This post may contain affiliate links. We may be compensated if you choose to utilize a link on this page. All opinions are mine.
Dollars & Debts Interview Series – Introduction
Today’s post comes from Erik, a personal finance and self-improvement junkie who blogs over at The Mastermind Within. He is a statistician by day, and blogger and entrepreneur by night. He writes about personal finance tips, stories of his entrepreneurial endeavors, and the books he is reading to become better. In this post, he will share his debt story and how he is currently working on his mortgage to build wealth!
When did you start learning about money?
I started learning about money with I was a young boy. My parents and grandparent instilled a saver’s mindset into me, and I learned about the habits of budgeting, running cash flow analyses, and tracking expenses. Most of what I learned was the basics – writing a check, balancing a checkbook, making a budget, etc. As I grew older, I was already frugal and careful with my money.
What got you started on your financial independence journey?
My father has been fairly successful in his financial career and owns a few businesses and properties. He is still working at 54, but is continuing to try to build his investment portfolio to ensure retirement is successful.
When I was 20, I looked at my father’s success, and started researching how to get wealthy through investments, real estate, or business. I wanted to figure out how to grow rich so I could do what I wanted with my time and money. Financial Samurai was the main blog I followed back in 2012 – Sam has influenced my thoughts on real estate, investing, and financial independence.
How much debt did you have?
Luckily for me, I was able to graduate in 3 years and student debt free. I started my Master’s program right away, and took out $15,000 in student loans for the second year of the Master’s program. In January 2015, I accepted a full-time role that paid $63,000 a year with an 8% bonus. With my increased pay, I was able to pay it off late 2015.
After I graduated from the Master’s program in May 2015, I started looking for a house to house hack by having friends as roommates, and bought a $287,900 house; I took on $282,684 of debt via a mortgage.
In February 2016, I bought a 2014 VW Jetta for $13,000 and financed $8,500 of it. At the peak of my indebtedness, I was at about $290,000 in debt.
How much have you paid off? What steps did you take to do it?
As mentioned above, I was able to pay off the student loans within one year of taking them out. Essentially, those were a short term loan so I could manage cash flow better through the last year of my Master’s program. I paid it off with an increased salary, but also persistence and consistency. I routinely would throw $2,000 to $3,000 a month if I had the cash in the bank to do so.
When I bought my house, I still had about $8,000 of the student loan left. I was putting $100 extra towards the mortgage a month, but the student loans were a priority.
After paying off the student loan, I went back into debt like I mentioned above with an auto loan of $8,500. Actually, at the time, I had the cash to not finance the car, but again, I wanted to manage my cash position and keep my emergency fund intact. Over the next 4 months, I paid off the auto loan because I had the cash to do so. I didn’t see the point of keeping the loan if I had over $10,000 in cash.
After paying off my auto loan in July 2016, I cash-in refinanced my mortgage to a 5-1 ARM loan with a starting balance of $275,000 at a 2.625% interest rate. I was able to reduce my payment over $100 a month, but still had PMI to pay each month. Now, I’m focusing on getting rid of PMI to free up another $144 in cash flow each month. Right now, my mortgage balance is $257,000 and I’m about $15,000 from getting rid of PMI completely. I’m forecasting to pay this PMI off in October 2017.Overall, I’ve paid off close to $50,000 in debt in the past two years – pretty cool to reflect upon if you ask me! 🙂 Click To Tweet
What are your money goals for the next year and long-term?
For the next year, I want to pay off PMI as outlined above, max out my 2017 Roth IRA account, and keep contributing to my 401k. By the end of 2017, I’m looking to increase my net worth by $30,000, which would put me at about $130,000. After paying off PMI, I want to diversify a little more by pushing more money into the stock market.
I also started a business in May with a friend and we have two ideas we are pursuing. So far, we have about $2,200 in sales, but are down about $200 overall. It’s been a great learning experience and lots of fun. If we can grow this business in the next few months, this could also add a fair amount to my net worth.
For the longer term, I want to be a millionaire in the next few years. I’m 25 right now and have a net worth of roughly $100,000, but am in a position to start contributing more to investments and my business. In my day job, I’m paid fairly well, and if I keep on the path I am, I’ve forecasted myself to hit $1,000,000 by 35 years old. That being said, I want to push the envelope and get there by 30.
The ultimate goal would be to leave Corporate America so I can focus on my passions: reading, helping others, spending time with family, and exercise. I don’t have a “number” that I want to hit, but I think if I can get to multi-millionaire status, I will be very pleased with my progress.
What obstacles have you ran into that you had to overcome?
The biggest obstacle for me is cash flow management. I like to have at least $5,000 in the bank for emergency purposes, and as a result, I get a little anxious when I have less than $5,000 in the bank. I also get equally as antsy when I have more cash in the bank than the debt balance I’m holding. If I have $5,000 in cash and $4,000 in debt, I look at my online banking app and say to myself, “You know you want to get rid of that debt…. Just do it, get it out of there.” I have to tell myself no, and I will pay it off in the next 2-3 months so I don’t fall below $5,000 in cash.
Right now, I’m at about $8,000 in cash, and I’m pre-paying over $4,000 a month towards my mortgage. I’m running a net negative in terms of monthly cash flow for the next few months, but again, I’m struggling to balance how much I want to pay off each month, and how long I want to keep the debt. I could just pay the minimum each month and be done with PMI 25 months. Or…. I could go nuts and pay it off in 4 months…. Choices. 🙂
As I mentioned, cash flow management is the biggest struggle for me. People who are debt adverse and hate debt see the debt and want to get rid of it as soon as possible. We have to balance the want to get rid of debt with our current cash situation.
Any words of advice for those that are afraid of starting their journey or are feeling like they aren’t making enough progress?
One of my favorite books is “The Slight Edge”, by Jeff Olson. The slight edge is your philosophy for life – either you are using the slight edge or you aren’t using it. Essentially, if you work towards your goals each and every day, even if you are only spending 5-10 minutes on it, you will be on the path to success. It’s the compound effect, add up little gains each and every day and after a year, you are much better than you were at the start of the year!
My advice for people who are afraid of starting their journey is to think about why they are afraid. Also, ask what would they be able to do if they had achieved their goal. How would they feel? Would they be happier than they are today? If so, then it’s obvious to start on the journey – on to happier days!
My advice for people who feel like they aren’t making enough progress is for them to stay the course and keep consistent. If your goal is debt reduction, make that extra payment each and every month. Life is made up of valleys and peaks – the valleys are temporary and life will be better soon.
One more thing to do is to examine where you started and where you are now. Writing this post, I didn’t realize I had paid off nearly $50,000 in debt in the past two years. This is a crazy amount, and a testament to my consistency. It’s a little unfortunate I’ve missed out on some market gains, but I’m happy the weight of debt is slowly getting raised off my shoulders!
I’m about 2 years into my journey, and I’m loving life. I love seeing the improvements in my relationships, my work, my physical fitness level, and my bank account. Over time, the little things I’m doing each day will add up to something huge.
Erik is a personal finance and self-improvement junkie who blogs over at The Mastermind Within. He writes about personal finance tips, stories of his entrepreneurial endeavors, and the books he is reading to become better. Check out his blog for transparent, educational, and fun content!