Pursuing Financial Independence on Her Own Terms

Mindy:
Welcome to the BiggerPockets money podcast, show number 147, where we interview Cathleen Hutchins and hear her journey to financial independence in a high cost of living area.

Cathleen:
It almost always comes down to just consistently applying the basics so you’re not buying impulse items all the time, you’re keeping track of what your spending’s like, it doesn’t have to be specific, it can be general. So for example, I check my credit card every week and almost all my spending goes on my credit card, so I know how much I spent last week, I know if I spent too much and I need to cut back, because I’m not going to remember. Everyone keeps thinking, “Oh yeah, I’ll remember,” no you won’t. You have all this other stuff you have to remember, you’re going to forget that you bought a $200 dinner last week.

Mindy:
Hello, hello, hello, my name is Mindy Jensen and with me as always is my intelligently inventive cohost, Scott Trench.

Scott:
Thanks as always for the patent introduction, Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can lead your best life.

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 simply engineer your best life from Hawaii, we’ll help you build a position, keep [inaudible 00:01:16] yourself towards those dreams.

Mindy:
Scott, I am super excited to have Cathleen on the show today. She lives in a high cost of living area and that’s not really a subject that we’ve covered in a lot of episodes but a high cost of living area is definitely going to skew your FI number. And she shares today how she has been able to reduce his expenses and alter her cost of living so that just because she’s in a high cost of living area doesn’t mean that she has a high cost of living.

Scott:
Yup, I think she’s playing the game of FI really well considering the constraints and rules that she has to live by according to her work with the federal government and those types of things, so she’s got a really good approach with disciplined spending relative to high cost of living area that she lives in and I think she’s done a lot of creative things to optimize on the income and investing front as well, so I think you’re going to learn a lot from this if you’re in a high cost of living area and looking to move towards FI over a period of five to 10 years.

Mindy:
Cathleen Hutchins, welcome to the BiggerPockets Money podcast, I’m very excited to have you on this show today because you are a listener of the show who reached out to me and said, “Hey, I’ve got this story about pursuing financial independence while living in a high cost of living area,” which is not really a story that we’ve covered many times so I’m super excited to have you share your story with us today. Can you start off with where your journey with money begins?

Cathleen:
Hi Mindy, yes I can. So I grew up in Hawaii, which is a notoriously high cost of living area. It circles back to living in Hawaii but apparently I’ve been incredibly frugal since I was a child, I didn’t know this. My mom said she used to give us a dollar for an allowance when we were kids to go buy whatever we wanted at the store every once in a while and I would just sit there for like 20 minutes deciding what to buy because I wanted to buy the most cost effective … like, “I’ll get the most out of that dollar.” So then after that, when I was in high school, my mom did a lot of stuff for us to teach us about finances. She would take us to the grocery store and talk about how much things cost, whether or not something was expensive or not, whether it’s on sale and should we stock up on it? Mostly food, we have three teenaged kids in the house eating them out of house and home.

Cathleen:
So, start doing learning how to do things like our own laundry, starting how to cook, so we took over some meals once in the while, doing dishes, basic chores that a lot of kids don’t have to do. So I had to learn how to sew, I had to learn how to fix a car, had to learn how to cook, which didn’t really take hold of me until I was older. I thought the only setting you could cook at was high. Apparently there are other settings. So I used to burn everything.

Cathleen:
But basically, my mom taught us all this and then she had conversations with us about budgets. So we actually didn’t get an allowance, we got a monthly budget and that covered everything in high school that we needed, so that included bus far, lunches, school activities. So if we wanted to go to an activity outside of what was already included in the list, like field trips for example, we walked home or we brought lunch, or we didn’t eat lunch. So that paid for things like extracurricular tournament fees.

Cathleen:
Then on top of that, I don’t remember when in high school, but she had a early conversation with us on how much she could afford for college for us, so I had a budget on how much and then she says, “Well, I can afford you to go to this level school but if you want anything higher than that, you have to get a scholarship.” Then I found out she lied to me about me older sister, who she told me had a half tuition scholarship so I had to beat that. Apparently turned out to be only a third tuition, that’s okay because I think I ended up staying with my mom three quarters of college tuition. I mean, I’m very lucky that she was able to pay for college for us and I didn’t have to go into student debt, but I certainly had been encouraged not to take on loans. I don’t think loans even came into the conversation at all.

Scott:
Where did you go to college and how did you finance it? You said a … is it a three quarters scholarship, is that what you’re saying?

Cathleen:
Yep, so I went to Marquette University in Wisconsin, it was very cold and I targeted schools that were private schools so they’re a bit more expensive when you look at it, but a lot of times, they have merit-based scholarships. So I got a half tuition merit-based scholarship my freshman year but what a lot of people don’t realize is that there’s still industry or study specific scholarships you can get while you’re in school. So what happens, I also got offered work-study. I ended up work-studying in my department that was studying for, so I was really good friends with the secretary. So she was like, “Hey, there’s a scholarship for your area.” I was going for industrial engineering, offered by … I believe it was by Caterpillar, “Why don’t you apply for it?”

Cathleen:
That actually covered the other half of my tuition but because I didn’t get it ’till the end of my freshman year, that’s why mathematics comes out three quarters. I also graduated a year early, I took a lot of AP courses when I was in high school and took the test, I made sure that the schools I was applying to accepted my AP scores for credit and then I took summer school and then I did co-op so that also brought in money because that’s working as a full time engineer for every other semester.

Scott:
That’s really impressive. Was part of your motivation to finish early because of the extraordinary differences in weather between Wisconsin and Hawaii?

Cathleen:
It might have been. No, it never occurred to me when I was planning it out, I was just like, “Oh, I don’t have to take this class, great. I don’t have to take Calc 1, I can just skip ahead to Calc 2, awesome. I already did this junk in high school, why would I repeat myself?” Then it just worked out because a co-op program at Marquette is five years because it’s a full year of experience but because I was able to get the AP courses and then take summer school, because my mom told me I had to take summer school and I was conditioned as an Asian to take summer school, and winter break school, it was just natural for me to do that. So I was working part time in the summer when I came home and I would take my … whatever electives I needed. So I think I took physics and Asian Literature studies.

Scott:
So what is your financial position in career upon graduation?

Cathleen:
So at that point, I got married, so I was able to, between my husband and I, pay for our wedding which before you go, “Oh,” we spent less than $5,000 for a wedding in Hawaii and I had a beautiful wedding so it was pretty good. I think I had, I’m going to say about $15,000 to $20,000 net worth at the time. As my mom, well she started me off with a Roth IRA and a taxable Vanguard account, now everybody knows where I bank, or where I invest through. So I already started off with that amount, mind you this is after September 11th, so I started freshman year and then September 11th happened and I didn’t know the password for my account, so it just sat there. So it had great returns because I didn’t do anything with it.

Cathleen:
But right after that, I actually got accepted into Texas A&M for grad school for mechanical engineering and they offered me, I think it was a stipend of $1,000 a month and full tuition.

Mindy:
Wait, they paid you $1,000 a month to go to school and no tuition?

Cathleen:
Yeah.

Mindy:
Oh, well …

Cathleen:
Yeah and A&M is super cheap to live in so my apartment was $500 a month or something.

Mindy:
So then you still had $500 a month to live on?

Cathleen:
Yeah, I was still broke because I was stupid and I was like, “Oh I can go buy this. Oh, I can go grocery shopping without a budget.” HEB, yeah. If you’ve ever been to Texas, HEB is a fantastic grocery store. It’s like a Harris Teeters but bigger.

Mindy:
Oh I don’t know Harris Teeters.

Cathleen:
Oh, they’re in Colorado. I don’t know the equivalent in Colorado, sorry. It’s fancy but not fancy. So they paid for pretty much everything, which is really nice. I had to TA for a couple of classes, which was okay. I mean, I like teaching.

Mindy:
Well, if you don’t have to pay for college, I would TA a couple of classes. You know, before we get too-

Cathleen:
It’s one class a semester, by the way, I had to TA.

Mindy:
Oh wow, a whole class? Oh my goodness, that’s got to be just awful.

Cathleen:
It was great.

Mindy:
Before we get too far away from this, I just want to reiterate, you said that you were close with the secretary of the department and she casually mentioned you should apply for this scholarship and I can’t remember who said that recently, but this comes up a lot. The people who run the department in which you are studying know about the scholarships that are available that people aren’t applying for. Talk to those people, become friends with those people.

Cathleen:
And there’s no competition, so they had no choice but to give it to me, no matter how stupid I was. I mean, my grades were good enough to keep the merit based scholarship but I was not the smartest person in the room.

Mindy:
Well, you still were the smartest person in the room because you got the scholarship, nobody else applied for it. 50% tuition is 50% tuition that’s not coming out of your pocket.

Cathleen:
And it was four years and I only went for three because Marquette doesn’t charge for co-op time but you get credit for it.

Mindy:
Oh that’s interesting. Oh that’s very interesting.

Cathleen:
Yeah, it’s like 72 bucks for the credit to transfer, it’s one whole credit but you get paid. I think that paid $17 an hour with no degree.

