take time off from work. Buying this time back will give me leverage to pursue some other hobbies such as making videos, blogging more, teaching and possibly scaling the current business.
We’ve been married 22 years, 3 children, 3 dogs, 2 horses. We have lived in the same, modest 1,900 square foot (1975 era home) for 20 years. I have an MS in chemical engineering; my husband has a Ph.D. in chemical engineering and is now a VP at a chemical company.
There’s a lot to take from this passage. My wife and I have been together for 9 years. We have 4 kids and a 1,100 square foot home. This home is pretty tight for our growing family, but it is also the reason why we have been able to build wealth. Our mortgage is roughly 15% of our after tax income. We have been able to pay down roughly $50K in credit card debt and car payments in the previous 2 years. We also paid down an additional $15K in student loans in the previous 2 years. As much as we want the bigger home, with the home prices in 2021, this is not the time to move up in home. Once the prices drop or we save enough money to buy a house with cash, we will make the move.
I am 41 years old and my wife is 38. I am just now realizing the power of margin. I am defining margin as the amount of money left over at the end of the month, after paying all of the expenses for that same month.
Margin is needed. When invested wisely, and my understanding of wisely is very rudimentary at the moment and growing month to month, this money will give us the financial freedom that we are seeking. Old dogs can lean new tricks.
It’s worth mentioning that the average single-family home in America is approximately 2,400 square feet…the larger the home, the less the owner has to transform into wealth.
Our home is less than half the size of the average home in America. Although it’s tight in our house, increasing our home size by double would be more home than we need. We are looking to move up towards maybe 1,900 square feet. We need more space for the kids as they grow and we also need a bigger driveway to accommodate the cars as the kids get older. By holding off on moving, we are able to save more and prolong the fees that we will have to pay in order to move.
the burden to ensure financial independence and comfort in retirement is likely to be mostly the responsibility of the individual
I highly recommend checking out Dave Ramsey or Choose FI to better understand financial independence. Unless one has very few expenses, depending on government programs for retirement may not be a great plan.
In order to get to the point that one doesn’t have to rely on the government for all of their living expenses at retirement, we have to start investing. The old saying works well for this. “the best time to invest was 20 years ago…the second best time is now”.
But consuming today in anticipation of higher levels of future income and trying to keep up with the arms race of gadgets, cars and accessories are universal problems.
Keeping up with the JONES’. We see this on social media. It’s no longer just about comparing us to our immediate neighbors. Social media has increased the number of “friends” that we are exposed to on a daily basis. What’s worse is that few people on social media actually post about their losses. Most are posting pictures of their new cars, houses, vacations, and fancy meals. This is a lot of exposure to those living the dream life. Of course, seeing others living this life can lead to the same wants. Social media is essentially free advertisements for companies, as their customers are off taking IG photos of their new doohickey.
The more we consume on car payments, eating out, large house, time shares, vacations, morning coffees, the less we have to invest in our future. Spending money in this fashion is a choice. In order to continue to live like a rich person AND be able to invest, one has to make more money year to year. Sometimes we sacrifice our time in order to live the dream life. As I am typing this paragraph, I came into work 2 hours late today. That two hours gave me time to eat breakfast, play with my kids, see my kids off to school, spend time with my wife, do the dishes etc. Only working for 6 hours instead of 8+, made the day go by much quicker and gave me joy.
If I had a larger car payment or house payment, I may not have been able to make the decision to come into work late. These are the trade offs.
In the bigger picture, buying more “stuff” may be the reason why one has to work until 65+ instead of retiring at 50. Bring “stuff” may cause a person to work for an extra decade instead of taking that time back sooner.
But income isn’t the same as wealth. Income is what you bring home today. Wealth is what you have tomorrow.
Income is your yearly compensation. For instance, if you make $15/hour, your income is about $30K per year. Wealth is more related to your net worth. Income is important, but wealth is freedom. I’ve been listening a lot to the Choose FI podcast recently and just learned that freedom is equaled to between 25-33x your annual spending.
To use a real-life example, our annual spending is $50,400. In order for us to retire, with a similar lifestyle that we have today, we would need between $1,260,000 and $1,663,200. Having this amount of money saved in a 50/50 fund of stocks and bonds is expected to allow us to continue to live a similar lifestyle, with a low risk of running out of money before we die.
Obviously, there are some variables that will change over time, such as we expect to pay off our mortgage, which would lower our monthly expenses. We won’t need to pay for term life insurance, which also lowers our monthly bills. One of our goals is also geoarbitrage, which would lower our monthly expenses considerably. Living in Illinois costs us considerably more than living in Tennessee or…Poland.
