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Posted over 8 years ago

7 Lessons for Achieving a 30 Year Wealth Building Plan in 12 Years

This post is geared to those who are in the early stages or still need some help in designing their wealth building plan. We wanted to pass on some of the things we learned in the hope that it benefits others. Some of the more clever folks out there, with the help of Bigger Pockets, might hit their goals in half the time we did.

At the age of 27 I returned with my girlfriend (now wife) from the Peace Corps to the States looking for new jobs. Readjusting to American life had a few surprises, most of which were pleasant like consistent hot water and the range of choice in grocery stores. However, the biggest shock was that some of our friends, who had skipped graduate school and two plus years in rural Africa, were four or five years into their careers. They were earning good salaries and seemed financially secure. We would never trade the experiences we had overseas, but it was clear we knew next to nothing about investing and we had that gnawing sense of unease that we were "way behind." In the best sense possible, fear can be an excellent motivator.

So we spent our nights and weekends trying to learn the difference between stocks, bonds, IRAs, index funds, REITS, and eventually rental properties. The Motley Fool was a great help at this time as were books like the perennial favorites Rich Dad, Poor Dad and the Millionaire Next Door (discovering Bigger Pockets would come a few years later). Along the way we learned that the medical device company Medtronic writes a 100 year strategic plan to chart its future. We thought if a company has a 100 year plan, then clearly we should have a 30 year plan. We crunched the numbers on a few retirement calculators and figured out our magic net worth number. This number would allow us to retire at the age of 57 without having to work again, and spend time traveling overseas. The seven figure net worth number looked daunting at the time. I was making $24k a year and my wife was making about $30k. I had $1,500 left over from the $4,800 Peace Corps provided to help readjust to America. I spent a portion of it traveling for a few months through the Middle East and at times hitchhiking in Syria, Jordan and Israel. Unfortunately, something that is unthinkable today given what is on the news.

The 7 Strategies We Used and the Lessons We Learned Along the Way:

1. Ask For A Raise: I thought I was being woefully underpaid and needed to find a more permanent position with a higher salary. I was able to secure a $10k raise to get to $34k within two months, this also led to a more permanent position in the same organization that provided a similar raise within my first year. Lesson: You might be able to increase your salary, but you cannot receive what you do not ask for.

2. Max Out Your Tax Deferred Retirement Accounts: If you have a salary job one of the best investment returns you can get is taking full advantage of your 401k retirement plan by maxing out your contribution. Many plans have a company match which results in an immediate return on your investment. Plus you can defer the income tax when you are likely in a higher tax bracket to when you retire and are in a lower tax bracket. Personally we put the money in S&P 500 index funds and forget about it. If you can save a little more each month you can start funding an IRA, more on that below. Lesson: If you invest money before it every touches your hands you will never miss it and if it is has a match and is tax deferred you made a nice return from day one.

3. Buy a House that Comes with a Roommate Who Funds Your IRA: What has now become commonly known as house hacking was one of my smartest initial investment decisions. I bought a two bedroom one bath condo close to public transportation that had a $900 monthly payment. I immediately found a roommate who was covering more than half of this expense, plus half the utilities. I opted to use this extra income stream to boost my retirement savings by opening an IRA. Lesson: All of the money that went into my IRA came from the rent from my roommates.

4. Live Below Your Means: Paying $5 for Starbucks and $15 for lunch is a great way to work in an office until your are well into your 60s. You might want to ask yourself if the food and drinks are worth these extra years in an office? We decided to make our lunches at home everyday and did this for years. We also took advantage of the close proximity of the National Mall to walk among the monuments at lunch and get out of the office. Lesson: Bringing lunch everyday and drinking coffee in the office paid my annual property taxes and home insurance.

5. Find Entertainment that can be had for a Song: We were living in Washington DC at the time and quickly learned that you could take advantage of great experiences for a fraction of the regular price. Stand in the back of the Shakespeare theater and you will pay a deeply discounted ticket price, plus at intermission you can take an open seat. Hand out programs at other theaters and you can watch the performance for free. Buy a t-shirt at a major comedy club and you can attend every Tuesday show for free. Plus there are great free speaker programs at the universities in the area and the Smithsonian museums. Lesson: With a little research and planning you can get the same rich experiences for a fraction of the cost.