Mindy:
You know what? Scott, that sounds like Craig who did the … except I don’t think he got paid for his internship did he?

Scott:
Oh yeah, I think that his school did something like where you have to … six months in study, six months in a job or internship, that is paid I believe, I could be wrong though.

Mindy:
Oh it was paid, okay. Well, we’re going down a hole there.

Cathleen:
Yeah, co-ops very similar to internship but it must be paid and it must be actual engineering work. So I was working for an aerospace company on jets.

Mindy:
Well that sounds fun.

Cathleen:
And rockets and stuff.

Scott:
I’m not the smartest person in the room, I’m a rocket scientist.

Cathleen:
No, I wasn’t a rocket scientist.

Mindy:
You were.

Cathleen:
I was an industrial engineer, I just told people what to do, it was amazing.

Mindy:
Okay, so let’s look at how your financial situation was faring at the end of grad school. You said at the end of regular college, you were $15,000 to $20,000 in net worth with … Did you have any student loan debt, or was that all paid off?

Cathleen:
No, it was all … Oh no, I was loan a mom.

Mindy:
Yeah, bank of mom.

Cathleen:
Bank of mom, thank you.

Mindy:
So that’s a really generous gift that your mom was able to give you. Scott, we should get all these moms on the show too and interview your mom and see where she learned all this money stuff. So at the end of grad school, what did your financial situation look like?

Cathleen:
I think it was kind of bad. So my husband was working full time but he was in Houston so that’s like an hour and a half drive each day in commute and he wasn’t getting paid a whole lot so he was actually subsidizing all of my stupid spending, like I would go shopping and … What did I need high heels for? I was in college, I should have been living like a grad student. That was my mistake but my professor actually wanted me to stay on and get a PhD because they had funding for more research. I ended up being a research assistant because I wanted to get out of the TA thing, the TA gig. You have to do a thesis to graduate, so I needed a lab, I needed equipment, I needed funding to do it so the professor I studied under, who was the top professor for [inaudible 00:13:20] in the world had a spot open, so I needed up working for him. But when I got out I was like, “I can’t go to a PhD, I don’t have any money.” I already got offered a job at the PTO, at the Patent and Trademark Office, so they’re offering a starting salary, I think it was $70,000 a year, that’s way more money than I’ve ever earned in my life.

Mindy:
So you took the patent … When you say PTO I think Parent Teacher Organization.

Cathleen:
Sorry, I know.

Mindy:
So you took the PTO job, you work in the patent office?

Cathleen:
Yes.

Mindy:
That sounds really cool.

Cathleen:
Sure. I mean, it’s great. Please don’t fire me if you’re listening to this, Dave. Actually it’s pretty cool but everyone specializes and then on top of that, they don’t talk about this, but we all have production requirements. So this is like, say you had a job where you had to do five podcasts a day, it’s fun for a little bit but then when you’re like, “I have to do this.” What happens if I have a terrible guest? What happens if I have a guest that doesn’t show up? Then you’re in trouble and you’re scrambling trying to make it up. So that’s the bad part of the job but I think everybody has that, they don’t all have a job they love.

Scott:
So what year did you take this Patent and Trademark Office job?

Cathleen:
2007, so you can imagine what happened right after that.

Scott:
2007.

Cathleen:
So I had no choice but to be able to do the job well because there’s no jobs to be had for an engineer in 2008.

Scott:
Just to recap, your financial position, you said it wasn’t very good but did you have debt between you and your husband when you started that job?

Cathleen:
No, no we didn’t have any debt, we just didn’t have any money.

Scott:
Okay, so you’re saying you could have needed-

Cathleen:
To me that’s bad.

Scott:
You could have accumulated some wealth, what you’re saying, during your time at Texas A&M?

Cathleen:
Right.

Scott:
But you didn’t, but you didn’t accumulate any debt or put yourself into a hole or anything like that?

Cathleen:
Correct.

Mindy:
Yeah, I was going to say, she could have accumulated a lot of debt too, so the fact that you’re at zero is still way ahead of other people.

Cathleen:
I’m going tell you a secret.

Mindy:
Oh I love secrets.

Cathleen:
I didn’t have a credit card ’till like seven years ago.

Mindy:
Good.

Cathleen:
Eight years ago.

Mindy:
Good.

Cathleen:
So I was a college student, I was buying groceries and I’d have my debit card declined because I wasn’t keeping track of how much I was spending and I had toctake out things from the conveyor belt.

Scott:
Oh jeez.

Mindy:
That’s okay, that embarrassing situation will teach you so much about budgeting and being smart with your money because that is embarrassing and why is that embarrassing? The guy behind me in the grocery line does not know me and will never see me again. What do I care that he sees my card gets declined? But when you’re there, you’re like, “Oh my God, this is so embarrassing, I guess I don’t need this and this and this.” And, “Oh I still don’t have enough.”

Cathleen:
It’s good because I do that now when I’m … I just watch the total and if it’s above … So I organize by what I need the most and what’s a nice to have and when I get to the total, I just be like, “Everything else, I don’t need, please take it back. Thank you.”

Mindy:
Yeah, I don’t do that and I should because I bring a bunch of stuff home that I don’t need. That’s my big Achilles heel.

Cathleen:
It’s very hard because it’s already … people are waiting behind you and then you’re like, “That thing should be $2.50, not $2.73, please re-scan it.” And people are all mad at you because they’re all like, “It’s 13 cents, what’s wrong with you?” I can’t do math. 23 cents?

Scott:
How did your financial position progress once you started the new job? I assume that both you and your husband were working and you were able to accumulate money as soon as you started the new job?

Cathleen:
Sort of. So we had … one, DC is a much higher cost of living than Texas. I was paying $500 when I was in grad school, a month and then suddenly we’re at $1,700 a month apartment and I was commuting, I was taking the train into work. So my husband had a job temporarily, he transferred over. He used to work in making compressors for breathing air, so things for SCBAs and scuba and the company he’s working for, he ended up having to report them to, I think OSHA, because they were violating a lot of the safety requirements to do breathing air for SCBAs, so they ended up firing him, which I think is illegal, but okay.

Cathleen:
So he ended up being a stay at home husband for like a year, I can’t remember exactly when. So during this time, it was just me working. We weren’t into debt but we weren’t really saving a whole lot, other than the 15% that I was recommended from my engineer economics professor, Dr. [Marklin 00:17:53]. So it was 15% plus whatever I was saving for my retirement, because I enrolled in the TSP, which is the government equivalent of the 401k, as soon as I started.

Mindy:
Did you max that out?

Cathleen:
Not immediately. I did it by steps. You know, when you get a pay raise, you add increase and now I’m maxing it out, I’ve been maxing out for a while now, but starting is important.

Mindy:
Yeah, starting is very important. Scott, I love her, “Oh well, you know we weren’t really doing very well because we didn’t save a lot. We were only saving 15% because Professor Marklin told us to do that and we were only contributing to our TSP as well.” There are people who are not saving anything, so you’re doing it right.

Mindy:
And if you’re listening to this and you’re about to get your first job, start with the 401k or TSP immediately.

Cathleen:
Especially if you get that match.

Mindy:
Yeah, even if you don’t, but especially if you get the match you absolutely want to do at least to the match.

Cathleen:
And find the lowest price of fees you can.

Scott:
So it sounds like your position is fine but you’re not aggressively accumulating wealth at this point in your story. When do you begin to really zero in the goal of financial independence?

Cathleen:
So this would have been about nine years ago when I first found out that I could actually work from home in Hawaii, I wanted to buy a house, which I already knew at the time, the average is about $450,000 to $500,000 and something for a house. So that’s 20% down, what, that’s $80,000? Plus closing fees, so you need all of that in cash. We had no other assets because we’d been renting and I know there’s a whole argument between renting versus buying, whatever. We wanted to buy a house. So at that point, I was looking around on how to save money and just starting to educate myself more on my personal finances, so I started at the library and read every book there was on the shelf in personal finance and then I found Mr. Money Mustache’s blog. For a while, I just read every single article I wrote.

Scott:
What year did you discover that?

Cathleen:
I’m going to say 2012 or ’13.

Mindy:
Oh that’s when we discovered him too.

Scott:
Yep, me as well.

Cathleen:
It was a while. I didn’t realize it was a whole community, I just thought it was this one sole guy at home, retired, banging away on his keyboard for such a long time.

Mindy:
Banging away on his computer.

Cathleen:
I didn’t realize like, “Oh I should probably read the comments and see who else is doing this.” [inaudible 00:20:31] my personal finances.

Mindy:
Lots of people are doing it.

Cathleen:
I’m somewhat slow to the party.

Mindy:
That’s okay, so you discovered Mr. Money Mustache and what was your reaction to his idea of being able to retire early? Because my [inaudible 00:20:42] reaction was, “This is a bunch of crap, he’s got to be selling something.” And then discovered that he’s just like, “Well, let me just work out these math problems that he’s sharing. Oh wait, no that makes sense. That makes sense, that’s a reasonable assumption. This is just math, this could work.”

