BiggerPocket Money Podcast 235: Why a High-Income Doesn’t Automatically Fast Track You to FI

BiggerPocket Money Podcast 235: Why a High-Income Doesn’t Automatically Fast Track You to FI

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High-income earners have a better shot at retiring early than those making a median income.  That being said, with more money comes more investing risk. After the great recession, Bob Haines was sitting on a $300,000 loss from leveraging too many properties to flip. This put the possibility of retiring early multiple years behind. But, even with a money mistake as large as Bob’s, he’s been able to retire at age forty-four, a good twenty-one years before the standard retirement age.

You could say that Bob’s early retirement sprung from his ability to take risks, leave jobs, and go where the money was. Bob went from making $40,000 a year at his first job to $500,000 less than a decade later. While a $500,000 salary was not the norm for Bob, these frequent career and company jumps allowed him to build up a massive cash position ($250k) and invest for retirement faster.

Funnily enough, the first time Bob heard about the FI movement, he quickly calculated his FI number and realized he had already hit it. While he took a couple more years to finally pull the trigger and get over his “one more year” dilemma, Bob and his wife were able to retire in 2018 and 2019, allowing them to travel, spend time with family, and enjoy life at the beach.

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Mindy:
Welcome to the BiggerPockets Money Podcast, show number 235, where we interview Bob Hines and talk about making a high income, a lot of mistakes, and still reaching financial independence.

Bob:
I think there were seven houses across that whole timeframe. Two of them, I would call successful, where we actually made some money. One was a breakeven and then the other four, we just got slaughtered, just completely slaughtered.

Scott:
What would you say the cumulative losses were here?

Bob:
About $300,000.

Scott:
And that’s split between you and your brother?

Bob:
Unfortunately, no.

Scott:
Each?

Bob:
That was my side.

Scott:
Wow.

Bob:
Yeah, yeah.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen. And with me as always is my like-minded co-host Scott Trench.

Scott:
I feel the same way, Mindy. Thanks. Thank you for having me.

Mindy:
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, go on to make big time investments in assets like real estate, start your own business, or learn from other people’s investing mistakes. We’ll help you reach your financial goals and get money out of the way, so that you can launch yourself towards your dreams.

Mindy:
Scott, I am super excited to talk to my friend, Bob Hines, today. And as you are listening, I want people to kind of ignore the fact that he did make a high income. His income wasn’t that high forever. That was actually, the top was only one year and he made probably half that much on average, which is still a high salary. He still had a really great income, but there’s a lot of lessons to be learned through the mistakes that he made. And I think that you can still get a lot out of this episode, even if you’re not quite in his same tax bracket.

Scott:
Yeah, I agree. I think that the fact that he earns a large income is due to a very successful career. And so, if you are planning on having a very successful career or think you’re setting yourself up for one, this episode is going to help you understand, hey, if you make some decisions that are different from his or if you set yourself up in a different trajectory, you can achieve financial independence in 5 to 10 years or maybe less with those things, instead of the 20 that it took Bob. And I think there’s a lot of really powerful lessons to learn here. I think he’s got a fantastic journey and he’s clearly one, in a huge way, being retired now at age 44. So, congratulations to Bob and his wife and look forward to hearing their story today.

Mindy:
Bob Hines, welcome to the BiggerPockets Money podcast. I’m so excited to talk to you today.

Bob:
I’m excited, too, Mindy. Thanks for having me.

Mindy:
Let’s jump right into your money story because this one is fascinating to me. Where does your story with money begin?

Bob:
I guess, when I was really little, I remember my grandmother kind of showing me around her house and telling me how she bought everything in cash. And that that was kind of the best way to set up your life was to not take on debt and to use cash for your purchases. And then she also taught me about the Rule of 72. And told me that when I establish myself and my career, I was allowed to spend 10% of every raise and just to buy savings bonds with the other 90% every time I got a raise. So, that’s kind of my earliest recollection of money and how it works in the real world.

Mindy:
Savings bonds. Did you take her up on that suggestion?

Bob:
No, I think by the time I was ready to really start investing, yields were extremely low, so I really started with individual stocks and mutual funds when I got started.

Mindy:
I do think that’s a better investment choice.

Bob:
Yeah, absolutely, especially these days.

Scott:
So, walk us through kind of where things ended up for you after high school, college, those kinds of years.

Bob:
Sure. So, I’ve worked my way through high school, I started working at age 12. And when I went to college, I went away for my first year and came back and actually got a part-time job working in my career field, which is IT. And when I was getting ready to go back to school, my boss came to me and said, “Hey, look, we don’t want you to go away. We want you to stay here. We want to offer you a full time job.” I was a little conflicted about that, because I knew a bunch of people that started to go to college, went and got a full-time job and then never finished it.
So, I wrote out my goals that I wanted to complete my degree and become a software engineer for a software company. And it ended up taking me five years instead of four years, but part of the perks of that job was they would pay for my tuition 100%. So, I ended up completely debt free, out of college with some money in the bank, in a pretty good financial position to kind of launch my career. I felt much better than my peers that didn’t have the four years of on-the-job training that I had.

Mindy:
Holy cow. And what sort of salary were you making at that time?

Bob:
I think when I graduated, I was making something around $40,000 a year. And within weeks of me graduating, I think they bumped me up to 50K a year because they thought I was a flight risk, which they were right.

Scott:
So, okay. And so, what happens there? Where does the money journey or where do you kind of… did you begin investing at this point? Or how do you spend this money that you’re beginning to make?

Bob:
Yeah. I think that we had automatic enrollment in the 401K at work and I just signed up for that. And then I took extra dollars and started in a taxable brokerage’s account, picking individual stocks, which in hindsight was not the best choice, but that’s what I did at that time. I also made some pretty big mistakes. I mean, I went out and bought a brand new car, I think around that time, with a payment of $504 a month or something like that. So, I wasn’t exactly doing what my grandmother had suggested, but it was good in that, it taught me what not to do.

Scott:
And what year was?

Mindy:
Well, and you deserved it.

Bob:
Yeah, exactly, exactly. I deserved it. So, I graduated in ’97. I graduated college in 1997.

Scott:
Okay, so you start out, you’re making pretty good money, you’re investing in a 401K, you’ve got the broker’s account, you’ve got a brand new car, all that kind of stuff. How does the money journey progressed from there?

