Finding Hope In The Bleakest Of Situations
This guest post from Sam is part of the “reader stories” feature at Get Rich Slowly. Sam writes at Financial Samurai and is one of the esteemed colleagues with whom I'm exchanging ideas this weekend at the second annual Financial Blogger Conference. Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.
At the age of 35, I engineered my layoff. For 13 years after college, I spent on average 50-60 hours a week working in finance. I would get in at 5:25am and often stay until 7:30pm just so I could partake in the free cafeteria buffet my company provided. Living in New York City for two years hardened my determination but softened my belly.
I enjoyed the ride immensely, even after the dotcom collapse in 2000. Every one of us thought we were brilliant traders until the tide went out. At least my friends and I were poor then, and didn't have much to lose. The economy and the markets recovered from 2003 to 2007, but then the housing bubble began to burst in 2006, leading to the financial crisis of 2008-2010.
In 2009, I lost about one third of my net worth, despite having diversified like crazy. I had 35% of my net worth in 4-4.5% yielding long-term CDs, 35% of my net worth in stocks, and another 30% of my net worth in real estate which consisted of my primary home and two rentals. Oops! With real estate and the stock market taking a beating, I started to curse the world. How could I do everything right and still lose so much money? I kept asking myself. I was depressed that after all those years of saving and investing, I could lose so much in so little of time.
The answer, as it turns out, is that I didn't do everything right. If I did everything right, I would have sold all my stocks and property at the end of 2007 and went 100% cash. If I was super smart, I would have not only sold everything, but shorted everything via electronic traded funds as well! Alas, I didn't have the foresight to see how absolutely miserable things would get.
Doing Something Right
Ironically, one of the things I did do to cope with the pain of losing hundreds of thousands of dollars was start Financial Samurai, my personal finance blog, in the summer of 2009. I began to write to extinguish the mental anguish that I had been experiencing. I wanted to connect with other depressed souls who had saved aggressively and invested “wisely” all their lives, only to see their hard work VANISH in mere weeks.
I was angry at the government for taxing us to death, and bailing out big businesses. I was angry at politicians for abusing their power and saying one thing while doing another. I hated how small late payments destroyed credit scores given corporations had no more leniency since they were worried about their own survival. For example, my credit score got crushed by 100 points because I didn't pay a $8 bill to my utility company that my tenants were supposed to pay! Most of all, I was disappointed in myself for being so stupid as to think stocks and property would continue to rise in a steady fashion forever.
Writing an online journal helped me cope, and participating in blogs such as Get Rich Slowly (commenter since 2008) helped me realize that I was not alone. With friends losing their jobs left and right, I found a community of the best personal finance blogs on the web whom I could relate to, and trade ideas with. I slowly began to forget about the financial losses and focus on the things that I could control, which was my own outlook on life. Pretty soon, I began to make friends online and the economy started to recover once again.
The economic crisis of 2008-2010 in retrospect, turned out to be one of the biggest blessings in disguise!
A Changed Man
Before 2008, I planned on buying as many rental properties as possible. After all, property had been going up every year for a decade before, and money is just a medium of exchange. I wanted to own hard assets and not just keep money tucked away in a bank account that I'd never see!
I still feel that over the long term, property is a wonderful asset class whose true value is the cash flow generated from rent, or the rent you don't have you pay once you pay off your mortgage. Furthermore, property can be passed down from generation after generation and always provides a place for people to live. With the asset class still down, and homeowners able to refinance their mortgages at record low levels, I should be buying more property.
That said, I'm all about simplifying life now. I no longer have the patience to fix something when broken. Having to host an open house and pray that my tenant won't be a psycho killer isn't on top of my priority list. Finally, I abhor paying the ever rising property taxes of San Francisco when we get so little in return.
The life of a landlord is no cherry pie. Even if I could hire a property manager to do all the work for 10% of profits, it would still take too long for the returns to be deemed worth it. I don't want to lock up hoards of capital in an asset that could burn to the ground. Instead, I want to focus on doing work with low overhead, and more importantly, low maintenance.
I never sought to make money from Financial Samurai, just like how JD never thought he'd be able to sell his site and become financially independent from GRS five years after inception. My personal finance blog was there to connect with others and heal my own soul. Losing a third of my net worth literally meant losing about 3-4 years worth of living expenses since I had about 9-12 years of living expenses saved up by then!
But, by the time 2011 came, my readership had grown to over 100,000 pageviews a month, and I was actually starting to make a decent minimum wage income online! The stock market rallied over 100% from its lows, and we are finally seeing signs of strength in the real estate market with rents skyrocketing, at least here in San Francisco.
The Happiness Change
Whenever you start gaining momentum, do whatever you can to keep the ball rolling. Get out of your own way if you have to and protect yourself from yourself. Just don't kill your progress! I started to believe in 2010, after saving over 50% of my after tax income for 11 consecutive years after college that maybe, just maybe I could retire early and do whatever I want.
With this belief, I began to plan my escape by:
Step 1: Optimizing the budget framework and see where I could save money and still be happy.
Step 2: Raising my after-tax savings rate to 70% from 50% to get myself used to living on less.
Sept 3: Diversifying my assets so that in case the world goes back into a recession, I wouldn't lose as much.
Step 4: Increasing my commitment to writing online by promising to produce at least three articles a week.
Step 5: Figuring out how to engineer my layoff so that I could leave my job of 10+ years with something in my pocket.
In just under two years, I finally took the leap of faith and announced my retirement in early July, 2012!
Retirement Means Different Things to Everyone
My definition of retirement is doing what I want, when I want, and not worrying about money. Retirement means financial independence. I don't think I will ever completely stop worrying about money, but I know I can now come and go as I please and report to no one. I didn't hate my job, I just didn't love it like I once did for the first 5-10 years after college. After a while, everything gets a little stale, and I believe it is healthy to do something new.
In “retirement,” I plan to see more of the world, spend more time with my parents and sister, and discover what it is I truly am here on this Earth to do. I believe all of us have the ability to do a multitude of things and encore careers are the norm. It's just that many of us don't try because we get comfortable in our ways. I was way too comfortable at my corporate job and was no longer challenged. I knew I had to do something new in fairness to my company, and ultimately to myself.
One can't help feel the entrepreneurial spirit living here in San Francisco. With Twitter, Dropbox, Airbnb, Quora and a host of other startups all clustered in this region, it's hard not to want to join or create a startup yourself! I'm going to see if there's a startup company that might be a good fit for me to join. In addition, I plan to write more, building my online consulting practice, and write more books.
Whether I succeed or fail is secondary to my goal of just trying. I didn't want to look back on my life and regret not having tried doing something new, or building something on my own. There's a lifetime to make money, but there are only so many shots one can take before the chamber runs out.
Without the financial crisis, I would never have started Financial Samurai. Without Financial Samurai, I would never have challenged myself to learn about the online world. Without ever learning about the online world, I would never have had the guts to engineer my layoff at the age of 35 and be free.
There's always hope in the worst situations. We just need to recognize opportunities when they arise. It's easy to just give up and curse the world for our misfortunes. The pain of losing so much money, and ultimately time was almost unbearable in 2009. But everything comes back and often times even better than before!