Cathleen:
Basically that’s what I did too. Just the concept of saving more than the 15% was revolutionary for me. Why did it not occur to me that I could save more than 15% of my salary? I am above a certain level of income, why can’t I just save the rest? Because I was spending it on stupid stuff like a massage chair.

Mindy:
It is fantastic but you know what’s even more fantastic? Financial independence. Also, I’m super ticklish and I can’t get massages so I don’t appreciate them in ways that other people can perhaps.

Cathleen:
Oh, poor Mindy.

Mindy:
I want to get to the part where your co-worker died at work three years from his retirement? Because that seems like a big impetus to moving back home.

Cathleen:
Yeah, that was a huge reason for moving back home. So originally, I was going do what he was going to do and just ready to retire and have all this cash built up and all of this wealth build up and this net worth built up, then I could buy a home in Hawaii but then my co-worker Eric, such a sweet guy, but he used to talk to me about it all the time, because he wanted to move to Hawaii. He was three years away from retiring and he got found by the cleaning lady at his desk, slumped over. I don’t want to do that.

Mindy:
I don’t blame you.

Cathleen:
I would have missed out on all of these decades of being at home.

Mindy:
Well and weather can play a little bit of a factor into it too. Hawaii has slightly better weather than DC, unless you like cold and snow and sleet and …

Cathleen:
Spring is nice.

Mindy:
For a day and a half, yeah. Wow. So you decide to move back home, home is Hawaii, from one high cost of living area in DC to another high cost of living area in Hawaii.

Cathleen:
Sort of.

Mindy:
What year is this?

Cathleen:
Okay, so I took a pit stop in Houston for a year and a half, so that’d be 2012, or … Yeah, 2012 to ’13, we moved here [crosstalk 00:23:04]-

Scott:
So you’re discovering Mr. Money Mustache while you’re in Houston?

Cathleen:
It was right before I moved to Houston.

Scott:
Okay and then you moved to Houston, then you moved to Hawaii after that?

Cathleen:
Yeah, so my husband and I did not live together for about four years. Because he couldn’t get a job in 2007, nobody was hiring, so he went back to his old company in Houston and he was just staying in … his company put him up in motels and hotels and he’s like, “I need to get an apartment.” So basically he got tired of that, so we’re paying for two different places.

Mindy:
Okay, so that’s a high cost of living area plus because you got the other apartment.

Cathleen:
Plus a low cost, right.

Mindy:
So you didn’t live with him for a while, you moved back to Texas to be with him?

Cathleen:
Yes and to get cheaper rent, mostly for the cheaper rent. I’m a horrible person [crosstalk 00:23:53].

Scott:
Were there any issues with your move from Texas back to Hawaii? How did that work out and how did you manage to pull that off?

Cathleen:
So there’s a company called Matson that ships almost everything to Hawaii and at the time, you could get a 20 foot container, or a 40 foot container and it was like $900 difference between the two. A 40 foot container I could put my car in so what we did is I got dropped off on a Saturday and then was getting picked up on a Monday and I had that much time to get all my junk into it, plus my car. That’s what I did. I didn’t have a lot of junk because I already moved from DC to Texas, so I got rid of stuff and then I just bought used things when I was Houston off of Craigslist.

Cathleen:
I didn’t have a bed, I slept on the floor. I mean, we had a mattress, but … So we moved all our junk here, that was fine, it’s just now that I’m in Hawaii, I have to go back to DC every month, four or five days, so it’s basically Fridays through Tuesday every month, on my own time, on my own dime, because my duty station is still in DC, it’s not in the city or state I live in, for a whole bunch of reasons, because it’s the federal government.

Cathleen:
So this was pretty much the thought of, “I can’t do this for 30 years.” Especially after I had my first kid. You try leaving a six month old for five days every month when you’re still breastfeeding. I mean Scott, you probably wouldn’t do this but it’s not easy.

Scott:
I can’t really.

Mindy:
No, I can’t imagine, I mean, I couldn’t … Oh wow. So every month you have to fly across … that’s big flight. That’s like 20 hours.

Cathleen:
It’s 13 hours, [crosstalk 00:25:45], yeah.

Mindy:
13 hours. Oh, it’s only 13.

Cathleen:
Because I don’t dilly dally. Yeah it’s only 13. So I got two free round trip flights a year because I was racking up … I would put everything on my credit card for the points and then I was racking up so many miles that I just basically paid for two of the flights. I also took leave sometimes to not go … Anyway, it wasn’t 12 times a year in case people are worrying, it was a little less than that, I’m not going you tell you how much, though.

Mindy:
Well I would hope you’d be able to bookend them and hit the end of January and the beginning of February?

Cathleen:
The once a month is already bookending. So technically I’m supposed to be at my duty station two hours per biweek. So I bookend biweeks. So I work full day Thursday from like 5:00 AM ’till 4:00, whatever and then I would take a red eye, land in DC at like 1:00 PM, get on the train, get to the office because it’s only two stops away from Ronald Reagan and then show up and go to work for an hour, very grumpily. I’d show up in my boss’s office, if he’s still there, I’d be like, “I’m here.”

Mindy:
That seems like not the best way to get high quality work out of your employees all the time? I mean, not saying that you’re slacking off but I mean, you’re jetlagged. That’s like seven time zones away, right?

Cathleen:
Yeah. It was really hard and I stayed with friends because I’m too cheap to pay for a hotel-

Mindy:
Frugal, frugal. We pronounce that frugal here.

Cathleen:
… I had a friend that’s … oh frugal. I’m frugal, yeah. Because hotels are like 100 bucks a night and I’m staying four nights, that’s $400 plus the plane ticket which is between $700 and $1,200.

Mindy:
So how long did you do this for?

Cathleen:
I want to say five years, so since 2014.

Mindy:
Five years?

Cathleen:
Until last year, so 2019, yeah that’s five years.

Mindy:
Oh my goodness. You know, Hawaii has been part of the United States for a lot longer than 2014.

Cathleen:
It’s been brought to the office’s attention. So last year they changed it and they have a pilot program where 10 examiners can work from home in Hawaii or Alaska, Alaska’s also excluded by the way, so in Hawaii or Alaska … I know.

Mindy:
Alaska’s also part of the United States.

Cathleen:
They just got the memo last year. Where our duty station is here. So our salary is based off of a national salary, which is unusual for a federal position. Most federal employees have cost of living and they have a locality pay. We do not. So it doesn’t matter where you live, it’s the same salary, which luckily is pretty high compared to … I would not be making as much money as I am if I was an engineer. Unless I was a computer engineer, but I hate computers so that’s out.

Mindy:
Same.

Scott:
So how did this impact your financial story? It seems like, was this commuting something that was a big driver for you to attempt to get to FI earlier or was it a hindrance because you were spending all this money on travel and lodging for five years? How does that relate to your journey to FI?

Cathleen:
So it’s a bit of both. It helped push me toward saving more money, looking for outside investments, doing more research into what things I can invest in to get more streams of income, but it also dragged down my investing because I’m spending I don’t know how many thousands of dollars, probably $6,000, $7,000 just in travel, which at the time I could write off as a tax expense.

Mindy:
So you said you wanted to buy a house, did you end up buying a house in Hawaii?

Cathleen:
Yes, I bought a house in Hawaii, you’re seeing the results.

Mindy:
Ocean front property? Mansion on the beach?

Cathleen:
If the beach were about 15 miles wide, yes. I actually don’t really care for the beach that much. Take that look off your face.

Mindy:
Don’t you live in Hawaii?

Cathleen:
There’s sand, there’s sand, there’s sun, you get sunburned, I hate getting sunburned. I mean, I do, I like the ocean. I like the beach but I don’t want to live on it.

Scott:
Are you in Maui then?

Cathleen:
No I am not, I’m on Oahu.

Scott:
Okay. So you’re working this job at the Patent Office from Hawaii, you’re flying back and forth. How does your net worth … Can you give us a picture of your financial position, how it’s evolving from the period of 2014 after you buy the house and move to Oahu and today? Or maybe the time when you stopped commuting regularly in 2019?

Cathleen:
So it’s going up. I mean, it’s always been going up. I’ve still been maxing out my TSP, I max out my Roth IRA, I’ve maxed out my husband’s Roth IRA. That’s all pretty much done automatically and the house value has strangely gone up quite a bit, like $250,000 in the last four years.

Mindy:
Wow.

Cathleen:
For some reason, the town I moved into, it’s a small town, but now it’s in really demand. I’m seeing houses that are being listed and then selling within five days for the same price you can get a house in [crosstalk 00:30:56].

Scott:
Today, or maybe the time you stopped …

Cathleen:
I don’t know why. These houses are old.

Mindy:
Because it’s Hawaii. Because it’s Hawaii and people love-

Cathleen:
… you can buy a brand new house in … okay, I don’t live in Ewa Beach, but in Ewa, for less and it’s brand new and it’s right next to the beach. That really you can get beachfront property there for less than a million.

Scott:
How do you leverage your story to help those folks repeat your success, basically?