Bob:
Yeah. So, I think that I just really focused on enhancing my career over time. That’s really been by focus and kind of just keeping the level playing field. I went and bought a townhouse, once again in hindsight, way too big of a place for me and I had no roommates, so it was a four-bed, three and a half bath place that just, just I was staying in. And I really tried to maximize.
I did a bunch of salary surveys to figure out what I was worth in the marketplace. And figured out I was worth 85, at least, 85 grand a year and went to my boss and said, “Hey, look, here’s my salary survey. Here’s what I’m worth. Here’s what you guys tell me. I’m five stars on my reviews. Can you give me the 85 grand?” And he’s like, “Listen, I think you’re worth it, but that’s just not going to be something I can do for you here. We’ve got to preserve internal equity.” Which I had no idea what that phrase meant, but I guess effectively, for people that were already there, they couldn’t make less than me because I was a new guy at that time.
It’s pretty brazen of me, I guess, thinking back. I was 22 years old and demanding, probably a 60% pay increase. But roughly two weeks later, he had my two-week notice and I found a job making 85 grand a year. And I just kind of progressed from there. Really spending time on increasing my skills and being able to push my income up over time while simultaneously holding my daily living expenses relatively low over time.

Scott:
I think that’s really interesting there. And, I think, this is I think a great lesson for a lot of folks, because early in your career, that is when you are likely to see the biggest percentage salary increases is in those first couple of years out of college. And knowing your market value, knowing what your skill set is worth in the marketplace is valuable.
Bringing that to your boss and saying, “Here’s what it is,” is one thing. Your boss or your employer may have said, “That’s great. And maybe Bob’s skill set is worth 85K in the marketplace, but it’s not worth that to us. We don’t need that right now.” And so, maybe they just weren’t able to give it to you.
But by knowing that, you were able to give them a chance to make the offer and then move on and jump ship to the next company with that. And I think that’s a perfect way to go about it in those early days in the career if that’s what you’re looking to do with those things. So, I think it was great.

Bob:
Yeah, I think that I really lucked out doing that, again, being so brazen when I was young because hindsight being 2020, had they given me that increase, I mean, there are a lot of people that I worked with back at that organization that here we are, 25 years later, they’re all still working there. So, it really gave me kind of the boot out the door to get out in the real world and then hustle from there. So, I could have gotten comfortable and stayed there for my career, I would not be financially independent today if I had done that.

Scott:
Well, I did the exact same thing early in my career and I think that it’s like it all goes down to risk, right? What is the risk of a decision like that early in your career? Well, the risk is you move on and maybe or have a little bit of trouble replacing that job, but you’re probably not going to come in way under where you just left in that type of market or that type of industry. And the bigger risk, I think is staying if it’s not what you’d like to do and it’s not where you want to be long term with that because then you get complacent over a period of time with those types of things.
And I think that’s really powerful, a really powerful lesson and framework to think about it as there’s risks associated with both in action and action. And the risks long term, I think, are way bigger within action. So, kudos to you and all of your compensation increases have been based as a probably a percentage of the new $85,000 salary for compounding over I assume a pretty successful career here.

Bob:
Yeah, exactly. That’s the one thing that I did right, I think. I did a lot of things wrong, but the one thing I did right was really focused on my core competencies, my skill set, the value that I could bring to any organization and then monetizing that. And then coupled that with, after not doing a lot of things right, just kind of keeping my living expenses low over time and that’s what really helped me get there.

Scott:
Well, you just told us that you started out of college making 50K a year in ’97 that you started to put in, auto-enrolled the 401K, took extra dollars and invested in taxable brokerage account, maybe bought a new car, and then, and got a $35,000 raise within a year or two. What did you start doing wrong? Where does this part of the story come in place?

Bob:
Gosh, Scott, you don’t have all day. Yeah.

Scott:
I hear that, but then this doesn’t seem like a lot went wrong so far yet. No debt. Everything’s going well.

Bob:
Yeah. So, I think that, well, a few things, right? So, I actually went and decided to go out on my own for a while, which was super successful until the dot-com bubble burst, so I ended up having to go back to work for somebody else. I guess in hindsight, it really just, it kind of put my career trajectory a little bit on pause. So, I probably didn’t climb as high and as fast as I would have if I had stayed somewhere else, but I wanted to give the entrepreneurship thing a try.

Scott:
We’re in 1997, you just got a new job with an $85,000 increase. That continues for some period of time, and then you leave to do entrepreneurship? Is that right?

Bob:
Yeah. Well, I left relatively quickly. I mean, so wait. I graduated in ’97, I actually worked at my new job, I think until 99. And then that’s when I left and went out on my own.

Scott:
Okay, so in 1999, what’s your financial position and what do you do?

Bob:
I was doing Linux Consulting. And I was probably, when you look at my financial position, I don’t have a good, I mean, I was in the black, but I don’t know where I was. I mean, I kind of had big disparity between what I was making and what I was spending. So, I was in a decent financial position to go out on my own. I think I probably had, if I had to guess at that time, I had probably somewhere in the low six figures of net worth at that point.

Scott:
Okay. And so, what is that you’re doing Linux consulting? How does this turn out? What does the journey into entrepreneurship look like? How long does it last and what’s the outcome?

Bob:
Yeah, it lasted about two years. I had some great projects at the beginning and then after the dot-com bubble burst, a lot of my clients were just kind of cutting projects back and just delaying them. So, it’s not like I couldn’t pay my bills anymore, but I was working less and less frequently. And I actually was starting to think about maybe going back to work for somebody else. And I just got a call from a headhunter one day and sounded like the perfect job for me at a software company, which I had always wanted to work for a software company. That was kind of my dream.
And so, I went in and interviewed with them. The headhunter told me that normally they take two weeks to make a decision. You got to do three telephone interviews before you can go in in-person. I had one telephone interview. It was the day before Thanksgiving. They wanted me to come in the Monday after Thanksgiving. By the time I finished interviewing that half a day there, I was on the ride back down the turnpike in New Jersey.
And I got a call from a headhunter that said, “Hey, don’t accept any other position, because this is very rare, but they want to make you an offer, and they’re going to make you an offer later today.” I was like, “All right, great, sounds good.” And I think at that time, when they came back to me, I was making just over $100,000 a year, maybe $110,000 a year or something like that in 2001, I think that was.