Covid has changed our way of thinking also. Prior to Covid, we were living nearly paycheck to paycheck. We spent a lot of money yearly. During Covid, I stopped seeing patients for over 3 months, which really highlighted our need to have more money saved as an emergency fund.
How long can you survive if your income disappeared? Would you feel forced to take from your retirement account (assuming that you have a retirement account)?
These are questions that we had to answer when I was off of work. Thankfully, our savings plus what my wife earned was enough to carry us through until it was safe to return to seeing patients again, but that is a scenario that we don’t want to put ourselves in again.
Currently, out net worth/annual spending is sitting at 9x. We are well on our way to hitting the 25x in the next 10 years.
I’d like to thank Jared Casazza for inspiring me to write about this and be a little vulnerable about our finances. At the age of 40, we are well behind some of the younger generation that has made different choices, but I am well ahead of the network of people that raised me.
Those who want to be truly financially independent rely instead on savings and passive income that invested capital can generate.
This took me 40+ years to learn and understand. Everyone talks about passive income, but it took me a while to truly get it. I was putting money aside into retirement accounts, such as 401K and Roth IRA’s, because it was what I was SUPPOSED TO DO. Now, I understand more about why I should put into my Roth IRA first and then put money into my Sep IRA. If I made more money, then I would put money into the Sep IRA first until we got to below the 22% tax bracket and then invest into the Roth. I also started a business a few years ago and this also allows me to save money in taxes.
It took me 40 years to learn ways to increase my savings rate…so it’s not too late for you.
When I worked at PT and Spine, I only invested 2% into my 401K. That was the amount that gave me the match. I didn’t invest any additional money and I didn’t have money to invest even if I wanted to.
When I went to Palos, I invested 5% in order to get the match. Still much less than the 10% that ‘THEY’ say you need to invest in order to retire and much less than the 15% that Dave Ramsey speaks to.
Now we invest a little more than 15% into both retirement and other after tax funds. This doesn’t include the money that we are investing for our kids college funds. Neither my wife or I had any help for college. Even if we don’t pay for all of the kids college, any help that we could give is more help than either of us received.
Now I understand that investing money is not just about retirement. It’s about buying time back so we can stop working for money at an earlier age OR take more family trips without worrying about money OR can go to Poland to more time to spend with family OR take our parents out to dinner to show gratitude. Investing is more than just having something to look forward to at retirement age. Investments help us reach goals for both near and long term.
Without having a fully funded emergency fund and investments on top of that, the option to take time away from work isn’t there.
We calculate expected net worth by multiplying age by income, and dividing that product by 10 or
Expected net worth = age x income x 0.10
To put this into perspective, our expected net worth is $530K. We are about $200K short of where we are expected to be at when looking at our ages. There are a few reasons for this and most of them are my doing. I didn’t really have a good wage until I was near 30, as I spent many years going to school and taking on student loan debt. I made a few financial mistakes in which I spent more money on a house than I should’ve and because of this had to sell the house during the recession, which also cost me a lot of money. My wife had no student loan debt and is paid well for her position as a PTA.
The part that we have going for us is, as Dave Ramsey puts it; “we have a big shovel”. This means that our combined income is better than that of the average American. This allows us to throw more money into our retirement avenues to the tune of 15% this year. This does not take into account the money that we are saving in an after tax account.
This after tax account has a few purposes.
- to act as an emergency fund
- to serve as a get out of work free fund, as a just in case I want to take a few days off from work
- to serve as a means for us to travel to Poland to visit family
- to act as a down payment on our next house
- to enable us to quit working before we pull from retirement
This fund serves a lot of purposes, but once it is above $12K, the emergency fund portion of that would be covered. I expect to get there in the next 6 months. From there, anything above the $12K would be used for the next purpose down the line.
At some point in the future, we will have to move up in home. Based on our trajectory, we could pay off our current home in the next 3-4 years, which would free up a lot of money to put down on the next house.
We would then start the process of building the after tax fund back up again above the emergency fund.
In the job of managing finances we measure success by the difference in actual versus expected net worth.
This is very clear cut and sounds harsh at the same time, but I guess it depends on which side of the net worth equation you are sitting on.
I don’t like to be rated as “less than” in any endeavor that I set myself towards. Seeing as how we are falling short in the expected net worth category, we started putting away an extra $1,000/month into some sort of investment that is tied to the stock market. Our savings rate this year has increased to greater than 20% of income per year.
It took choices. I rarely go out to get lunch anymore and instead buy Shepherds pies or make a pizza at night and take that to work for lunch. Saving $3-$10/day adds up to significant money at the end of the month that can be put into investment vehicles.
To hear the audio, https://podcasts.apple.com/us/podcast/envivo-pt-with-vince-gutierrez/id1366678811?i=1000546642059