Cathleen:
Okay, so the main thing for us was to cut out eating out. We cook at home a lot more and we stick to a food budget, because it doesn’t help if you’re shopping and you just have an unlimited budget and you just buy whatever you want at the grocery store because now you’re just replacing dining out cost for grocery costs. Just don’t spend so much money at the grocery store.

Scott:
Yeah, well let me ask you this. So you guys are both earning solid incomes it sounds like, nothing crazy, not probably like $200,000 each but it seems like in the six figure ballpark each, is that a-

Cathleen:
Yes, well not each. My husband makes a lot less than me. So we’re less than $200,000 total combined.

Scott:
Okay, so that’s helpful, so we’re in that picture. You’re in a high cost of living area, you have a home that you love in Oahu and really it sounds like the key to your success was just a basic discipline with your spending?

Cathleen:
Right, right.

Scott:
On a variable basis.

Cathleen:
It almost always comes down to just consistently applying the basics, so you’re not buying impulse items all the time. You’re keeping track of what your spending’s like. It doesn’t have to be specific, it can be general. So for example, I check my credit card every week and almost all my spending goes on my credit card, so I know how much I spent last week, I know if I spent too much and I need to cut back because I’m not going to remember-

Cathleen:
Everyone keeps thinking, “Oh yeah, I’ll remember.” No you won’t. You have all this other stuff you have to remember. You’re going to forget that you bought a $200 dinner last week.

Scott:
Did you have a timeline when you started this out, about how much you thought you could save on an annualized basis and how long it would take you to get to your wealth goal?

Cathleen:
Yes, I did. So at the time when I started this, it was 10 years. I’ve slowed down a little bit but our goal was to pay off our mortgage in 10 years and then save up whatever we were paying for the extra mortgage, put that into the low cost index funds and that would bulk up our savings for the 4% rule.

Scott:
It sounds like you were applying all your excess wealth to mortgage repayment and index fund investing, which is great. What was your thoughts behind paying down the mortgage rather than investing?

Cathleen:
So at the time, I was figuring, this is a free way to get discounted point. So we actually got a mortgage with higher percentage rate because I didn’t want to pay for the discount points upfront. We’re trying to preserve cash because we were buying an older house that needed a lot of work, needed a new roof, new ceiling, new kitchen, new bathroom, new electric, almost everything new. So I needed to preserve cash, so I took the higher rate, going, “I’m getting a loan that I know there’s no pre-payment penalties. There’s no penalty if I pre-pay it, or pay it off early. I’ll just start paying more money and just increase how much I pay as I get more comfortable with that being taken out of my budget.”

Cathleen:
Because at the time, I test drove my budget before I moved on the difference between my mortgage, which I think was $2,100 and what I was paying in rent, I think was $1,700. So the $300, $400 extra, I would take and put into my savings account, which went in towards my house fund. So anything above that, I would have to get comfortable with spending extra to pay it down.

Scott:
So did you begin paying down your mortgage basically immediately with the majority of your excess capital?

Cathleen:
No, I waited I believe a year and a half before I started paying it down. I need to rebuild and bulk up my emergency fund to a level I was comfortable at, so that’s where the excess funds went first and then I started off a little bit at a time, for me, $500 a month was somewhere I was comfortable with and I started paying that, so I tried it for maybe two or three months and once I was comfortable with that, I started bumping it up more and more until I ended up paying double what the PITI was, the principal, interest, taxes and insurance total was, to pay down the principal.

Scott:
Well did you pay it off? How far did you get in terms of paying off your mortgage?

Cathleen:
So I have paid off $120,000.

Scott:
Oh wow.

Cathleen:
Since I started the mortgage about five years ago. I’ve stopped paying so much extra. So last year, I re-amortized my loan, which if you listeners don’t know what that is, it’s where they take whatever your principal is and they re-amortize the value over the rest of your loan. So normally, if you’ve been paying down at an accelerated schedule, your actual mandatory costs will go down. So my goal at that point was getting my living costs as low as possible, for what was mandatory. So I’m still paying extra, I’m still paying the original amount, but now the extra’s going towards the principal and if I want to kick in more, I can. But right now, we’re saving money because like I said, my husband’s been laid off for six or seven months, so it’s better to have the flexibility in case something happens with my job, that we can get our emergency funds to last a lot longer.

Scott:
You mentioned that you didn’t pay down your mortgage for a year and a half because you were building up emergency fund and it sounds like with respect to COVID, or the recent economic events in your husband’s being laid off, that you’re again focused on your monthly room rate and how that matches relative to your emergency fund. How do you think about your emergency fund relative to your monthly or annual spending?

Cathleen:
So for me, it’s how many months that will take us if nobody had any income coming in.

Scott:
How many months are you comfortable with?

Cathleen:
I don’t know, because right now, it’s just at like 63 months or something. It’s ridiculous.

Scott:
Oh my gosh.

Mindy:
Oh wait, you have 63 months of expenses?

Cathleen:
No, no, no, no. Yeah, saved up. In my defense, we’re saving for another house.

Mindy:
Well no, that’s fine, that’s still … You just don’t buy the other house if you both lose your job. That’s no big deal.

Cathleen:
Right, I almost bought another house.

Mindy:
That was a flip comment, that’s it’s no big deal to change your plans if you don’t have …

Cathleen:
Right, we actually did change our plans. So I was looking at a house that had a bigger yard, because my husband wants a bigger yard. Not that our yard’s that small, it’s 7,500 square feet, so it’s actually humongous for Hawaii. You can get a house with only, I think the minimum is 2,500 square feet for the lot, not for the house. So he wants a bigger yard and I want to live where we are because it’s cooler up here so I don’t have to pay for air conditioning. It’s a nice little town.

Cathleen:
So we’re going to buy a house that’s more expensive and we try to negotiate with them because I actually knew who used to own the house and I saw how much they sold it for, it was for a flipper. I was like, “I’m not going to pay you $300,000 extra and you didn’t fix this, this, this and this and I can tell that there’s these quality issues. There’s all these things wrong.” And they’re just like, “Well if you can’t match the asking price, then go away.” So I said, “Okay, bye.”

Mindy:
Yeah, I like to keep an eye on those houses because sometimes they snap up right away and then it wasn’t meant to be and then sometimes they sit there for a while and you can have a more reasonable offer made. So you’re currently looking for another house, or have you stopped that plan?

Cathleen:
I’m still looking. I’m sending out mailings to houses I know that are empty, to the owner saying, “Hey, if you want to sell me, contact me first before you contact somebody else. I’m pre-approved, I’m serious, I’m not an investor, I’m not going to tear down your house unless it needs to be. I’m not trying to make money off of you, I just want a nice house that I can live in. We live in the neighborhood.” That sort of thing. Reading Anson Young’s … what is it? How To Find Great …

Mindy:
Finding And Funding Great Deals.

Cathleen:
Yeah, that was a really good guide for this. I mean, it’s hard though because you’re used to just sitting there waiting for somebody to pop up on the MLS and now I have to go talk to people and send out letters and it’s pretty risky when you’re not used to doing it.

Mindy:
Oh it’s not that risky because all you’re risking is a stamp. “Hey, I would like to buy your house. If you’re thinking about selling, please reach out to me and let’s talk.” It’s not any risk to them if they were thinking about selling to reach out and talk to you because they could say, “Hey, we want $4 million.” And you could be like, “Oh I thought I was going to be $400,000, never mind. Good luck with your sale.”

Cathleen:
[crosstalk 00:39:55].

Mindy:
It’s a five second phone call.

Scott:
Let me just go back in time for one second here because I want to get grasp on your formula for approaching FI here and you said in 2014 you bought your house, you then did not pre-pay it and were not investing aggressively because you were building up a emergency fund, right?

Cathleen:
Right.

Scott:
How many months did you build up at that time, because it sounds like the 63 months you have today is not really an emergency fund, it’s more of a down payment-

Cathleen:
Oh no, it’s a house fund.

Scott:
… it’s an investing fund but what I’m trying to get at is how much do you think is right for you in terms of your emergency fund relative to your monthly spending and then were you investing in stocks, your TSP, those types of things, prior to then pre-paying your mortgage debt?

Cathleen:
So yes, I was investing in stocks. So I’m doing the math. So my emergency fund was seven and a half months and that includes my mortgage and then a healthy but pared down spending.

Scott:
Great and then you were then continuing to invest in your TSP, were you also doing any after tax investing?

Cathleen:
Yes. So I was doing both. Don’t know why after all these years, I haven’t done that automatically but the TSP is automatic, it just gets taken out. I just set it every year for the new value, I just divide it by 26 pay periods and it does automatically, Roth IRA I do it after I do taxes to make sure we’re not exceeding the ceiling limit for income because we get bonuses and my husband gets overtime sometimes. So that, I have to wait until after I find out what our total income is.

Scott:
So it sounds like that’s a good problem there.

Cathleen:
That’s a very good problem to have.

Scott:
Then what I’m trying to understand now is okay, so you’re saving up 63 months of emergency fund but most of that’s for house reserve. Are you going to keep your current house when you move and keep it as a rental, or do you think you’re going to sell it?

