Mindy Jensen: What would you do if you were 35 years old making $120,000 a year, but had $18,000 in credit card debt, less than $1,000 in savings, and very little to show for your income? Kate decided to completely change the way that she handles money. Five years later, she and her fiancé have $800,000 invested, are on track to become millionaires this year, and are just a few years away from making work optional. Today, we’re talking about how she did it, from paying off debt and creating a money system to dramatically increasing her income, investing in low-cost index funds, and aligning her spending with the life that she wants. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my summer isn’t over until we say it’s over co-host, Scott Trench.
Scott Trench: Thanks, Mindy. I won’t fall for any of these intro puns, and we’ll just get right into it. Kate, welcome to BiggerPockets Money. I’m so excited to chat with you about your awesome story from going $18,000 in debt to nearly $1 million in just six years. So can you take us back to 2021, where I think this story begins, and tell us what your situation looked like?
Kate: Sure. So I was 35. I had always made a pretty decent income. I’ve been in sales my entire career. I really like that because the harder I work, the more money I make. However, I had a $120,000 base salary at the time, and I was a financial hot mess behind the scenes. I never really had a system. I knew I made good money, but I just kept falling further and further behind and became avoidant with my finances, which made things even worse. The catalyst was in 2020, I got a letter from my condo HOA that I was going to have to pay a $6,000 special assessment to replace the roof on our building. And I did not have that money. That was really scary. Credit cards are one thing, but defaulting on a mortgage or HOA fees, that’s another. And it was pretty scary. So I just knew I couldn’t live like I was anymore. And I knew, being a pretty intelligent person in general, I thought surely I can figure this out, but I haven’t been able to on my own. So I called a friend of mine. Her name is Berkeley. She is a money coach, and she saved me. She built her coaching fee, which was a pretty hefty amount for me at the time. I wanna say back then I paid her about $1,700 for a 12-week program, but she even built that into a new budget that I could actually handle. I just knew I was making good money and wanted my bank account to reflect that. And investing in myself was the best thing that I ever did.
Mindy Jensen: So what was this $18,000 in debt comprised of?
Kate: Mostly impulse shopping, I would say, and not having a plan. I was always a yes person. I always have FOMO. I like to hang out with my friends and see the world and go on trips. And so I would say yes to things without having a plan. It was always just, I’ll figure it out later, I’ll figure it out later. So I would say a lot of that was just purely overspending, and a lot of it came from what I call sneaky spending. It wasn’t necessarily the big things like housing and transportation, which were pretty consistent month to month. It was all the little Amazon purchases that I didn’t keep track of, and everything went on credit cards because I told myself that it was great to have the points instead of using my debit card, so I could actually keep track of my cash.
Mindy Jensen: I know a lot of people who are like this in my real life. They’re like, oh, it’s only a dollar. It’s only $20. Oh, I’ll just go on Amazon because it’s so easy to click ship and buy, and then it shows up at your door.
Kate: You don’t even have to go anywhere.
Mindy Jensen: It’s awesome. I just moved into a new house. I have been spending a lot on Amazon purchases right now because I need this and that and whatever. And then you’re like, oh, well, I’m also just going to add one more thing and add one more thing. And it’s only $20, but $20 adds up really quickly. What steps did you take to change your spending? Because I think the biggest thing that tends to be the catalyst to changing your finances is the sneaky, leaky spending. The big three, yes, absolutely important. Scott loves talking about the big three, but I think a lot of people have these sneaky, leaky spending habits that are destroying their financial situation. What steps did you take to change that?