Scott:
Awesome. And so what happened? How long does this continue for? And what’s the next part of your financial journey here?

Bob:
Yeah, so I started working there, basically, doing installs for customers over the phone. And they never had anybody that traveled, so they asked, “Hey, does anybody want to travel to customer sites?” I’m like, “Sure. I’ll travel to customer sites.” So, I started doing that, which was great. The sales guys pulled me in to some big meetings at like QVC and Goldman Sachs. They said, “Hey, look, we’ve got, customers required demos, so you can you come down with a product?” I’m like, “Sure.” So, that kind of brought me into this new career field of pre-sales engineering, which was phenomenal, because that really allowed me to significantly increase my compensation over time.
So, it’s like you can still be an engineer, but you get paid more like a sales guy and this is something that’s common in enterprise software companies where they have sales teams, which consists of sales reps and managers. But then they also coupled them with engineers that can actually help the customer understand the product and how it worked in their environment, and really helped to close the technical sale. And I was at that organization, I think, all told, for about nine years, and kind of moved into the sales engineering role. Upped my compensation to probably $150, $200. And then at some point, I think my last year there, I actually went into sales for a year and we made almost 500k, maybe 490K, something that, that year. And then-

Scott:
Wow. And that was what year?

Bob:
So, nine years, so it would have been probably 2010, I guess, around there.

Mindy:
So, you’ve been-

Scott:
Awesome, so-

Mindy:
You’ve been financially independent…

Scott:
Go ahead, Mindy.

Mindy:
… for 10 years, right?

Bob:
Yeah, if only, right? In reading The Millionaire Next Door, there’s the under accumulator of wealth and the prodigious accumulator of wealth. I didn’t do bad, but I’m not as prodigious as some folks. So, I did let my lifestyle creep up a bit, but the main things, the housing and the cars kind of like stayed the same. So it didn’t really matter that I was taking more expensive vacations and maybe going out to eat more often because I had the income pushed up enough to be able to compensate for that.

Mindy:
Well, yeah.

Scott:
Are you still investing during this period of time?

Bob:
Yeah. So, at some point along the journey, I made the decision that I wanted to max out my 401K account. I mean, that was probably back in 2000, I would say, 2001, something like that. So, I was maxing my 401K and then extra dollars that would accumulate in my savings account, I would just take those and push it into a taxable brokerage account and invest in there.

Scott:
Okay, so we’re at 2010, what happens next?

Bob:
I ended up taking another job for kind of a partner company. And when I went there, the whole idea was I was going to be a Solutions Architect sales and pre-sales engineer, but really get paid like a sales guy, so I was on a sales team and did fairly well there. I mean, I probably made on average about $225 a year. I mean, some years would jump up because of my compensation package. Some years, I made over $400. Some bad years, I maybe only made $165 or something like that. But worked there until I ended up leaving my career, two years ago.

Scott:
Awesome. So, what about, what are you doing during investing during this period of time?

Bob:
So I guess, for the most part, I was just doing, investing in my 401K, investing in my taxable brokerage. And then at some point, my brother and I started going to a couple of real estate groups and looking at real estate investing. And we thought that it would be something that we could do kind of as a side hustle on the side to grow our wealth and make some extra dollars. And so, we started investing I guess back in, maybe, it was at 2005, 2006 timeframe. And got some success early on with a couple of houses, and then quickly, probably, got ahead of ourselves by acquiring too many properties too fast and not being able to get the work done in time and then got hit by the great financial crisis and ended up underwater on multiple properties.

Scott:
So, can you walk us through some of the details of this? How did that happen? And where were you when the financial crisis hit? And what did that look like?

Bob:
Yeah, I mean, I think that at that time, we were invested in residential. We were investing in residential real estate that was kind of downtrodden that needed fixing up. And it was in the state of New Jersey, where unfortunately, the carrying costs are pretty high, just because of property taxes and whatnot. And the bottom line was, we probably didn’t have, we really didn’t have a plan. I mean, if I take a giant step back and say, “What was the biggest problem here?”
It’s like we didn’t have a really good articulated strategy and tactical plan to do these flips in a really efficient manner. And yeah, we got sideways really quick when the financial crisis came in and the property values dropped so quickly that in most cases, it didn’t even make sense to keep pouring good money after bad because we knew we were already underwater on the properties. And it took a really long time to unwind those positions. So if my memory serves correctly, it probably took for the last property to get for us to unwind. It took about two and a half years from acquisition. And this is something that we thought was going to be gone within four months of purchasing it, so.

Mindy:
Yeah, so that is what happened to a lot of people, I think, in 2008, because if you remember, back in 2005, when you were getting started, “Oh, housing prices are just going up and up and up and up and up, and you can’t lose and housing prices never go down.” And it was so easy to buy a house, make repairs, sell it and then do it again and again and again. And of course you’re going to buy several houses because look at you, you’re loaded. You’re making way too much money doing these jobs and you don’t spend any of it. So, “Oh, I might as well just buy real estate.” I can see how it would be very easy to get into that position. How many houses are we talking about?

Bob:
So, I mean, all told, I guess there were, I think there were seven houses across that whole timeframe. Two of them, I would call successful where we actually made some money. One was a breakeven and then the other four, we just got slaughtered, just completely slaughtered.

Scott:
What would you say the cumulative losses were here?

Bob:
About $300,000.

Scott:
And that’s split between you and your brother?

Bob:
Unfortunately, no.

Scott:
Each?

Bob:
That was my thought, yeah.

Scott:
Wow.

Bob:
Yeah, yeah.

Scott:
Let me ask you this. How many years were these losses over?

Bob:
I mean, it took it like I said, it took about two and a half years to completely unwind the last position, which meant that there were carrying costs, that entire time. But I think, honestly, Scott, it was such a traumatic experience from a financial perspective for me that I try to forget the… like I don’t like to even-

Scott:
You didn’t spend a lot of time tabulating your losses down to the last penny across this? What happened? No, that makes perfect sense. What I want to observe here, though, is that we got the overview of your career trajectory prior to this. And we know that this was some of your, like during this recession, it seemed like were actually some of your peak earning years. So, you were crushing it at work during this period of time, which I think I was a huge, which was probably a huge part of the story. Where you’re able over two and a half years to essentially easily cover that $300,000, not easily, but you’re able to cover it with your income, even after tax be because of that really strong income.
Do you think that the losses during this period in your real estate portfolio drove you to push as hard as possible at work? Was there any relationship there between the two?