Cathleen:
I’m still deciding. So originally, plan was to keep this house as a rental. It’ll cashflow, without considering expense, at a very conservative $2,100 a month, it’ll cashflow $600 a month but I’m seeing that rent for houses, especially in this neighborhood, are going up. They’re going for $2,700, $2,800 a month but I have friend that wants to … I probably shouldn’t rent to a friend, she’s very nice, she’s takes care of her place, that wants to rent it. The problem is is … my letter and I don’t have a lot of people on the list. I only have 83 because there’s specific neighborhood I want to live in because I found out location’s very important. I live next to a high school right now, so yay. I hear every football game. So COVID’s been great in that aspect because there’s no football games but I want to live in a very specific neighborhood, it’s only probably a quarter mile radius, so I have a lot of work and these are bigger lots. Some of them are newer houses than what I have, so the price might go for much higher than what I can afford, what I’m comfortable with affording. So if that comes to the case where it’s a certain house that I have my eye on, I will sell this house and take the extra to pay down the payment. It’s probably the worst idea ever.

Scott:
No, I think it’s great. I think you have a good grasp of the situation and what you’re going to do and you’ve created several good options for yourself here thanks to great planning and great disciplined finances over a course of the last five years, so I think-

Cathleen:
Being flexible helps too. I’m not set in a specific path.

Scott:
So if we look at your position today, how long do you think it will take you to get to having the forever home set up and really moving towards your goal of FI? Can I have a timeline or an idea of a ballpark, how long it’ll take you to get there?

Cathleen:
If I stay here and I pay off my house in the timeline I wanted to, which I’ve stopped paying the extra right now just because of the whole … everything. If I stuck with the timeline and start re-doing it, I have about eight years, ish. But if I buy another house, it depends on how much the house is. My target is probably $150,000 more than this house would sell for and I know really it’s not encouraged to upgrade your house, you should stay where are, but to get in the neighborhood that I want to be in for a forever home, that’s basically what I’m having to look at, is an increase in price.

Scott:
Okay, so you’re going to upgrade a little bit and that’s going to punch your timeline probably by a year or two, it sounds like.

Cathleen:
Right. So now I’m looking at other ways of generating extra income, so other income streams, that is not necessarily investment, because investment, it’s a long-term game, as you both know. It takes a while to get anything. So investing in stocks it’s going to take a while to get any of the 4% returns to be significant.

Scott:
Yep, I mean if you want to build wealth and move towards this, you can either spend less, earn more, invest aggressively, or create assets. It sounds like you and your husband feel moderately optimized right now on the income front. That can change depending on what sounds like your husband having some variability to his income over time, but yours seems very steady, is that right?

Cathleen:
Yes. So mine is pretty steady except I’m a federal employee, so if the government shuts down, my agency has a trailing, probably about month and a half, budget they can still operate because my agency brings in their own money. So we’re like the postal service. The fees that you pay to get a patent pay my salary. We don’t rely on taxpayer money. That being said, have you ever tried to buy a house in the middle of a government shutdown? No? Because I have it.

Scott:
Not as a government employee, yeah.

Cathleen:
That was fun, by the way, the bank was like, “We’re not going to give you a loan because we don’t think you have a job because the government’s shut down.” It’s like a 45 day government shutdown when I bought this house.

Scott:
Jeez.

Cathleen:
I know and I got a really good price on this house because I negotiated.

Scott:
Yep, well so it sounds like you got this income optimization in general from your full time job right now. You’ve got a disciplined approach to your day-to-day spending, with the caveat that you have a very specific lifestyle goal for your next house, which you’re willing to acknowledge may delay your timeline but that’s what you want and you’re not going to apologize for it, you’re going to do it and you love it and I think that’s great.

Cathleen:
I’m apologizing for it all the time but I’m still going to do it.

Scott:
I just moved into this place that I’m renting, a nicer place now after seven years of house hacking, so I’m completely on board with you on the-

Cathleen:
I am looking for house hacking options by the way, thank you for your book.

Scott:
Well, thank you for-

Cathleen:
It was amazing to read.

Scott:
No, thank you for the plug there. And then your investing approach seems like it’s generally basically stocks with potentially a real estate play depending on how the housing situation works out, is that right?

Cathleen:
I actually already have real estate investments, it’s not a lot, it’s only 5% of my portfolio, but I’m an LP on a multifamily in Texas and I’m looking to invest more as an LP. The same guys that are running have another deal that looks pretty juicy and again, it’s not a huge percentage of my net worth.

Mindy:
Not yet.

Cathleen:
Not yet.

Scott:
I have a similar approach with about 5% of my net worth in syndications and those types of things. The title limited partner is the job title we should all aspire to one day-

Cathleen:
It is.

Scott:
… in the FIRE community.

Cathleen:
I skipped the whole, get a condo, rent that out, get another condo, rent that out, house hack, then move and use that duplex. I skipped all that. I’m probably the worst real estate investor to ask about anything. I was like, “Oh, I’ll just let my guy find something.”

Scott:
I think that’s very common for folks in this upper middle income, high cost of living environment because it’s just so hard to get that cashflow and in order to buy those properties, you have to plop down 80 to 100 grand per property, in order just to enter the game, so it’s not surprising that that’s the case because it’s just a little harder to access, I think for you in Hawaii, than it would be for somebody else.

Cathleen:
It is, I’ve been looking for a cash-flowing property in Hawaii for probably two and a half years, but I also have a very conservative 40% expense that I’m applying when I look at property. I’ve stopped doing that because I’m more on getting us a house with a bigger yard. I don’t care if the house is falling down. As long as I can get a VA loan, I’m cool.

Mindy:
Are you a veteran?

Cathleen:
Which by the way, VA no longer has that … My husband used to be in the military.

Mindy:
Oh, okay.

Cathleen:
Yeah, didn’t mention that, sorry.

Mindy:
I was going to say, “Wait, we missed that whole part of your story.”

Cathleen:
Not me, not me, no, no, no I married into it. I’m a VA gold digger. So we haven’t even touched that so it’s a pristine VA but the VA loan doesn’t have a cap any more, if you want to hear more about that.

Mindy:
This is a new thing.

Cathleen:
It’s very new. Unfortunately I had a beautiful house but the VA had a limit and they didn’t have the VA rehab loan available and that thing had no kitchen.

Mindy:
Oh.

Cathleen:
Yeah and it had knob and tube electric. So we could not offer what our highest and best would have been because I would need to get a conventional loan, or a land loan at the time, which means you have to put at least 20% down. Well if you’re offering $600,000, that’s $120,000. We didn’t have that much cash sitting around and we didn’t want to get a home equity line of credit on the current house. Which ties into our other … If we keep the house and we end up renting it out, I will get a HELOC on this place, because Hawaii has this really good rate right now, it’s 2.5% fixed for one year and it goes up progressively if you get a fixed amount for HELOC. No fees.

Mindy:
Wait, that’s just for Hawaii.

Cathleen:
Yeah, it has to be Hawaii property.

Mindy:
Of course.

Cathleen:
Sorry. I have a friend that looked it up and he’s like, “What? I want to go through this bank.” It’s a couple of local banks are competing with each other for the HELOCs, so they’re having lower and lower fixed rates and then after that it goes up and down, which is amazing. But anyway, so that goes back to my original strategy of keeping the house, renting it out and then using the HELOC as seed money for more investments, but if I sell the place, maybe I will just take what I need for the down payment to get the minimum, and then use the rest of the equity to invest in passive income. I have options, it’s nice.

Scott:
That’s great.

Mindy:
It is nice to have options. Okay, so you have talked a couple of times about passive income. What passive income strategies do you have in place right now outside of the … So the limited partnership that you were part of, does that generate income right now, or does that-

Cathleen:
Yes.

Mindy:
Oh, oh okay.

Cathleen:
So the partnership closed in March of this year.

Mindy:
Closed, you bought the property?

Cathleen:
They brought the property, yeah. In the middle of a pandemic.

Mindy:
Yes, it’s awesome.

Cathleen:
So that’s generating income, please don’t ask me how much because I do not know, I have not set up my ACH transfer yet so it could be like a dollar, I don’t know.

Mindy:
You need to set up that ACH transfer so you can start getting that sweet, sweet cashflow of a dollar or more.

Cathleen:
Their projection actually wasn’t to generate any type of cashflow except for their Category A investors, for the first year. So originally, they were time lining stabilization for the first 12 months, so no income generation until month 13. They’ve beaten that by several months.

Mindy:
That’s fantastic.

Scott:
Yeah, so just to, if you’re listening here and you’re wondering what Cathleen’s talking about with this Category A stuff, when you invest in a limited partnership in a real estate investment, often but not always, there are two classes of equity, there’s a class A, which is almost like debt, you get a preferred return, maybe 6%, 8%, 10% depending on their sponsors and you get that interest paid back right away and then you get paid your equity back. So if you invest $100,000 of that 8% [crosstalk 00:52:38], you’ll get $800,000 in interest payments over the course of the year and then when the asset sells or refinances, or however they intend to pay back investors, you’ll get your $100,00 first. Then you might have another common equity component, where they’re not getting an 8% return but you have the chance to get much higher than an 8% return as a common equity holder. So you might see a huge loss-

Cathleen:
Get a share of what they sell it for.