Kate: First of all, I created friction for myself, which comprised of removing shopping apps from my phone. It was taking my credit card numbers that were saved in things like my browser wallet. So I actually had to get up off the couch, go get my wallet, type in my credit card number, and in the 30 to 60 seconds it takes to do that, or even just the effort of getting off the couch, it made me think, do I really need that right now? I also have a tendency to leave things in a shopping cart for a little while, whether that’s 24 hours or a week. And more often than not, by the time that week rolls by, you’re like, I don’t really want that thing anymore. I could live without it for a week. Just giving yourself that time to pause, even just taking a breath and thinking, why do I want this? Why do I need this? If it’s justified, sure, go ahead and get it. But creating some friction for yourself is really step one. And then step two is, of course, the proverbial word budget, which I actually don’t even like the word budget. I call it my money ecosystem, because when you’re looking at a monthly budget, it’s a spreadsheet, it’s a P&L. If one thing is higher than normal, or one thing blows your budget, essentially the entire spreadsheet fails and you feel like a failure. Even if your budget was off by $20 last month, you still feel like it didn’t work the way it was supposed to. So I like to think of it as my money ecosystem, where things live in harmony with one another. They go through seasons of change. Things die, things are reborn. If one plant dies in your ecosystem, the whole thing isn’t going to come crashing down. It gives you some fluidity and some flexibility in your spending, because we know that not every month is the same.
Mindy Jensen: So does your ecosystem not have categories, or does it have like a slush fund that you can replenish categories from? I would like to dive into that a little bit more, because yeah, I publicly tracked my spending in 2022 for the first six months, and I blew my budget every single month for some reason or another. And it was because I didn’t have a slush fund, or I didn’t have an emergency fund for the car repair payment that I had one month, and just little things every single month blew my budget in quotes. And I can see how somebody would be really disheartened and disappointed when they blew their budget consistently. They’re like, ugh, never mind, I’m just gonna quit.
Kate: Yeah, we all know that life doesn’t follow a linear path. So the fact that you blew your quote-unquote budget, that spreadsheet, that P&L, every month, that’s really not surprising. And that’s why most people who use some kind of a budgeting app or spreadsheet, they get tired of it or they feel like a failure pretty quickly. So part of Berkeley’s system is thinking about those infrequent but yet predictable expenses, the oil changes, the haircuts, the Costco membership that hits once a year, even things like if you pay someone to do your taxes, that’s something that’s going to happen every single year. It should not be a surprise. So what she had me do, and this does take some time, but I would encourage everyone to do this exercise as part of your next money date with yourself or your partner, I sat down with her and listed every single thing that I knew I would need annually. This came across every single category. I even, you know, I buy really nice salon-grade shampoo, which is one of my money hacks, actually buying it on Poshmark or eBay, side note. But things like shampoo, I know that I use this product, I know about how much it costs when I buy it, even from a resale website, and I maybe need four bottles a year. So why not go ahead and write that down and plan for it? So once we added up all those annual expenses, we divided by twelve, and that was the amount I needed to set aside monthly for each of those things. And I keep all of my things in separate high-yield savings accounts with Ally Bank. They have what they call a bucketing system, and I’ve also heard of Current recently. They use the term pockets. Maybe you guys would like that, maybe we should look into that. It’s a way to have a single savings account, but categorize your money and actually create even goals or deadlines or goal dates for yourself. So I actually have three high-yield savings accounts. One is for those kind of monthly, less frequent things, like haircuts, so to speak. I have one for longer-term or annual expenditures. So that’s things like credit card annual fees, Costco membership, tax prep, all those things that happen once a year, insurance. And then I have another high-yield savings account that’s purely my emergency fund. And when you think about emergencies, this is where things really shifted for me too. Things like vet bills, we all know that people tend to get sick or maybe get hurt. It’s inevitable. You’re probably gonna need stitches at some point in your life, or you’re gonna need some antibiotics for an infection. So why not take that same approach with your pets? It’s not just their once-a-year annual exam that you might run up against. My poor kitty cat had a urinary tract infection last week, and we had to take her to the vet for some medicine and treatment. That’s something that probably happens once every year or two with my cats. One of them gets sick. So I really don’t think that those things should be categorized as emergencies when we know they happen on a fairly regular, maybe annual or biannual, schedule.