Bob:
Yeah, I mean, I would say that I’ve always been super diligent on the work front. So, I don’t know that it drove me to be better there, but what it did do is it drove me to be super stressed because I knew that I needed that income to make sure that I could still, I say stay afloat, that’s not really true. But that’s how it felt to me at the time that I really needed to keep that job. So, yeah, I think that, but the job was some… I had some solace knowing that I had built some really solid contacts in my field. And I was really well-regarded from a reputation standpoint, so I knew that if something happened at my company, I would be able to go and get another job, which was a good feeling to have, yeah.

Scott:
During this period, were you continuing to max out your 401K and do some of those other types of investing?

Bob:
Yeah.

Scott:
Did you own a home?

Bob:
Yeah, I think once I started maxing my 401K whenever that was in the early 2000s or 2000 timeframe, I never backed off of that. I always maxed it out and then I always had money accumulating in my checking account every single month that I would push into a brokerage. Well, I say always, here’s something else that I really kind of got sideways on was because of what was happening with these real estate investments and how we were going underwater and the flips weren’t really working out for us anymore, I felt like I needed stronger cash position.
So, I really started kind of winding down the taxable brokerage stuff or doing it to a much smaller level and just building up a giant cash portfolio which, again, on hindsight being 2020, this was kind of a mistake, because I should have been buying equities at that point as they were on sale. But instead, I probably accumulated north of $250,000 in cash just sitting in an account that sat there for years, until I kind of discovered, the FI community and J. L. Collins book, The Simple Path to Wealth.

Scott:
Awesome. So you’re still able to build a considerable amount of wealth, even during this period, or at least stay pretty much even because of the tremendous earning power that you are commanding and your relatively low personal expenses with this. It’s just that this set you back a long way and in terms of moving a lot, large portions of the ship forward with this.
How much do you think that the lack of strategy and lack of a well-formed business plan cost you here? You probably still would have lost money going into the flipping business at this point of time regardless, even if you had a great one. You’d think at least to a certain degree, but what was the difference in losses there? Do you think you could have kept it under 50 or what would you kind of guess?

Bob:
Yeah. If we had had a solid written plan, and honestly, not tried to do one and had said, “Oh, look, it’s going to work, so we can 5x this or 10x this, right?” in our brains. The decision to do that and really try to take on multiple flips at a time was I think our biggest mistake, honestly. I think if we had just stuck with one house at a time, yeah, to your point, we could have kept the losses to probably under 50K, for sure, which is that’s a huge difference, obviously.

Scott:
Now, you think there’s a lot of folks out there who probably were employing a very similarly weak strategy or business plan in the flipping business at this point in time. And without that income, that’s over. Game over with that, right?

Bob:
It is.

Scott:
Yeah. And so, I think the stakes are really high to get these things, hit these things right and learn from these types of lessons were like, “Hey.” Parts of this might have been the right bet. It might have been a perfectly fair thing to say, “Flipping is a great long term strategy for my wealth with these types of things. But I’m going to execute it with a long-term plan with a capital a capitalization structure that makes more sense with a conservative cash cushion with these types of financing. Finish number one, before starting numbers two and three, and then finish those two before starting number three, and four.”
And build out a reasonably defensive and scalable long-term approach because you know you’re going to get a couple of down years, if you’re going to be doing this for 20, 30 years with that. And that would have mitigated a lot of these losses with that. Right? But I think, I don’t know. I think, it’s really, it’s fascinating to hear the story of somebody who did lose hundreds of thousands of dollars in the recession doing this type of business line. So, thank you for sharing this with us.

Bob:
Sure, sure. Yeah, no problem. I do feel stupid about it, of course, looking back, however, it’s been a great learning experience. And obviously, it’s better to lose 300 grand and a million dollars or $2 million, so you know?

Mindy:
Well, yes, but…

Bob:
But I guess, it’s all [inaudible 00:28:24].

Mindy:
… it’s also much better to lose $100,000 than $300,000. And I think this is a really great cautionary tale. From your perspective, you are making it rain. You are bringing in so much money at work, “Oh, of course, I can buy this house. Oh, another one came up. I’ll buy that, too.” Your combination of too high of income and not too high. I mean, that makes it sound like you shouldn’t have been making that money. If that’s what they were going to pay you, that’s great.
But having so much income and “Oh, I don’t have to be so cautious with it. I don’t have to run the numbers on this deal. What does it matter if I only make $10,000 instead of $20,000?” It’s just another one of those “throw it on the pile things.” So, I can see how it would be very easy to get all caught up in, “Oh, I don’t have to count my pennies.” And I think that this is a great cautionary tale for right now.
I’m in the Facebook groups in the forums on BiggerPockets all the time, and I’m seeing people, “Oh, I just bought my seventh house.” Okay, do you have a plan? “I just bought my 15th house.” That’s great. Do you have a plan for these houses, and if you do, that’s awesome. I’m celebrating your success. But if you don’t stop buying, and start looking at your plan, because real estate can’t lose and it always goes up and we’re in the housing shortage right now. So, it’s only going to get better and that might not be the case. But you can’t tell it when… I remember 2007 and I bought a house at the height of 2006 and I thought I was just going to make a million dollars on my foot and I did not. And I didn’t consider that I might not make money.

Scott:
Can I make another observation about this story here? You’re making close to 500K, at one point during this year and in your low point is probably that you’re probably making between 200 and 100K during this period when you’re sustaining the losses on an annualized basis. Is that right?

Bob:
Yeah.