Scott:
Yeah, you might see a huge loss in the first year because the asset is depreciating and whatever’s going on but then when they sell in three to five years later, they might have increased its value, you might get a 18% to 20% IRR, that’s the hope that we all go into these investments with, it remains to be seen.

Cathleen:
If not, just stash in index funds.

Scott:
You’ll get back your $100,000. Yeah, so it’s not a very good passive income strategy to invest in these if you need the money right away in that particular second type of thing but you can get that passive income by going with the class A, or whatever they call the different types of equity in preferred equity or common equity and those types of things.

Cathleen:
Yeah, [crosstalk 00:53:48].

Scott:
Yeah, it sounds like you’ve invested in common equity in-

Cathleen:
Yes.

Scott:
… a syndication and so you’re probably going to see very little in the way of returns this year or next year-

Cathleen:
Yes, I don’t really need the money.

Scott:
… and then you ideally will see the … Yeah, so that’s great, [crosstalk 00:54:01].

Cathleen:
Yeah, I need the money but I don’t need the money right now.

Scott:
Yes it’s probably a much better approach for you if you’re trying to build wealth over the next three to five years, rather than generate stable passive cashflow right now.

Cathleen:
Correct. So my ability to invest in equities is quite limited. So right now, all of my equities is basically in index funds, low cost index funds. Vanguard is great for that. I think Charles Schwab is also great. So the federal government has this weird thing, where if you’re a certain position, like my position, where I have influence over the financial prospects of a company because I can grant or deny a patent, I can only invest up to $5,000 in a single company. Which I mean is great, because you don’t want to be messing around with buying and selling a lot. So anything I do that’s just for me to have fun with is up to $5,000 per company.

Cathleen:
So I think I only have about $5,000 total invested in individual companies and that’s just to … because I like researching and I wanted to see how my research turns out and it’s always a two to three year timeline for me. But everything else is majority in either low cost managed funds or majority is in index funds. But even then, I’m not drawing down that because I have a job, I don’t need to draw down that.

Scott:
Nice, that makes perfect sense. So I think you got a really well-developed philosophy here around passive long-term investing in these asset classes. You have a little bit of play money to invest in the fun stuff like limited partnerships and in stocks, your selection. You got a solid emergency reserve and interesting options with respect to real estate in your home.

Cathleen:
Yeah, it’s a good goal to get to. I spent most of my childhood listening to my parents, or my mom talk at my dad, about all these investments. They used to be in investment clubs but one of the most memorable things is there was a market crash. I don’t remember when because I was just a crash but my mom was just moaning and complaining about her index funds and stuff going down. This is something she’s not tapping for probably 20 more years. I mean, my dad retired two years ago, so this is not funds they needed at all but she was so upset that this went down and I think that really colored my approach to investing for the longest time, where I didn’t want to risk money. I had a lot of stuff in bonds, I still do, I’m terrible but I had most of my stuff for my TSP in the G-Fund, which is the government bond fund.

Mindy:
Oh.

Cathleen:
Yeah, yeah, but it was good during 2007 and 2008 but I didn’t start investing that into the index funds, which is the C Fund, S Fund and I Fund, that’s the … whatever. You guys can look it up if you want to know, until much later. It was before I moved to Hawaii.

Mindy:
While were shielded in 2007 and 2008, you missed out on some of the big growth-

Cathleen:
Yeah I did.

Mindy:
… in 2012 and ’13 which is … You know what? You can’t go back and change that. So it is what it is.

Cathleen:
No, but at least I didn’t lose money. I mean, I shouldn’t say that because I don’t want people to be like, “Oh, I shouldn’t put any money because Cathleen said, ‘At least … ‘ ” At the time, I was comfortable with what I was investing in. I wasn’t fearful and I wasn’t worried about it, so I kept investing.

Mindy:
That’s all you can do, is at the time be comfortable with what you’re investing in and then as you learn, as you educate yourself more about the different opportunities, then you can start to change your investing approach and we had Michael Kitces on and we asked him about it was and unrelated question but it’s kind of related because you can’t time the market. Put the money in when you put the money in.

Mindy:
It would be great to get in my time machine and go back to 2007 and pull all of my money out right before the stock market crashed and then put it all back in right when it started going up again and when you invent that time machine, stop by my house and pick me up so I can do that but until then, you just keep putting your money in at the intervals that you choose to put your money in and you make smart decisions on the investments that you’re doing and that smart decision comes from educating yourself and if you don’t want to take the time to educate yourself on individual companies, throw it in the index fund. If you don’t feel comfortable putting it into individual companies, put it in the index fund. I know so many people in this space who are not saying, “Oh, here’s a hot stock tip.”

Cathleen:
Here’s a hot stock tip, index funds.

Mindy:
Here’s a hot stock tip … Yes, I was going to say that, you took my joke.

Cathleen:
Sorry. You want to do that again?

Mindy:
Here’s a hot stock tip, invest in index funds.

Scott:
Well I mean, look at this year, look at 2020, we just enormous crash and everyone was freaking out in March and April-

Cathleen:
Well, except for the FI community.

Scott:
Yeah, and it’s gone right back up within a year. Now, who knows what’s going to happen next but it’s like, look, if you panicked and sold, you missed out on all of that and it’s absurd what’s going on in the markets here but all you can do I think is invest for the very, very long term and not try to time the market like we just described. I love index funds personally-

Cathleen:
Me too.

Scott:
… and you just apply that strategy over, again, the very long run. The next time there’s a crash, it could take six years, 10 years for it to go from bottoming out to a new peak. This time it took six months but it’s impossible to figure that out and again, I just think that your philosophy needs to call for not timing the market and attempting to manage these ups and downs.

Cathleen:
Right, which is something everybody you’ve ever had has … almost everybody you’ve ever had, I think you had one guest that had a list of 50 income investing streams and one of them was buying horses or something.

Scott:
Oh yeah, Kirk.

Mindy:
Oh that was Kirk Chisholm, just a couple of weeks ago, yeah. That was 75 alternate investments and there might be something on there that could be very interesting and your specific skills could make that a very lucrative investment for you. You’re an engineer, you have patent information, experience. I misspoke-

Cathleen:
I can’t do anything.

Mindy:
You can’t do anything specific, but you can understand what a patent means and-

Cathleen:
Right, so when I quit this job, investing streams.

Mindy:
Well no, if they have a patent, could you invest in them, or is it still $5,000 and that’s it?

Cathleen:
No, it’s still $5,000 any company because I have influence … I think it’s any company I examine but I have recuse myself, I don’t know. I should pay attention more to the ethics training. It’s very dry.

Mindy:
Oh wow, yours is dry? Mine is super exciting, all the time, just like, “Wow, what an amazing concept.” No.

Cathleen:
Oh don’t tell people, “Oh you have a nice butt.”

Mindy:
That’s not ethics, that’s sexual harassment.

Cathleen:
That’s sexual harassment, sorry.

Mindy:
Yes.

Scott:
I’m so lost right now.

Cathleen:
Don’t lie about this. Never had to take an ethics training?

Mindy:
Wait Scott, are you saying you don’t have ethics?

Cathleen:
You never had to take ethics training before?

Mindy:
Oh, as a real estate agent you have to take … Oh as a member of NAR, you have to take the special ethics course, it was awesome. Thrilling from start to finish.

Cathleen:
Start to finish, I’m sure it was.

Mindy:
Paid 100% attention.

Mindy:
But no, there are things that you can use your own special skills and experience and information and even just passion projects to invest in different ways but again, that’s not the bulk of your investment. The bulk of your investment should not be horses, especially if that’s not your thing. I mean, if that’s your thing, maybe horses is-

Cathleen:
If that’s your specialty, yes it should be, but it’s not mine [crosstalk 01:02:01].

Mindy:
But again, that’s not an alternate investment for you, you already know all about it.

Cathleen:
Right, right. So actually, I’m trying to get a second stream of income, I’m working on it right now, where I took a very good course, [inaudible 01:02:15] on how to research Etsy niches to sell printables and it’s very, very detailed, it should be for the price I paid for it but I loved it. I’m not artistic, I’m an engineer, yeah but I found something that aligns with my skills, aligns with something I like to do and there’s other shops that are selling similar niche type items that are making a very good income.

Mindy:
Huge, huge money.

Cathleen:
Huge income.

Mindy:
Yeah and printables are the best thing because you don’t have to have an inventory-

Cathleen:
You don’t have to do anything.

Mindy:
… you just do it once and just because you’re not creative, you’re not artistic, doesn’t mean you can’t hire somebody to create the art for you and then you’re selling it. You just have to make sure that they know that you’re selling it.

Cathleen:
Right and you have to make sure you get something that will actually sell.

Mindy:
Yes, well there’s that, minor detail.