Mindy Jensen: And they do have pet insurance. I don’t have a pet, so I don’t know how affordable pet insurance is or what it covers, but sometimes that can be a way to help mitigate some of those annual costs. But this idea of annual costs being included in your budget is brilliant, because that’s really what these budget killers are. You’re going along, you’re great on month one, and then month two, your car insurance is due. Oh, I forgot about that because that’s only an annual expense instead of a monthly expense. Or your homeowner’s insurance is due, or your HOA dues, or whatever it is that you’re not paying monthly. I guess HOA dues are monthly, but you’re not paying these things monthly. You sometimes forget that they actually do come up. Costco membership is a great one. What’s Costco membership up to now? Like $55 or $65? That’s not that much.
Kate: That’s $5 a month.
Mindy Jensen: But that’s $60 that’s coming out of budget once a year that you might not have money for. So I love the idea of these big annual expense budgets that you’re saving for every single month. And honestly, this goes back to your original issue with the HOA, the $6,000 roof bill that’s only being assessed on all the current owners, not every owner that’s ever been, but it should be assessed on every owner that’s ever been. So the monthly HOA due should have been a little bit more, so that you had money going into the roof fund and also the parking lot fund and the furnace fund and all these other funds, so that when it comes time to pay for it, you already have the funds. Similar to your situation, where you’re pulling every month a little bit into these funds. So then when your insurance comes due, oh, I can just write a check or pay it online or whatever.
Kate: And I will say that previous condo where I had that roof assessment, the HOA was very poorly managed and wasn’t even collecting enough dues to cover increases in monthly utilities. So if you’re thinking of purchasing a home, a condominium, whatever, make sure you get the HOA documents and review them, and look at their financials to make sure they’re not going to go bankrupt in a couple of years.
Mindy Jensen: When you said that, I was like, oh, well, that never happens with HOAs. Every single HOA — I have owned condos for a total of five years in my life, and every single year of those five years that I owned them, there was a special assessment for some reason or another. They were two different condos, but there was always a special assessment, because homeownership is expensive and they get you in the door with these low HOA fees. And then they’re like, oh, just kidding, we have a special assessment. It’s going to double your HOA fee, but only for this year. And then the next year, the same thing. I am not a big fan of condos. I don’t know if that came through in my rant, but I digress.
Kate: I am in an HOA in my single-family home, but my fiancé and I did a deep dive on all of the documents, and it’s very well run. They collect enough revenue, and we actually see our money working for us. And we have a great board that actually cares about our neighbors and how things look and how things operate. So we’re pretty fortunate, but just make sure that you do your due diligence if you’re ever going to get into an HOA.
Scott Trench: Kate, you made this whole set of wholesale changes. What did your spending levels or savings rate, or however you think about it, go from and to?
Kate: So I’ll start the answer to that question with the fact that right around the time I worked with my money coach, I actually got a new job. I had been struggling in my previous role. That company did not give me the resources I needed to be successful. And it just so happens I was at a friend’s wedding and I was catching up with some mutual friends. My friend’s husband worked for a competitor of mine in a very niche market. So he ended up helping me get an interview. I took that job. I actually took a $30,000 pay cut to my base salary at that time. So in addition to reducing my spending, my income actually went down as well.
Scott Trench: I want to zoom in on this for a second here, because I think it’s super important. This is exactly the way I think about and thought about money early in my career. I think that many more people should consider doing this, and I want to highlight and zoom in on the power of this combination of moves. We get control of our spending and drastically cut it, get control of it, make it more predictable, get very comfortable with what it’s going to look like, and reduce it. And almost at the same time, or within a short period of time, use that lower spending to take an opportunity for lower base and higher upside. It’s textbook, it’s so powerful. I’ll give a sneak preview here — it’s going to annoy people listening to the show right now to learn how much money you started making after this switch, because everyone wants the story of, I made $50,000 a year, $60,000 a year, never made $100,000 a year, and got to these big numbers. And it’s very frustrating that the FI community produces those so rarely. They do exist, and we’re actually going to highlight several of them in the coming weeks here on BiggerPockets Money. But the more common situation is like yours. I got control of my spending, I focused on money, and my income rose steadily in my career, or exploded, if it was a sales or equity opportunity. Is that what happened here? Am I following the chain reaction closely enough, or am I extrapolating too far, that your lower spending resulted in this opportunity, or the ability to take advantage of this opportunity?