6. Learn About Taxes: Most people slip into a mild coma when you mention reading tax code, but learning about tax is probably one of the most important elements of wealth creation. We volunteered with the IRS for their Volunteer Income Tax Assistance (VITA) program in which you to assist low income people in completing their taxes. As part of the process the IRS provided us with a couple weekends of free tax training. It was great training and a way to give back to the community. One could also probably be a temporary hire at one of the major tax preparers during tax season and receive similar training while earning some income. Lesson: We used this tax knowledge when my wife bought her first condo earning a $5k tax credit after closing that covered the entire downpayment. Continuing to learn about taxes has paid tremendous dividends over the years.

7. Buy Rental Properties and Trust Your Numbers: If we had found Bigger Pockets back at this time we would have been years ahead. We learned the old way by reading books, going to every open house we saw, and asking a lot of questions of anyone who told us they owned real estate. We proceeded cautiously with a buy and hold strategy with fixed rate 15-year loans. We added a property about every 15 months with an eye to paying them off early. We also made sure that we did not become over leveraged by overbuying. We invested in the Washington DC area and then moved on to Boise where we have a majority of our properties today. In the lead up to the housing bubble our own back of the napkin calculations indicated properties were becoming highly overvalued, so we stopped buying properties and sold a few. We remember riding the subway in DC and listening to everyone talk about real estate the same way people talked about tech stocks in 1999. It made us think something bad was brewing. When the financial crisis hit we were able to ride out the downturn and pick up a few more properties at a steep discount. We did pay too much for the last property we bought before the crisis, but were able to cover the costs without having to sell in the downturn. Lesson: You will make a few mistakes along the way, but if you limit your downside risk and trust your gut when the numbers do not seem right, you will be successful in the long run.

As a result of these seven strategies we were able to have some great cultural experiences, traveled frequently, but most importantly we hit our desired net worth figure in 12 years, which was 18 years sooner than we thought. This gave us a lot more options and several years ago we opted to change our goals to allow us to live and work overseas, and share the international experience with our kids. Our approach to wealth building has accelerated with the knowledge we have gained since finding the Bigger Pockets community. If we had Bigger Pockets as a resource several years earlier we certainly would have shaved a few more years off our initial plan. We hope this is helpful and best of luck as you create your own wealth building plan!



Comments (14)

  1. Hi @Valerie King   

    I am glad you enjoyed the article.  I wish you all the best on your wealth creation plans. 

    Nathan 


  2. Awesome insight! Thank you for sharing it, @Nathan Carter! 


  3. Thanks @Dmitriy Fomichenko

    I appreciate the feedback.  It is all about making a little progress every day.  Interesting to see that you have used real estates in your retirement accounts, very smart.

    All the best,

    Nathan


    1. Indeed! There is a lot more control one can have over real estate compared to the stock market so having portion of your retirement portfolio in RE is only makes sense.


  4. Hi Nathan,

    It's good to see that you were able to achieve your target within 12 years, and that too the old-fashioned way. Medtronic's example was great, as it certainly pays to have a plan for your financial future. Further, maxing out retirement accounts and learning more about taxes are often the steps people miss, so good work learning it upfront.

    Best Reards,

    Dmitriy


  5. Thanks Don and David for the positive feedback.  Have a great day!


  6. Great article. Thanks for sharing your advice and experiences.  


  7. Nathan, good advice. Thanks for your imput. Have a Great Day. Don


  8. Thanks Nathan for sharing these insights!  My wife and I are in the beginning of our real estate investing.

    Recently, I've been wondering about the experiences of those that rode the downturn and what they would have done differently, if anything.  Would sticking to the numbers be the best and only option?


    1. Hi Rahul,

      Personally, we think that there were several warning signs with the housing bubble, but some people chose to ignore them because so many people were making money.  So it is important not to get too caught up with the herd in good times.  Everyone has a different risk tolerance, but for us we never wanted to be forced to sell a property.  We therefore did not buy any new properties for a few years in the run up to the bubble, but then jumped in after the crash.  We also made sure that we only bought a new property if the numbers worked for us and we could continue to pay the note even if we had to lower the rent or lost a tenant for several months.  It is not necessarily the fastest way to get rich, but you are able to sleep at night.  Best of luck to you and your wife as you start your real estate investing plan, it is a great thing to do.   Best regards, Nathan  


  9. Thanks Charles, I am glad you found it helpful.  All the best, Nathan  



    1. Nathan very very good insight, a couple things really help us here and I pray really helps others. Cheers

    2. Nathan very very good insight, a couple things really help us here and I pray really helps others. Cheers