Cathleen:
It’s still a business. So I’ve been doing that for the last couple of months and I’m working on getting everything finalized. This niche I picked, it’s got instructions, I had to film, I’m learning how to do Premier Pro now, wonderful. It’s all stuff I have to learn.

Mindy:
But again, that’s awesome. Once you do it once then you can just sell that over and over again.

Cathleen:
Yeah, so at this point, my goal when I was researching was at least $5,000 a month in income and since Etsy only takes … you probably have only 10% expenses, 90% is profit and then I have to pay taxes.

Mindy:
Yes, please pay taxes.

Cathleen:
Yes, I will definitely pay … Etsy sends you a little thing if you make over a certain amount so when you file taxes you have, I think a … I don’t remember what the form’s called but so that’s another stream of income I’m looking into. I can’t remember his first name, but it was something Allen, he has a book called Multiple Streams Of Income and he talks about a really similar thing what Scott’s book … which if you haven’t read it yet, it’s called … what, Scott? Set For Life?

Scott:
Thank you for the plug, yes Set For Life, yeah.

Cathleen:
I had a brain fart. So it’s Set For Life, it’s a very similar idea, you can house hack and get roommates and then you can start looking at doing passive income streams of things, so having a second job or having a side hustle and when I read this, I read this before Set For Life, because Set For Life didn’t come out until after the other book was available at the library and I’m like, “Wait, what? I don’t need just one job? I can have other income coming in?” He had a whole host of very doable incomes. Like you invest in dividend paying stocks, or invest in a dividend focused index fund, or mutual fund and that percentage is considered income. You can have a side hustle, you can do stuff that’s passive, like if you have intellectual property which I can’t do, but Scott has done, he wrote a book, he’s getting royalties from the copyright off of that book.

Mindy:
Yet multiple streams of income doesn’t mean you have a second job. It could be a second job but it doesn’t have to be a second job. It could be all of these little side hustles, all of these … There’s a lot of things out there, it’s one and done. I mean Scott, in a very high level overview, Scott wrote a book, one and done and that book keeps generating income for him. Now, it’s not just one and done, “Hey I sat down and in five minutes I typed out a whole book.”

Cathleen:
No, it’s work.

Mindy:
It took 10 or 15 minutes for Scott to write that but then once he’s done with it, it just keeps generating income, that’s the kind of multiple streams of income that make financial independence so doable, so obtainable.

Scott:
Yeah and a good framework for attacking something like that is to think, “What is within my … ” If you’re an investment banker working 90 hour weeks, then creating a second stream of income is going to be very challenging for you, but ideally you have a large amount of income generation potential from your day job to offset that. Cathleen, I’d imagine with your job that you’re working closer to the 40 hour week level-

Cathleen:
Yes.

Scott:
… rather than the 60 hour a week plus. Is that fair?

Cathleen:
Yes. So I work probably about 50 hours a week just because of the production schedule, where I don’t have enough stuff done. I have no control if something’s difficult or easy to find, or if I can find it, it’s hard to prove a negative, but I’ve been actually reading Tim Ferriss’ The 4-Hour Work Week the last two weeks and I’m an industrial engineer and I don’t know why I didn’t think to do this for my job, do time blocking and then try to decrease how much I’m allowed to spend on something. So I’ve been starting to try to apply some of his concepts to working. So have a much shorter timeframe like, “Oh, I need to get this written up. I’m going to give myself half an hour.”

Scott:
All right, so Cathleen, I feel like this was a great little last bit to our discussion here where look, again, we have those four ways to build your wealth, spending less, earning more, investing, or creating assets. It sounds to me like what you’re doing is you’ve got a great income, you’re very cost conscious on your variable spending, you’ve got a great investment philosophy and you’re basically spending chunks of your free time as efficiently as possible, reading and learning and figuring out ways to at least experiment with generating new income streams on the side in addition to your job. So I think that’s a very powerful approach and you might find if you apply that that you get to your goal much sooner than eight years than now, certainly much sooner than 10 if you can hit one winner over the next couple of years for some of these side projects and passive income ideas.

Cathleen:
Yeah that would actually pay for another house, or help pay for another house.

Scott:
There you go. Well, I love it. Well, is there anything else that you’d like to cover before we move on to the famous four here?

Cathleen:
Let’s talk about how people can save money by not eating out because that’s the big platform for my blog, that’s what I’m known for, by 10 people.

Scott:
If you’re someone living in a high cost of living area with solid income, how much do you think they could save by being more disciplined with their eating habits and what would you recommend as a good approach for that?

Cathleen:
So I spent $20,000 in two years just eating out when I was in college.

Mindy:
Oh my God.

Cathleen:
Yeah, in two years, I was in college and it was in Wisconsin so it was cheap. So let’s say there two of you, you spend $20 a meal per person, just for dinner. So you’re frugal and you save leftovers for lunch the next day, you eat out seven times a week, which I hope nobody actually does.

Mindy:
I bought a house from somebody once and in their refrigerator …. You know, you’re looking through the house in the refrigerator too, it was all take out menus-

Cathleen:
They would just have … take out.

Mindy:
… all leftovers and it was like, “I don’t think she cooks at all, ever.”

Cathleen:
Some people don’t.

Mindy:
Or he. I’m being sexist, I’m totally being sexist but I really did not believe that either of them cooked ever in the house and it was just shocking to me and if that’s you and you feel judged, I’m sorry-

Cathleen:
Please don’t be.

Mindy:
… I’m not trying to be judgey but oh my goodness, that was just … It was such a departure from my life that I was shocked.

Cathleen:
Yeah, I grew up, my mom cooked all the time. We never went out.

Mindy:
We had a garden. We had a huge garden and we grew-

Cathleen:
Oh [crosstalk 01:09:58].

Mindy:
… a lot of our food. We lived in California so we could.

Cathleen:
We don’t have a huge garden but we still have a garden at my parents’ house. So say it’s $20 a meal. Everything included, you can spend way more than this by the way, two of you every day of the week, 52 weeks of the year, it’s $14,560 dollars you’re spending on eating out, at $20 a meal.

Mindy:
That’ll fund both of your Roth IRAs.

Cathleen:
Yep. So I mean, say they decide to cut down eating out and start eating in, meaning they cook their own meals, in half. They’d only do it, say three times a week, that’s $7,280 of spending. So it’s kind of a big … and this is you’re buying a $20 meal every day of the week, 52-

Mindy:
So how do you change that?

Cathleen:
Good question. Well, you have to learn how to cook, I’m sorry. That’s pretty much the only way. It’s very simple. So you have to start with the basics. So you can start cooking by making salads. That’s pretty much the lowest cooking thing, you throw together vegetables and get a salad dressing and put it over on top. Then you start building. You start understanding what vegetables go together, what don’t, what you like to taste. You can use store bought dressing, that’s okay and then you move up to something a little more complicated, like making soup. So you have to learn how to cut up vegetables in a regular size. You need to learn about salting your food. A really good resource to learn about that is Salt Acid Fat Heat by Samin Nosrat. She describes how to learn how to salt your food in the book. Once you can understand the salt and the seasoning, then you can start looking at recipes or watching Food Network, not those stupid competition ones, but the actual ones where they sit down and cook.

Cathleen:
So PBS is a good resource because on Saturdays, I don’t know about your PBS but we have a whole block of cooking shows and they show you how certain things are made with … and you just need to learn the basics but it’s [crosstalk 01:12:16].

Mindy:
Yeah, I like to follow a recipe exactly the first time.

Cathleen:
The first time, yeah.

Mindy:
And then, “Oh, I didn’t like this.” Or, “That was too much.” Or, “I would like to have more of that.” When I make a brand new recipe I always follow it exact for the first time, but then if I liked it in the beginning, I Mindy it up.

Cathleen:
Yeah, it’s called improvising.

Mindy:
Yeah.

Scott:
When I was first getting started at my journey to FI, I would eat an onion. I would take a large Costco onion, I was saute it and caramelize it along with mushrooms-

Cathleen:
Delicious.

Scott:
… spinach, and then I would have either steak, chicken, salmon or pork chops and then a vegetable and I would have that every single night and I would make that with leftovers.

Cathleen:
You know what? My husband’s got you beat.

Scott:
I was single for a while, surprisingly as well.

Mindy:
Unsurprisingly.

Cathleen:
My husband used to, when he was in Texas … When I moved here, he didn’t move with me for the first year and a half and I would be like, “What are you eating for dinner?” He goes, “I’m eating a fruit salad.” “Oh, what’s in the fruit salad?” He’s like “Cantaloupe.” “What else is in the salad?” He’s like, “Cantaloupe, it was on sale for 99 cents.” “So what are you having for lunch tomorrow?” “A fruit salad.” He’s eating the other half of the cantaloupe.

Mindy:
That’s not fruit salad.

Scott:
Nice.

Cathleen:
I told him, he just cut the cantaloupe in half and was eating out of the bowl.

Mindy:
Hey, it works, I used to just have broccoli for dinner but I did that because I liked broccoli.

Cathleen:
[crosstalk 01:13:54] I like broccoli too.