Kate: No, it was definitely twofold. I saw the opportunity with this new company that my friend worked for. Even though I had to take that $30,000 pay cut, the upside potential was so much higher, and I had so much better resources. I knew I would be much more successful with this company and have the ability to make some pretty substantial commission checks. As far as my spending cuts, there were things I did, again, to create a little bit of friction. I certainly didn’t become a hermit. I didn’t cut out every fun thing in my life, because again, deprivation really doesn’t work. So I don’t know the exact percentage of my spending I necessarily cut, but I did things like, instead of DoorDashing, I would call the restaurant and drive to go pick it up, so that I wouldn’t get the delivery fees, for example. I did things less frequently. Instead of doing something five times a week, I went down to maybe once a week. So again, I didn’t deprive myself, but I made conscious decisions around my day-to-day spending. I would also say my money coach — and I wish someone had given me permission to do this a long, long time ago — but she encouraged me to pause my debt payoff until I had a healthy emergency fund. We get in this hamster wheel of taking whatever is left over cash-wise at the end of the month, we throw it all at our credit card or our other forms of debt, and then, Mindy, the car repair happens, or the thing we forgot about, the annual insurance hits, and it goes right back on the credit card. It’s a vicious, vicious cycle. So for probably about four or five months, I actually just paid the minimums on all of my loans or credit cards, and I built up an emergency fund of about $4,000. And that was what finally got me off the hamster wheel. So for anyone who’s in this situation, I would really encourage you to give yourself permission to build up some cash, so that you have an out when that inevitable emergency happens.
Mindy Jensen: I love that. And Scott, I want to circle back to your point just for a second. Five years ago, she had $18,000 in credit card debt and $1,000 in her savings account. So a negative $17,000 net worth. And now she’s at $800,000. The stock market hasn’t done anything like this that would allow her to have that unless she had supercharged her income. And she supercharged her income by working really hard. They don’t just write you checks for doing nothing, do they? Because if they do, I want your job.
Kate: No. So, in fact, my current role is really demanding. I have very long sales cycles. I do work with government entities, so nothing happens fast. It was 3 and a half years before I made my first commission check in this role. So, for those first 3 years, I was making that $90,000 a year base salary. But I actually got out of that condo, thank goodness, and the terrible HOA. I was able to upgrade to a nicer townhome. I met my fiancé and we went all in together on just the FIRE movement and making sure that we were keeping one another accountable with our spending and also our long-term goals. So we definitely align our spending with our values. I think that’s another useful exercise everyone can do. Take a look at your bank statements and make a list of the top 10 things you value. Ask yourself if those things match. So we do that on a pretty regular basis, probably every other month, just making sure like we don’t really care about random Amazon junk. So why are we spending so much there? It’s a good thing to add to your routine. So, you know, cutting the impulse spending, creating friction for yourself, having some cash on hand, these are things that set me up for success. But just know that I had 3 years where we were definitely, you know, sticking to our budget and we couldn’t just spend whatever we wanted or even invest a ton at the time. And then it really exploded for me overnight at work after spending 3 years working on developing these relationships and these projects that I sell. All of them kind of hit at once. There were like 4 projects at once that hit. So my income last year was $550,000 and I’m on track for just over $400,000 this year. So it’s definitely a grind. And for everybody saying like, oh, must be nice, know that I spend a lot of nights away from home. I cover the entire state of Colorado. I drive 30,000 miles a year, and I’m often at some kind of board or council meeting until 10 o’clock at night on Tuesdays. In fact, I am about to move my honeymoon by 48 hours because of an event with a pretty top government official who is going to come into town and see one of my projects. So there’s a lot of sacrifice that comes with an income at this level. Let me make that very clear.
Scott Trench: Yeah, there’s no easy job making $400 grand.
Kate: If it were easy, everybody would do it.