Scott:
I think that, and this is going to sound blasphemous, since I work here at BiggerPockets with this, but I think that real actively managed real estate is a bad option for someone earning that much income. And the reason I think that is because in order to be successful in this real estate business, I think you’ve got to invest hundreds of hours learning the business. And you’ve got to, sometimes, especially in the early days, do some of those things yourself. And if you’re not going to do some of those things yourself, hire and manage the people yourself. And so a lot of times, especially in early days, that’s relatively low-dollar power activity.
When I say relatively, I’m saying it’s probably $50 an hour activity, maybe 75. And your time, when you’re making $500,000 a year is worth $250 an hour, so you’re arbitraging time very inefficiently, at least in the early phases. And that payback from a real estate investing perspective can compound over a 10- or 15- or 20-year investment career. So, it can absolutely be a worthwhile investment, even for someone earning that much money. But you’ve got to go into it with that mentality that, “I’m going to do stuff that’s probably way less valuable than me just working a little harder at my job and making that next sale or whatever it is, at least temporarily to build this up.”
And that investment of time is really, really valuable for somebody making $50 to $200,000 per year, because you’re going to get that payback within just a few years. But it’s going to take you a lot longer to get that payback on that time investment most likely because of a high-income earning. And so, I almost wonder if actively managed real estate investing is not that good an option for someone in the top percentile of an income earner with this. And maybe a more passive approach makes a lot more sense with that, unless, of course, your goal is to make $10, $15, $25 million in wealth and invest over a long period of time. Any reaction to that?

Bob:
Yeah. No. I think I completely agree with you, Scott. I think the whole idea of having… I mean, when you read the Millionaire Next Door and they talk about the seven sources of income that most millionaires have, you think to yourself, “Okay. Well, I have one.” So, I should go out and, get another one, right? Not realizing that, obviously, most average millionaires don’t make the salary that I made at the height of my career. So I didn’t, again, hindsight being 2020, I never needed real estate to get there and I would have been a lot further ahead had I never gone down that path.
But sometimes in life, it’s valuable to just as valuable to learn what not to do than what to do. And that’s the takeaway that I took from that lesson was, “You know what? I’m done with real estate. Nobody can bring a project right now.” It’s like, “Hey, this is a great, the best real estate deal you’ve ever seen in your life.” My comment is, “No, thanks.” I don’t even need to see the details, I just know it’s not for me.

Scott:
No, I love it. I think that’s a good, I think that I think this is a very valuable lesson that we’re learning here and an important framework to think through with it. I wouldn’t necessarily say that real estate is a bad option for everyone earning the levels that you’re earning, but actively managed real estate that you’re going to manage yourself. And those types of things may be a poor relative use of time, because the earning, if you’re earning $500,000 a year and you’re working 40 hours a week, you’re a liar with that, for the most part. So, you’re probably-

Bob:
Yeah. I’ve never worked 40 hours a week in my life, yeah. My career was 60 hours a week on an easy week. [crosstalk 00:34:10].

Scott:
Yeah. And I was not calling you a liar. I just say that that’s just a fairy tale land, right? Anyone earning that level of income is working 60, 80 hours a week or something like that in order to command that income. And they’re sustaining it over a long period of time. There’s just not time and the little extra time you do have is very precious with that. And so, I think that that’s, anyway, I can say an interesting problem for a small group of users or listeners. And I think that that’s a framework to think about and an advantage for everybody else that is not earning in that level. Because this is a game that is accessible and winnable by the little guy in United States today because you’re competing with people who can’t afford to put in the same level of intensity and education and all of the self-management that you can put in place.

Bob:
I agree.

Scott:
Let’s move back to your story here. And when did you decide to kind of go after financial independence, specifically?

Bob:
Well, I think it was… I mean, there was always kind of this vague concept in my mind that I wanted to be financially independent and that’s, I mean, that’s what my savings and investing was for to be financially independent. But I never really had a concrete definition of what that really meant and in terms of numbers and timeframe, and I did have a sense that I would like to retire early, but in my brain, what’s retiring early? It’s like late 50s or early 60s instead of mid to late 60s.
And then, I think it was early in 2017, I heard Mr. Money Mustache on the Tim Ferriss podcast and it kind of blew my mind. I mean, even Tim’s intro, he says, “You are one of the most requested guests on this podcast.” And I’m thinking to myself, “Oh, this is going to be Warren Buffett or Charlie Munger. It’s going to be somebody that I’m going to really learn a lot on this interview and somebody that I want to hear from. And he’s like, “Welcome Mr. Money Mustache.” I’m like, I’m almost like incensed. I’m like, “Mr. Money who? Who the hell, what the hell you’re talking about?” Saying like, “I’ve never heard of this guy before? How can this guy be the biggest, one of the biggest requested guests on the podcast.
And then I listened to the podcast, and it blew my mind. And I went to his blog, and mainlined everything, found the Choose FI groups and community. Found J. L. Collins book, The Simple Path to Wealth and mainlined all this stuff. And when I went and did my spreadsheet to figure out where I was from a net worth perspective, I realized we were already financially independent, accidentally.

Scott:
I’m sorry. And this is 2017, you discovered that you’re already there with that? And-

Bob:
Correct.

Scott:
And so, what changes from this discovery moment?

Bob:
Well, I took the spreadsheet to my wife right away. And I was like, “Hey, look. I’ve been looking at this financial independent retire early movement, and I did our spreadsheet and our numbers and it looks we’re at financial independence now. So, we can quit our jobs and retire. And my wife says, “I love my job. I don’t want to quit my job. What are you talking about?”
So, I was like, “Okay, I guess we’re not doing that.” And I kind of just put it to the side and kept working. And about six months later, her company got sold and she was somewhere right out of college, so she was there for 20 plus years, had worked her way up from an entry level position to a VP. And basically, when our company got sold, what they were doing was selling parts and pieces of the company off and closing divisions and she was like the hatchet woman. And she was being asked to lay people off and she didn’t much like her job anymore. So, here she had spent 20 years of her career helping to build this company and now, her job is quite literally to tear it apart.
So, she came back to me and said, “Hey, remember that spreadsheet you showed me that we can retire early? I’m like, “Yeah.” “Can you show that to me again?” “Sure, Babe. Here it is.” And from that she was able to kind of wrap her head around the fact that “Yeah, maybe this might work.” And she agreed with her boss to stay on and kind of do the difficult work that they needed her to do but only if she got a package. So, she basically orchestrated her own severance package, which ended up being like a year’s worth of compensation when she retired.

Scott:
Awesome. And I can put another powerful lesson here. You can love your job all you want, but financial independence is still a worthy goal because it can change in a dime with some of these things.

Mindy:
Yes.