Mindy:
I would also like to point out that in our Facebook group, Katie said, “A shout out to Scott Trench’s former roommate for putting up with him just eating an onion for dinner every night.”

Cathleen:
Wait, it wasn’t just an onion though. I mean, he said he would saute it with stuff and caramelize it and then have it with a vegetable and some type of protein.

Mindy:
Not always. Sometimes it was just the onion, right Scott?

Cathleen:
It wasn’t raw though, was it?

Mindy:
No, he cooked it, caramelized onion.

Scott:
It could be caramelized but yeah, occasionally it would be sometimes just the onion but that would only be if I’d run out of other vegetables.

Cathleen:
You can make onion soup.

Scott:
Mm-hmm (affirmative), that’s what it was.

Cathleen:
Yeah, so meal planning is important.

Scott:
Onion and olive oil, yeah.

Cathleen:
Okay, that’s the last thing to say is meal planning is important. So look at what’s on sale and then plan your meals, what you can make out of that and what you have in your pantry so you’re not spending something that’s on regular price, because on sale you could easily save 50% or more off of what … So say you want a steak, a T-bone steak is $14 a pound but on sale it’s $8.99 a pound [inaudible 01:15:05] still expensive but it’s almost half the price so if you like T-bone steak, stock it up when it’s $8.99 a pound and then plan to have a T-bone steak with vegetables and whatnot that are also on sale for your dinner.

Cathleen:
I generally just write a list out of what I can make out of what I have after I grocery shop, so I don’t have to think, “Oh, what am I going to make for dinner today?” And then you don’t run into the whole running out of vegetables and I have to only eat an onion problem.

Scott:
Good advice.

Mindy:
That’s great advice.

Scott:
Well with that, let’s transition to the famous four.

Mindy:
Cathleen, are you ready? These are the same four questions we ask of all of our guests?

Cathleen:
Yes.

Mindy:
Yes. What is your favorite finance book?

Cathleen:
Hands down, it’s The Simple Path To Wealth by JL Collins. Oh no one’s ever mentioned that before, but right now I’m actually listening to Raising Your Money-Savvy Family by Doug Nordman and Carol [Pittman 01:16:06]. I can’t get the actual book from the library because Doug just dropped it off at the local library. I live the next town over to him but everything’s closed so the only thing they had available electronically was the audiobook, so I’m listening to that right now and I’m actually really liking it and I think even if you don’t have kids, listening or reading that gives you a good basis for training yourself on how to manage your money.

Mindy:
It is an excellent book. We had Doug and Carol on a few weeks ago and just the concepts in there actually changed the way that I’m teaching my kids about money too.

Cathleen:
It’s really good concepts. I mean, even if you don’t have kids, you can do it to yourself, be like, “Oh you get a dollar to spend on your one special thing when you’re grocery shopping off your list.” Which will only cover gum now, I think.

Scott:
Right, what would you say was your biggest money mistake?

Cathleen:
It wasn’t learning about investing early on. I was afraid of losing money so I put everything, like I said in the G-Fund and I didn’t bother reading about index funds. I’m like, “It’ll just take care of itself.” So had I educated myself, I would have been much more comfortable with having more money in index funds.

Scott:
No, it makes sense. I love the opportunity cost mistake.

Mindy:
Yeah, that’s a good mistake to have instead of-

Cathleen:
Instead of student debt or credit card consumer debt.

Mindy:
Loaning your boyfriend $500.

Cathleen:
I’m assuming he not [crosstalk 01:17:42]-

Mindy:
Oh no, you can lend your boyfriend money and have him pay you back, that’s not a mistake at all.

Cathleen:
Except they don’t pay you back.

Mindy:
In a few years. What is your best piece of advice for people who are just starting out?

Cathleen:
So good education, learn how to learn. You go to the library, just start reading every single finance book you can. Don’t stop at just one because sometimes you’ll get a skewed opinion. So a lot of people say start reading Rich Dad Poor Dad but the problem with that is he has a skewed opinion on things and you’re not going to realize some of the nuggets that are really good advice. There’s also a lot of online resources you can go to. If you have, what, six kids? You live in a high cost of living area, Wendy Mays at House Of FI, she’s got six kids. They’re on a single teacher salary, so if that’s your situation, go to her, see what she’s doing. She lays out her budget, she talks about things that she did to decrease, I think it was like six digits of debt, in a couple of years. They’re amazing.

Cathleen:
There’s a whole bunch of things, you can start listening to this podcast, which I’m assuming if you listen to this episode you already do. Join Facebook groups, so BiggerPockets Money has a Facebook group which I’m a part of. There’s a whole slew of blogs that you could read that have different perspectives. Like Anna from [Go Dog Simple 01:19:01] has two older kids, so I think a little closer to your kids’ ages Mindy, almost teenagers.

Mindy:
Yeah, we’re actually in teenage years.

Cathleen:
Oh, I’m sorry.

Mindy:
They’re great, super awesome, I recommend them to everybody.

Cathleen:
At home, all the time right now.

Scott:
Well what is your favorite joke to tell at parties?

Cathleen:
It’s a long one, is that okay?

Scott:
Go for it.

Cathleen:
And it is not a pun. Okay, so there’s these three guys or gals running from the police. They run into an alley and they hide because they can’t go anywhere. So the first one, hides in a trash can. The second guy hides in a tree. The third guy hides in a potato sack. So the cops come up to the first guy in the trash can and they hear a noise and they shine a flashlight, they’re like, “What’s that?” So the first guy goes, “Meow.” And they go, “Oh, it must be a cat.” So they move on and they get by the tree where the second guy in the tree and they hear a noise and say, “What’s that?” And they shine it up in the tree and the second guy goes … “Oh it must be a bird.” So they move on to the third guy in the potato sack and they hear a noise. They shine a flashlight on the potato sack and say, “What’s that?” The third guy goes, “Potato.”

Scott:
I love it.

Mindy:
That is a funny one.

Scott:
That’s awesome.

Cathleen:
That’s not even my joke, it’s my friend [Jared’s 01:20:25] joke.

Scott:
Did he get caught?

Cathleen:
[inaudible 01:20:29] joke.

Mindy:
Okay Cathleen, where can people find out more about you?

Cathleen:
So they can find me at cookingupfire.com or they can find me in the BiggerPockets Money group, the Facebook group I should specify, under Cathleen Hutch.

Mindy:
Oh okay, I know Cathleen Hutch, I don’t think know that was you.

Cathleen:
That was me, I had a post ban, sorry.

Mindy:
Oh that’s okay.

Cathleen:
I didn’t want to type out a whole thing about why you should always have a car payment, so I just attached my …

Mindy:
So yes, we are rather strict about-

Cathleen:
They are very strict.

Mindy:
No promotions.

Cathleen:
Sorry.

Mindy:
But we didn’t kick you out, we give you a chance.

Cathleen:
I’m sorry. I just didn’t want to type out the whole thing about why you should always have a car payment because someone’s asking about how to save up for a car and I was trying to do it on my phone. I’m sorry.

Mindy:
That’s okay, that’s okay. Cathleen, this has been fantastic, thank you so much for your time today. I know that we record early in the mornings where we are and it’s even way earlier where you are because you’re in Hawaii. We should have just gone out there and recorded at her house, Scott.

Scott:
That’s right.

Cathleen:
There is a two week quarantine right now, so you can’t.

Mindy:
I know, which is … I totally understand it.

Cathleen:
Oh darn, you’re going to have to stay here for two weeks at least.

Mindy:
Yeah, shucks. Then once you get there, if you have to stay there for two weeks, you might as well start your vacation after that.

Scott:
That’s right.

Mindy:
Okay, the show notes for today’s episode can be found at biggerpockets.com/moneyshow147. Cathleen, thanks again for your time today, we really appreciate it and we’ll talk to you soon.

Cathleen:
Okay, you’re welcome.

Scott:
Thank you.

Mindy:
Okay Scott, that was Cathleen Hutchins, what did you think?

Scott:
I was really impressed by her discipline with her spending over the course of her journey with money basically, well after college and grad school, she’s been very disciplined with her budget and spending and that’s really set her up with some really good life options today.

Mindy:
You know Scott, you’re right. After she got over the hump of spending on frivolous things, she really got herself dialed in and is focused on her goal, which is to become financially independent on her terms. She talked about buying another house that is more expensive than the one that she lives in now and that’s okay to do.

Mindy:
That’s a choice that she’s making. She lives in Hawaii. She lives where people want to retire to. If she wants to buy a slightly more expensive house now, it’s in her budget. She has the ability to do that. I think that’s great. So pursuing FI, her version of FI, is what she’s doing and that’s absolutely valid. What do I say every single episode? Personal finance is personal and that’s her personal choice and I think that’s great.

Scott:
Absolutely.

Mindy:
Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
Okay, from episode 147 of the BiggerPockets Money podcast, he is Scott Trench, I am Mindy Jensen and we can’t stay, so later, stingray. Well, thank you to James Isaac Smith for that outro.

Scott:
Thank you James.

Mindy:
Thank you James. Okay, the end, goodbye.