Scott Trench: If it’s easy now, then it’s going away within the next few years, guys. That’s— there’s no such thing. That does not stick around a long time. But it is possible in sales. And I’ll also say, it looks like you invested $90 grand to get to this point effectively, because you took a $30,000 pay cut at the prior job, plus whatever commissions or upside you could have made in the 3 years following that departure. So there’s probably a 6-figure investment, if you will, of lower income in order to build up to this explosive growth you’ve experienced the last 2 or 3 years. Is that right?
Kate: Absolutely. It was definitely an investment in myself, my career, you know, my family and my housing situation. You know, we made plenty of sacrifices over those 3 years because I knew I had to work hard and I knew that the potential was there. I believed in myself. I believed in my company and my team, but it definitely doesn’t happen overnight.
Scott Trench: Going back to about this transition point, right? We’ve overhauled our financial system, reduced spending. What other habits are entering your life around this point? Is there a written set of goals going on for your finances? Are you starting to read or self-educate a lot more on personal finance? What else is going on that’s behind the scenes here that is turbocharging or accelerating your journey?
Kate: Yeah, I mean, education and investing in yourself is one of the best things that you can do. So that 30,000 miles a year that I drive for work, I’m in the car listening to personal finance and investing podcasts, much like BiggerPockets. You know, I discovered BiggerPockets Money in 2022 and started listening every single week. And there’s a number of other podcasts I use. My favorite thing is when I hear a term I don’t know, because that gives me an opportunity to go look it up, listen to other podcasts about it, read a book, what have you. Again, my financial vocabulary didn’t happen overnight either. It’s a continuous process and the world is changing around us every day and we need to keep up with it too. So it’s definitely an investment of time, but I had a lot of time in the car, so I put it to use.
Scott Trench: Are there any other habits that came together during this time period, like fitness or, you know, other areas of your life that were addressed? Or was it really just these couple of changes, the spending, the new career, and then self-education on a continuous basis?
Kate: I would say it was also a lot more intentional forecasting with travels and other like fun and entertainment things that we wanted to do. Again, I was always that yes person, perpetual FOMO. So when talking about things we value, I even had to reprioritize some of the fun things in my life and travel too. So one of the things that probably bugs my fiancé to no end, but he’s always thankful after we come home from a trip, is we think about every single penny that we might spend on a trip, even down to do we think we’re going to want coffee at the airport? Because, you know, coffee at the airport is $10 apiece. We’ll actually write all of that down and come up with a realistic picture of what we’re actually going to spend. We don’t deprive ourselves, you know, do we want to buy some souvenirs? Do we want to pay for an excursion or a tour, for example? That’s fine. We just need to plan for it. So that meant, you know, okay, well, if we’re going to give ourselves X number of dollars a year for travel or vacations, do we want to do one big fancy vacation or a handful of smaller, more low-key ones? Those are conversations that we have on our monthly money dates.
Scott Trench: I love that. And I want to zoom in on this because you can have very similar experiences set for thousands of dollars difference by doing what you’re doing or not caring at all. And I have been to both places in my life when I’m running a company, you know, you kind of just go on the plane and figure it out and spend money to buy the thing you forgot or get the coffee or whatever. Because how can you justify spending, you know, the time to save $10 on coffee at the airport when there’s so many other demands on your time? And now having stepped down where we do exactly what you’re doing, right, with Virginia and I when we plan a trip, because that makes all the difference in the world. I wonder, would you rather continue with the sales profession right now? Let’s say you hit your FI number. Would you rather continue with the sales profession and not have to do that, not have to worry about it because you’re making so much money, $400,000 or $500,000 a year on a go-forward basis? Or would you rather be able to cut back from the sales profession entirely and with the trade-off that you’re going to have to keep doing this to keep those costs in line for travels in a FI life.