Bob:
Exactly, exactly. She loved her job. She really did. And she lived a mile and a half away and she liked the people and she liked the work and she was really good at it. And then, yeah, once her company changed and they asked her to do the layoffs, I think were hard for her because these were people that she knew for in some time, in some cases, 20 years. And now, she’s got to let them go. And knowing that most people don’t have the type of financial position that we are would have made it even harder because these people are, “What am I going to do next?
And yeah, so it was nice to be able to say, “Oh, look this, the financial independence gives us the option. Not that you need to retire but if you don’t your job anymore, yeah, take some time off.” And that was actually our plan. Our plan was just to take a year off and travel and I was supposed to join her in early retirement would have been the end of 2017 December of 2017. But as these things happen, her boss needed her for an extra, first it was an extra month, that ended up being like an extra four months.
So by the time we got into that point in the year in 2018 for me, I get a fairly large bonus in June. So, it’s like, “Well, it’s already the end of April. I have to stay for that.” And the biggest bonus that I get is in September, typically, but one of my deals slips, so then it was coming in January. So I ended up doing this whole one more year syndrome thing. And I finally ended up joining her in early retirement, May of 2018. So, she was basically retired a year before me.

Scott:
So, what does your financial position look in this final year with all of these things, and where is that wealth? Is it in the 401k? Do you have cash? Do you have after tax brokerage stuff? What was it at the position?

Bob:
Yeah, so where we are is we have, we’re completely debt free, we own our home, and we have roughly 60% of our assets in tax sheltered accounts and 40% of our assets in taxable brokerage accounts and cash. So, we feel like and this is one of the other things I said to my wife at that time when we were looking at all this. It’s like, “We have enough money to completely fail at early retirement and our net worth or retirement accounts are going to continue to grow for the next 20 years. And we’re going to have a lavish traditional retirement even if we fail in early retirement.”
Which I think is something that when you compartmentalize that in your brain, “It’s okay, it’s not that big of a risk to take a year off to travel, which is really what we wanted to do because even if we screw this up, we’re still going to be okay in the long run.”

Scott:
And all these bonuses and severance agreements, they’re just stacking chips onto an already over large pile is one way to put it for this year. And then you finally complete the move to at least one year of travel in 2018. What did that year look like? What did you do?

Bob:
Well, I think, yeah, I must have screwed up the year. So, it was 2018 when she left. It was 2019 when I left. It was awesome, so we actually live at the beach in New Jersey. So, we punched, I punched out Memorial Day weekend and we had Amy’s parents had an anniversary cruise they wanted the whole family to go on. So, we went up and did an Alaskan cruise with them. And then Amy and I spent some extra time up there. And then we lived at the beach in our dream location in New Jersey. So, we wanted to kind of be at the beach for the summer. So we did that.
And then we went to fast in Germany with a bunch of friends in September and did a big, I think we were gone for about 35 days or so. So, we went to Germany with friends. We spent some extra time there. We met some other friends in Italy. Spent some time in Italy. And then we did a 24-day Mediterranean/transatlantic cruise. So, basically we took the cruise ship all the way back to Fort Lauderdale, Florida. Came home, spent time with family and friends over the holidays. And we were about to actually get on another transatlantic cruise when the Coronavirus hit in 2020. So, our travel has kind of been thwarted a bit with the pandemic but we’re getting back to it. We started getting back to it back in May.

Scott:
What did you end up doing during the pandemic? Did you return to any work or did you just kind of continued to take some more time off and enjoy early retirement.

Bob:
Yeah. We just took time off and enjoyed early retirement. My dad retired about six months before me. And for both of us, one of our biggest hobbies is fishing. So, I got to basically fish with my dad, two to three days a week. Ever since I’ve retired if I’m home, my dad and I will fish two to three days a week. So, it’s a whole lot of fun. And yeah, we just laid low.
My wife did end up going back in the year that I was still working. She went back and did some consulting work for about three months. They kept kind of calling her and asking her to come back in and work on some projects. So, she ended up doing that for about three months and made in that time more than our fine number, our annual spending in three months’ time. So it’s like, “What were we so concerned about in terms of taking time off when she could go back to work for three months and make more than our expenses for the year.” It’s just kind of crazy.

Scott:
Awesome. So what’s next for you guys?

Bob:
Yeah, so we’re going to continue to push the travel. Hopefully, things will settle down with the Delta variant here and we can kind of get back out on the road. I think that eventually, I could see myself doing some more consulting work over time and my wife probably as well and just have a much better work-life balance than we ever had in our careers. We both had pretty high stress careers that paid very well, but took a big toll and that’s not something we’re looking to go back to.
I did some really cool volunteering earlier in the year this year. And the thank you notes that I got from individual people just really touched my heart, way more than anything that I did when I was actually working, so I want to do some more volunteer work. I’m spending time on my photography. And yeah, we’re just really enjoying our semi-retired life at this point.

Mindy:
I find it interesting that you had one more year syndrome, even though you were making obnoxious money, and were putting it away. You were… come on, Scott. This is obnoxious money, but you still have this…

Scott:
It’s good money.

Mindy:
… “Oh, well, let me get my bonus. I just want to stay for one more bonus. I just want to stay for the big bonus. I want to stay for one more year.” And we have this same problem. And now after retirement, after official retirement, well, your wife has an opportunity to make more than you spend in a whole year, just working for three months. And you have, I’m sure that your portfolio has grown. Are you still in individual stocks or have you made the switch to J. L. Collins’ index fund throwing?

Bob:
Yeah, so it’s a good question, Mindy. I think, in our idealized plan, we’re in a simple two or three fund portfolio with Simple Path to Wealth. However, there’s been, there are individual stock positions still in our taxable brokerage accounts that I’m slow to unwind just because of tax implications. Obviously, there’s a big capital gains tax area for the federal government. But unfortunately, in New Jersey, capital gains are taxed as ordinary income, so we’re slowly unwinding that over time to get up to our target, idealized portfolio of VTSAX and VBTLX. But it will just take us some time to actually fully unwind that.

