How I got out of debt

[corn18]

I've been asked via PM how I went from negative net worth to $1M net worth in a relatively short time. Fairly straight forward:



My income grew significantly when I left the Navy in 2008. But as you can see, my spending also went with it. Finally got to zero NW in 2012 and then found this place and cut spending by nearly 50%.

So, skyrocketing pay + 50% reduction in spending = a lot of savings. $100k of my NW is in my house. The rest is in 401k, Roth's and taxable.

[bjl584]

Nice illustration.

What is your career that pays so well if you don't mind sharing?

[corn18]

Nice illustration.

What is your career that pays so well if you don't mind sharing?

President of a division of a large defense contractor. I started as a director in 2008, VP in 2010 and President in 2016.

[disneysteve]

You've seen a dramatic rise in income, roughly 6-fold in 10 years. Had you not found your way here, do you think you would have still continued to live above your means? At some point, it becomes harder and harder to outspend your income. It's pretty simple at 100K. Tons of folks do that. I can't speak from experience but I would think it would be more difficult at 600K. Not that folks don't do it but you need to work harder to blow that kind of money. A morning Starbucks run, an annual cruise, and a big screen TV isn't going to make a dent at that point.

[corn18]

You've seen a dramatic rise in income, roughly 6-fold in 10 years. Had you not found your way here, do you think you would have still continued to live above your means? At some point, it becomes harder and harder to outspend your income. It's pretty simple at 100K. Tons of folks do that. I can't speak from experience but I would think it would be more difficult at 600K. Not that folks don't do it but you need to work harder to blow that kind of money. A morning Starbucks run, an annual cruise, and a big screen TV isn't going to make a dent at that point.

Good question. Glad I can't answer it. If I were to guess, I think we would have continued to let our lifestyle creep up, but not to the point where we outspent our income. We just wouldn't be saving as much. That would have meant our net worth would not be growing like it is now and I could not retire @ 55 if I wanted to.

[disneysteve]

Good question. Glad I can't answer it. If I were to guess, I think we would have continued to let our lifestyle creep up, but not to the point where we outspent our income. We just wouldn't be saving as much. That would have meant our net worth would not be growing like it is now and I could not retire @ 55 if I wanted to.

I think that's a realistic answer. Our lifestyle has definitely crept up as my income as increased but I've always made sure it didn't creep to the point where it swallowed up the whole increase.

[disneysteve]

There's certainly nothing wrong with a little lifestyle creep. If you work hard and make a lot of money, it's fine to enjoy some of the fruits of your labor, as long as you are doing it responsibly and as part of an overall plan which includes adequate saving for the future.

I posted elsewhere that in a 14-month period, we spent about 20K on travel. That's the most we ever spent, but I'm also earning the most I've ever earned, and we're saving the most we've ever saved. So it all fits together nicely.

[LivingAlmostLarge]

I can answer that. We had our income about 2 years ago go up around 50%. We bought the house we wanted although now I sort of think we were pretty conservative. Maybe we should have gone a little bigger and both of us wouldn't be regretting not having the extra space we want.

But that 50% we can't seem to outspend it. And it's gone up more so there is a point where we do spend a lot, but it's sort of hard. Traveling, kids, etc don't make much of a dent. The only thing that would is the house. Even buying a new car isn't a big dent. Our new minivan is less than 10% total cost of our income. Not the payment but cost of it.

So even that isn't the hit it would be before. But the house well that in bigger picture well that would be the only thing. But being conservative means we have a lot of extra disposable income. Maybe it's better.

But the bigger the income, the more disposable income you have. It's harder to get off course.

[corn18]

I think we could have outspent our pay raises. We had been doing it for 20 years in the Navy and then went nuts when I got out and my salary doubled.

I think I would have absolutely bought a $1M house, probably 2 luxury cars, a boat, a motorhome and probably fit in a $180,000 sports car. Maybe throw a small airplane in there. Add on $50,000 annual vacations and continued support for a horse and I'm easily over my after tax income even at $600k / year. And I would have bought it all on credit. I get freaked out just thinking about it because that beast still lives inside me. I find myself checking out prices for Audi R8's every once in a while and have to remind myself of the hell that we were in in 2012.

[disneysteve]

But that 50% we can't seem to outspend it. And it's gone up more so there is a point where we do spend a lot, but it's sort of hard. Traveling, kids, etc don't make much of a dent. The only thing that would is the house. Even buying a new car isn't a big dent. Our new minivan is less than 10% total cost of our income. Not the payment but cost of it.

So even that isn't the hit it would be before.

Exactly. Most everyday costs are regressive. A gallon of milk is the same price whether you earn 50K or 500K so when you start earning 500K you aren't going to spend 10 times as much on groceries as the guy earning 50K. maybe you'll eat out more or buy more organic produce or hormone-free chicken but that will barely be a blip relative to your income.

Only if you start doing stuff like corn mentions - luxury cars, boats, airplanes - do you get into the realm of spending a mid 6-figure income.

[LivingAlmostLarge]

I gotta agree. I guess i have seen a lot of friends recently with new audi, new tesla, private school, homes, etc. Guess I didn't really add up all the costs and boy it can be hefty.