Kate: Honestly, I’ve actually already spoken with my boss about wanting to become work optional because my job is so demanding. My nervous system would love a break. I’m sure my fiancé would love to see me at home more often too. It comes with its own opportunity costs. So I’m working hard now while I have this opportunity in front of me to make quite a bit of money. And now that I have several sales under my belt and relationships with people in my market, you know, it’s becoming a little bit easier. I would say it’s not much of a grind, but it’s still really demanding. The plan is still to become work optional in about 5 or 6 years. And my boss actually asked me if I would give him a year notice. It was kind of a gamble to tell him about our plans, but he understands what we’re trying to accomplish. And “if he can get 5 really good focused years out of me instead of 10 distracted ones,” is how he put it. He’ll take it. So essentially, they’ll let me go down to part-time. My commissions come in as we build our projects and finish them. So if I leave before a project is done, then I leave commission on the table. So he’s essentially giving me that long runway to ride off into the sunset and start the next phase of whatever’s next.
Scott Trench: Kate, tell me about where your dollars went when you were just switching into this new job. I think you’re making $90,000 a year. And what was your order of operation? How much were you making? How much were you spending? And what was your order of investing operations? And how has that shifted now that your income has exploded?
Kate: You know, I will say we have started spending a little bit more. We have the resources to do that, but we do it within reason. We did purchase a new home. This is going to be our forever home. We have 3 sets of aging parents between the two of us, so it was an investment in our long-term family future. However, you know, that $90,000, you know, my fiancé also makes probably a— at that time he was making about $75,000 in a new career. He switched careers during the pandemic. So we were definitely on a budget. We always focused first on our 401(k) match, and then we focused on Roth contributions as much as we possibly could. As far as daily spending, lucky for me, my fiancé is an amazing cook, and that saves us so much money. So even if you’re not a good cook, I would encourage you just find 10 recipes that you can even do a halfway good job on, and you’ll see a huge bump to your cash at the end of the month. Whenever we do go out to eat, it’s a very rare occasion. Maybe once a month we’ll get takeout. We’re shocked at the fact that it’s $75 for, you know, maybe 2 meals between the 2 of us, where $75 is our grocery budget for 4 whole days, you know, 3 whole meals at home. So that’s definitely something that we’ve done. And I would say, you know, my main impulse spending back in the day was definitely clothing and fashion. So I, in the last 4 or 5 years, have become a serial thrifter. I love the thrill of the hunt. I do Poshmark and other secondhand online retailers. I still get that dopamine hit without the hit to my bank account. And I’ve actually turned it into a bit of a side hustle as well. I actually go to estate sale auctions and flip furniture with all of my free time that I certainly don’t have, but even doing it extremely only part-time, I make about another $600 or $800 a month doing that, and that all goes to investments. So order of operations, when we were still at that base salary mark, no commissions yet, I would say we were mostly focused on 401(k) match and Roth contributions. And of course, we both had either an FSA or an HSA, so we would make sure we max those out. But, you know, we didn’t have the ability or the income at the time to max out our 401(k)s like we would have liked to. But then as soon as I knew that my income was about to explode, we sat down and said, we need to hold ourselves accountable so that we don’t experience lifestyle inflation. We really want this money to be a blessing and to work for us because, you know, 2021 Kate would’ve said, oh cool, I can get a nicer car or, you know, nicer this, that, and the other. We can take a fancy vacation. You know, my friends are like, you make a half million dollars a year. What do you mean you’re not going to go out to eat with us? I’m like, that’s not something I value. I value spending time with you. So if you want to come to our house, we’ll make you a meal, but we don’t want to go out to a restaurant and have just a mediocre meal and spend $150 between the two of us. That’s not our vibe these days. So we really try to stick to our values and our friends have kind of caught on to that too. So we can still spend time with people. We can still have fun. There’s just ways to do it without spending a bunch of money.