Scott:
You, obviously, crushed it on the offensive front, and that’s what’s really kind of helped propel you to this point to be able to, to retire early with this kind of stuff. And a lot of people are listening and saying, “Oh, I’ll make 500K.” But a lot of people that are going into the FI movement and are looking to retire early, I think could take career trajectories that would have a chance to replicate those that are earning 10 years into their career, if they’re willing to work the 60 to 80 hour weeks, and have that combination of being willing and able and lucky enough to be in a true career trajectory that offers those opportunities, right?
How quickly could you have gotten to the FI state looking back? Do you think you would have been able to do it in 5 to 10 years versus the 15 to 20 that took you? What’s your kind of thought process there for someone who’s looking to repeat the offensive success that you’ve had and get to FI?

Bob:
Yeah, that’s a that’s an interesting thought exercise, Scott. I’ve not really thought about it that way, but if I were to go back and say, “You know what? If I had known about Mr. Money Mustache and J. L. Collins at the early part of my career, when would I have hit FI and be able to retire early if I wanted to, yeah, I could have shaved off easily a decade, I think, easily.” So I mean, I retired at 44. I probably could have done it by 34, so that would have been, a relatively short nine-year career out of college. I think I probably could have done it.
Having said that, I wouldn’t change anything. I mean, my journey is my journey and everything happens for a reason. And even being in the position of having achieved financial independence relatively accidentally by the time I was in my early 40s is still, yeah, not too shabby.

Scott:
Absolutely, you got it you’ve got a wonderful and impressive journey. I was not implying… I was just thinking like for someone listening if they think they can create that economic success sounds like do you think you could have done it in 10 years or that it could be achievable by the next guy in 10 years with a similar career trajectory?

Bob:
Yeah, I mean and especially like just like you said, there are industries out there where the amount you get paid is unrealistically large for the work that you do. Not that the work is not difficult and not that it’s not time consuming, but you can get paid a really unrealistic amount of money to do things that you can become very good at. And I feel super blessed to even found this whole sales engineering career because it’s not something, when I was in college, I didn’t know anything about it.
But having fallen into that and then did everything I could to get really, really good at it and to be the guy that all the sales guys want to take on multimillion dollar deals, that really gave me the ability to earn significantly more than it realistically I would be worth than any other career path, right? Just thank God I was born now to the parents I was born to, in the time that I was born in. Five hundred years ago, I’ve got no skills. I know how to type on a keyboard, but I’m not going to be financially independent in another day in time, I think. I’m really lucky to be in the position that I’m in.

Mindy:
Well, way back on episode 32, we interviewed the couple from the Planting Our Pennies website and Mr. Pop said, “If you don’t know what you want to do, go into sales, because you can make an outsized amount of money in sales even having no skills.” Anybody can sell something and if you can get good at sales you can make a ridiculous amount of money, which is clear by your story. So, I think that IT is a great field for people to get into especially if you’re just starting college. I mean everything is done on computers now, so IT is going to be awesome, but also just being able to sell something to someone, being able to speak the language, I mean you have a really unique set of skills. You can speak computer developer language and you can speak regular person language.
And I’m not trying to offend all of you computer programmers out there, but you know what I’m talking about. You can speak these two different languages and that makes you very valuable because there are some people who only speak regular person language, which is me and there are some people who only speak developer language and to have them connect is really a difficult conversation. But you come in and make the translation and it’s really helpful. It’s really beneficial to everybody.
So yeah, if you are struggling with what you want to do with your life, go check out sales. Commission-based, I mean, look at real estate. I’m a real estate agent and I don’t want to say I don’t try. But it’s, with my position at BiggerPockets, I have a lot of forward facing time and people are like, “Oh, I’ll have Mindy help me buy a house.” So, I do get a lot of leads from BiggerPockets and it is not that difficult to sell real estate and you make some pretty outsized income selling a few houses a week. I’m sorry, a few houses a month, a few houses a week, a few houses a month, a few houses a year. I mean, 3-ish% on a $500,000 house is there you go, $15,000. You sell a couple of them and you’re making Bob Hines money.

Scott:
I love it. I think it’s been a great discussion here. I admire your career trajectory and the skills that you’ve developed here. And I think it’s fascinating to learn from some of the mistakes that you made during the real estate, the recession in real estate. Thank you for sharing all of that. Is there anything else you’d to bring up before we move on to our famous four?

Bob:
Well, I guess the only other thing I would say is that I wouldn’t be financially independent if it wasn’t for my wife. We were actually on our own independent accidental FI journeys before we ever met. And so, coming together with my wife and partner that is a strong advocate for building a great financial position and kind of is a natural saver myself is a whole other half of the story that people didn’t get to hear today. But just as important to putting me in the position that I’m in today.

Scott:
Love it.

Mindy:
Absolutely

Scott:
Yeah, the fifth asset, right? The cashflow positive spouse?

Bob:
Exactly

Scott:
All right. Mindy liked that one.

Mindy:
I don’t know why that makes me laugh. Okay. Bob, it’s time for our famous four. Are you ready?

Bob:
Let’s do it.

Scott:
What is your favorite finance book?

Bob:
[crosstalk 00:54:00]. Yeah, for mindset and how millionaires get made, it’s The Millionaire Next Door. For investing, it’s J. L. Collins’ Simple Path to Wealth.

Scott:
Love both those books.

Mindy:
Yeah. They’ve both come up several times, but you’re absolutely right. They’re such great books.

Scott:
What was your biggest money mistake? Although, I think I can probably guess where this one’s going?

Bob:
Well, I think my biggest money mistake to me at this point I think is having that north of a quarter million dollars sitting in a savings account from 2008, 2009 until I read Simple Path to Wealth in 2017. So, the opportunity cost of leaving that money in cash during the recovery is just kind of, you know? Again, I don’t even want to run the numbers because I know it’s [crosstalk 00:54:55].

Mindy:
No, don’t run the numbers. I’m sorry. Did you say from 2008 to 2017?

Bob:
Correct. Yeah, I didn’t take that money that I originally was building up during the great, the financial crisis. I didn’t take that cash position and put it in the market and have it working for me until I read the Simple Path to Wealth and heard Mr. Money Mustache.

Scott:
I love it. That’s a really wise mistake to bring up in the context of your story because most people would just blurt out the $300,000 in losses from the real estate portfolio. But you’re talking about opportunity cost here, which is probably north of half a million. You probably doubled that money, maybe and then some easily over that stretch. And that’s a very good, that’s a much bigger mistake that most people just that goes completely unnoticed by folks. So, I love it. Great mistake.

Mindy:
Well, so side a question, in terms of monthly spending, how much cash do you keep on hand now?

