January 15, 2009

My Financial Story : Part 4 - Gainfully Employed

This is the fourth part of a series on my own personal financial story. First I discussed my childhood years, then I talked about my first four years in college and then I talked about my second college trip. Today I'll talk about my years in the work force leading to the present.

I started work in 1997 and was making about $42,000 a year. I had a few thousand in student loan debt at the time and no other debts. For the first couple years I rented an apartment. After a couple months at work I bought myself a late model used car. It was an inexpensive compact car model with good mileage and I got a loan via the credit union for about $7,000 for the purchase.

In the first couple years at work I paid off my student loans and my car loan. Then in 1999 I started looking for and bought my first home. I bought a home for $142,000 at the time and paid only 3% down and got the seller to pay the closing costs. By that time I'd gotten a promotion and a couple years worth of raises and I was making around $50,000 a year base income. I had also stopped smoking cigarettes.

Around 1998 to 2000 I enrolled and contributed to my companies 401k and I dabbled in some individual stock investments. When the dot-com bubble burst in 2000 I lost about 50% of my 401k money and my stock investments did poorly too. I walked away from the dot-com bust with a negative attitude towards stock and 401k investments. I discontinued my 401k contributions after that and stopped investing in stocks too.

My employer has a stock purchase plan where I can buy company stock at a 15% discount two times a year. I invested the maximum 10% of my pay into this program since its a guaranteed 15% return. For the first 7-8 years I bought the stock and then held onto the shares. Over those years I accumulated quite a large stake in my company stock. To make matters worse my employers stock did has not increased in value over the past 10 years. It peaked in late 2000 and then lost most of its value and hasn't come close to its 2000 high yet. I wasn't diversifying this money. I was overly invested in my own employer stock and the investment was not performing well. Eventually I stopped holding the shares and would instantly sell the new shares as I got them to cash in the 15%. Since then I've sold off most of the stock I bought and was lucky to liquidate most of it early in 2008 before the bottom fell out of the market in late '08. I sold my shares for about 2 times what the stock is currently trading at. Overall I am at a loss on the stock I bought through employee purchase plan.

I continued to do well at work and get raises and promotions over the years. My salary grew from about $42,000 in 1997 to over $100,000 today. By doing a good job at work I've seen my income grow. More importantly I've avoided 3-4 separate rounds of layoffs within my department and I've remained employed at a high income the entire time.

I've kept my expenses low and lived well within my means. I've lived in the same home the entire time. I drove my first car for about 10 years and then bought a second late model used car with cash. As I made more money and got raises I would not just spend more money but would instead save more and more. For a time, I would say to myself that for my next raise I would dedicate half the additional income to savings and then allow myself to spend the other half. So as my income grew my savings as a percentage of the income grew at a higher rate.

A few years ago I started investing in rental real estate. I had seen the success my parents had with their rental properties and I gained some knowledge of how to invest in rentals successfully. I bought my first property around 2003 as a 50% partner with my Dad. I found the unit for a very low cost and it was a fixer upper. My father did the work and is the property manager. We bought a second unit in another 50% / 50% split a couple years later. My initial investment in those two properties was about $75,000 total and they are my half is now worth around $120,000 and they generated a cash flow of about $8,000 for me in 2008.

In 2008 I got married for the first time. My wife and I are a good match in many many ways. One of the ways we are a good pair is our attitudes towards money. We both share similar philosophy towards finances. Once we got married my wife and I combined our finances. My wife had owned two houses of her own. One was her original home that she was renting out and the second was the home she lived in at the time we met. We decided that she would move in with me and we'd rent out her current house. So now between the two of us we own our home, we have two other homes we rent out and we own half of two other rental properties with my father.

After we got married it took us a while to get all her possessions moved out of her house and either move them to our house, sell them or give them to charity. We also took a while to fix up her house to get it in the state to rent it. We took our time moving things out and sorting things. We tried to do most of the work on the home ourselves with the idea of saving money. All together the house was vacant and in transition for nearly six months. That was six months that we paid mortgage and didn't have rental income to offset it. So by doing everything ourselves at our own pace we took 6 months and spent a few hundred dollars total in materials. What we should have done is hire professionals to do the work quickly so that we could rent the home faster. It should have been easy to hire movers to move all our items out and then hire contractors to do a bit of work and get everything done within 1 month. Even if we had to pay people a few thousand dollars we'd have still come out ahead with the additional rental income we never saw.

Since I've started my working career I've made very good progress financially. I went from making about $42,000 to over $100,000 annually. I went from having a negative net worth to being married with a net worth over $500,000. Two keys to my success were 1) having a good paying job and progressively getting promotions and 2) spending less than I earn. I've made some mistakes along the way especially in the area of stock investments and retirement savings but I've learned from and since corrected those mistakes.

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