Scott Trench: Love it. So first observation here is absolutely do what you’re doing because you’re already thinking about not doing this job and saying it’s not what I want for a long period of time. And like things are going well right now. It sounds like you have a great relationship with your boss, great relationship with the government. But guess what? Election cycles change things, right? Relationships with bosses change, companies get sold, managers change. This income may not be around forever. And I think too many people are foolish to spend income like yours on a regular basis up to those limits and become free because those times change. The right spending pattern, I think, is at least to keep your base expenses, the core lifestyle that you’re happy with, at that 4%, right, of your portfolio value. This is where I like, maybe I’m a little bit more aggressive than most other people in like the Coast FI world, but like I think you should keep it low, keep your foot on the gas until you get to that level and then let your asset base expand. And that’s where the lifestyle inflation can come from is when your asset base can support it because it’s so much more sustainable. You’re never going to find yourself in that panic situation of having to truly downgrade your lifestyle, forced lifestyle reduction that other high-income earners are very likely to go through because other people have this misnomer bummer that the top 1% or top 10% is this class of people that sits there. It’s not how it works. Top 1% earners are like Kate. They start in a different income bracket at one point in their career, make it into this top bracket, and almost nobody stays in that top 1% income bracket for more than a decade. A very small percentage of people stay in there for more than one year. This is a very fleeting point, and people spend as if, you know, build lifestyles as if it’s going to be around forever. So I think you’re doing the right thing, and you should listen to your friends on this particular point and keep doing exactly what you’re doing. When your asset base can support the fancier lifestyle, go have at it and enjoy. But I think you’re doing it absolutely right.
Kate: You want to hear a hot take?
Scott Trench: Go ahead.
Kate: Yeah. I think the Joneses are broke.
Scott Trench: We know the Joneses are broke. Yeah, for sure.
Kate: Yeah. Why are we trying to keep up with people who spend every penny that they have? All you know when you see the fancy house and the flashy car is that they spent a lot of money, not that they have a lot of money. So when I see people and I think, oh, it’d be nice to have that, well, first of all, do I value that? Probably not. And second of all, it’s like, well, we don’t know how they paid for it or how they can actually afford it. Maybe they can’t afford it. Maybe they’re trying to keep up with themselves at this point. So that’s always a good reminder when I’m giving myself kind of a mental or emotional behavioral check with spending is they— I don’t actually think those people have the income to support their lifestyle choices.
Scott Trench: Or maybe they invested in Tesla 10 years ago and have $10 million and can easily afford the life. That’s another thing that exists. You never know with what other people are spending. You can— you have no idea what their wealth looks like. The question though I wanted to ask is, now that you make $500,000 a year, $400,000 this year, plus your fiancé— or are you married now? Did you just get married?
Kate: We’re getting married in 4 weeks.
Scott Trench: 4 weeks. All right, so your new household, what will the order of operations be for your retirement accounts given your very, very high income and low spending right now?
Kate: So again, we’re following the pretty traditional order of operations. So we each do our 401(k) match first. We did backdoor Roth conversions second, and we are maxing out my fiancé’s 401(k) beyond. He only gets a 1% match, but we’re ignoring that and just putting in as much as we can. He’s 8 years older than me, so he’ll have access to those accounts long before I will. That was very strategic. And then I get a 6% match and my income is actually high enough that it maxes out just with my 6% that I put in. So beyond that, we also max out our HSAs. I’ll say that too. And beyond that, everything’s in a taxable brokerage account. That’s going to be our gap money or our flexible money when we decide to become work optional and take a sabbatical, if we want to take on contract work or something like that at some point.
Scott Trench: Awesome. And then the only real estate is the primary in your now very nice HOA.
Kate: Correct. However, we are exploring private money lending for some local real estate flippers that we know, and that pays obviously much higher dividends, but at a higher risk. So we’re just now dipping our toes in that as a way to create some passive income streams for ourselves, and just foster some relationships locally with those real estate folks so that we know as soon as we decide that we want to become work optional and no longer have a W-2 paycheck, we have some pretty substantial and fairly predictable passive income streams.
Scott Trench: Will you do that in your tax-deferred solo or self-directed 401(k), or will you do that with after-tax dollars that could go into the brokerage account otherwise?
Kate: I see where you’re going with this. We definitely would love any tax-advantaged strategies we can get. However, my fiancé and I do have a prenup agreement, and all of our individual retirement accounts are kept separate. So we have explored using his self-directed IRA. I don’t have one. We’ve explored using his self-directed IRA in order to lend funds from that account. However, because our accounts are separate in our prenuptial agreement, just what works for us right now at this moment in time is just using cash. So I know it’s not tax advantaged. However, just considering our relationship and our current situation, that’s what we agreed on would work best for us right now.