Bob:
Right now, we have about one year a little bit, maybe 15 months’ worth of cash on hand. We built up a stronger cash position before we retired, so we actually retired with about three years of cash just to kind of see if we could mitigate any sequence of return risk, even though I know it really doesn’t do that, but psychologically, it helped as a crutch to be able to pull the trigger.
My wife and I are right now kind of debating what we do going forward. Whether we stay with kind of like the one year, we let it go down to six months or we plus it back up a bit. We haven’t exactly filled in on that. I think, I feel like the markets pretty frothy. I know today, it’s on a down day. But I feel like maybe we should say, “Hey, we’re up quite a bit this year. Let’s take some cash out and just plus up our cash account.” But that also feels market timing to me, so I don’t know. I’m not sure what we’re going to do, but we have a year, a little bit over a year on hand right now.

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

Bob:
If you’re just starting out and you’re just finding this community, I would say come up with some goals for yourself of what you want to do. And take the enthusiasm that you have now for starting out and take action on it. The best thing that I think you can do for yourself is set some things in motion, make some decisions, and then go ahead and make those things automatic. For example, getting your 401K if you’re not currently maxing out your 401 or at least getting all of your employer match, do that. But really set something up like harness the power of your excitement today to make sure that you’re kind of setting yourself up to automatically do the right thing over time to help get you to financial independence.

Scott:
Awesome advice. What is your favorite joke to tell at parties.

Bob:
Favorite joke, so two atoms are walking down the street and the one says to the other, “Wait, we’ve got to go back. I lost an electron.” And the other one says, “Are you sure?” The other one says, “Yes, I’m positive.”

Scott:
That’s awesome. We had a lot of chemistry with these jokes. Where can people find out more about you, Bob?

Bob:
I’m on social media, Instagram and Twitter. I’m @ RJ Hines, at R-J-H-I-N-E-S. And then you can find me in the BiggerPockets Money Facebook group Bob Hines.

Scott:
Awesome. Well, we’ll link to all of those places in the show notes at BiggerPockets.com/moneyshow235, if you’re interested in checking those out. Thank you so much for coming on today, Bob. This was a great story and a lot of lessons learned here.

Bob:
Thanks for having me. It was a great [crosstalk 00:58:45].

Mindy:
Yeah, this is a lot of fun. Thanks, Bob.

Bob:
Thanks, Mindy. Thanks, Scott.

Mindy:
And we’ll talk to you soon.
Okay, Scott. That was Bob and his fantabulous story. What did you think of this episode?

Scott:
I think it was a great story. I think that there was obviously the huge win that was his career, and some put backs based on his investing approach in those types of things. And I think it’s fascinating to learn about the relative scale and size of those mistakes. And the offense that he was able to generate to offset some of those things. I think it was a great, a really interesting story. And I think there’s a lot of things to learn there, especially if you’re looking to replicate a high income career.

Mindy:
Yes, and don’t keep your money in cash is another takeaway from this. But yeah, he did make a great income. That is fantastic. He also made some mistakes that could have been mitigated if he had had more of a plan with his flipping career. And that’s fine. I’ve made mistakes in my flipping career, too. Sometimes, you get all excited about the current scenario. And then you can’t see that the market is about to crash.
And sometimes in flipping, there are circumstances outside of your control, but you can control how frequently you’re buying and you can control, “Oh, you know what? This isn’t going so well, let’s not buy any more right now.” So there are, I think Bob has done some great things and I think that he could have done some other things a little better. But I really like this story today. I really liked that, “I still made, I made mistakes and I was still able to overcome them.” He made some big mistakes, and he was still able to overcome them. And yes, having a great salary is one of the key levers that he pulled in order to overcome those. But like I said, Episode 32, Mr. Planting Our Pennies, sales is a really great trajectory if you don’t know what you want to do with your life.

Scott:
Yeah, I mean, the difference between what you bring in and what you spend, that is the fundamentals that power every one of these stories, right? And if you want to become very wealthy, early in life, you have to earn more money than the average at some point in that journey, right? I mean, you need to bring in, you need to earn money, you need to spend very little of it, you need to invest it or you need to create assets. And at some point, every one of the stories that we’re going to talk to is going to have an outsize performance and at least one of those areas with this if they’re going to be able to retire way early in life in their 40s, in their 30s, I mean, definitely if they’re in their 20s.
And so, I think it’s important to learn from every one of those stories and to recognize like one of those fronts should be available to you at some point and to some degree if you’re looking to replicate these journeys. If you don’t earn a lot of money, perhaps you have more time, and you can apply that extra time to create assets. If you don’t have very much time, hopefully, you’re able to earn a little bit extra with that. Regardless of your circumstances, there should be some control that you’re able to have over your expenses, especially over a several-year period. And as you make large decisions around purchases, and those types of things.
And long term, ideally, there’s some control over your career, and the amount of income that you can generate and the things you can do to at least accelerate the growth on that income front. And it’s which lever can you pull in which circumstance. And when you’re in a really high income earnings circumstance, I think the big takeaway from today is creation of a flipping business is probably not a good strategic choice because it’s too much commitment of time and energy. And in order for it to be meaningful, it’s got to be a huge risk that you’ve got to take to even make 10% of your salary each year in predictable profits with that.
If you earn a high income, probably the best things you can do are keep reasonable control over your expenses and consider some sort of passive investing approach for the time being with that. Anyway, so I just think that it’s important to keep those frameworks in mind and know that there’s always going to be a lever that our guests are able to pull or push that is outsized for them. And for Bob, we had income today.

Mindy:
Yep. And like I said, we’re here to tell every money story Okay, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From Episode 235 of the BiggerPockets money podcast. He is Scott Trench and I am Mindy Jensen saying, “Swish, swish, little fish.”

 

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In This Episode We Cover

  • Why small salary increases can massively change a financial position
  • Calculating your market salary and finding a job that matches it
  • The world of “pre-sales engineering” allows for huge compensation 
  • The mistakes you can make when sitting on a large amount of cash 
  • Over-leveraging yourself in real estate and biting off more than you can chew
  • How to shake off “one more year syndrome” to enjoy early retirement
  • Fighting lifestyle creep even as your salary expands exponentially
  • And So Much More!

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Books Mentioned from the Show

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