Scott Trench: I just think it’s interesting that such a high percentage of people seem to experiment with exactly what you’re talking about. Mindy’s done it, I’ve done it, you’ve done it. I know many, many other people in a relatively similar position. Oh, I’m earning a high amount of income right now. I have an after-tax position. I’m now going to lend it out very tax inefficiently in a private money loan or a hard money or debt fund or some sort of similar situation. And, you know, then you— tax efficiency. But it also— there’s like an element of confidence that I think dwarfs the tax inefficiency for some people. In that, yes, I can generate passive income. It will be real. It will actually hit my bank account, in the form of interest payments that I can then spend, as long as I set aside the taxes, the tax portion that is real and tangible and I can feel. And so there’s a powerful element to that despite the tax inefficiency question. Yes, I was getting at with it, but I think it’s a great thing for a lot of people to try. It’s certainly helpful to me.
Kate: We’re doing it now while we have two income streams through our corporate jobs. So if we do make a mistake or lose money at this point while we’re just starting our private money lending journey, we have other income to fall back on. And again, it’s going to give us time to create those relationships over the next few years so that we’re really solid once we become work optional.
Mindy Jensen: Have you read the book Lend to Live?
Kate: I have not.
Mindy Jensen: That’s a book by BiggerPockets Publishing written by Beth Pinkley Johnson and Alexandra Breshears, and they walk through the steps to becoming a private money lender. And I had some success with private money lending, but I also had a little bit of anxiety with one of my loans, which caused me to pull back and not lend so much to the actual deal as to the person. If I know the person that’s lending, then I’ve got a better— like, I just don’t lend to people that I don’t know. And I only lend to people that I know are going to pay me back, because I don’t want to own real estate, you know, in a state 17 states from me. I want to get paid back by the loan.
Kate: I’m right there with you. We joined an online real estate community earlier this year to learn more about private and hard money lending. And, you know, folks in that online community are in other states and looking for both lenders and borrowers, and we just didn’t feel good about investing in a market that we didn’t know. So I actually have an esthetician. She—I go and get a facial every once in a while, and we were just chatting at one of my appointments, and it turns out her husband is also in corporate sales. We have very similar personalities, and he does house flipping on the side and is always looking for investors. So you never know. You know, I got my current job because I talked about my career with some friends at a wedding, and now we’re building a relationship with a great local flipper through, you know, someone that I see on a normal basis for appointments. So that feels a lot better to us. We’ve been able to visit some of his current projects, actually see the progress, meet his business partner. And I have actually lived in all of the neighborhoods and areas where these guys do their flips. So I know the real estate market in this area, and I feel really confident in the decisions that they’re making.
Mindy Jensen: I love to hear that. I always get so nervous when people say that they want to start lending money. I’m like, do you know what you’re doing? I love that you know the area, you know the person, and that’s not a guarantee that nothing’s going to go wrong, but that’s going to give you a lot more success.
Scott Trench: What are you looking forward to most about becoming work optional or hitting these next few financial milestones?
Kate: I’m really looking forward to having control over my own schedule. I don’t even have control over my own honeymoon schedule right now because of this work event that’s happening. So, you know, just having time to have a slow morning. I love a slow morning instead of waking up and hitting the ground running. I’m looking forward to spending more time with friends and family, even just time to sleep in my own bed and go to my local gym. I’m really tired of hotel gyms at this point. They get the job done, but it’s just really not the same. So I’m really looking forward to investing in my health, my body, my friends and family, and my own time to pursue some other passions and hobbies that I have no time to do right now.
Scott Trench: As you’re approaching your FI target, what are the things that are weighing most on your mind, or the challenges that you’re not sure about yet?
Kate: Definitely healthcare. That’s definitely a big question mark. We’re trying to dump as much as we can into our brokerage account after our tax-advantaged accounts are maxed out for the year. However, healthcare is definitely a source of some trepidation for both of us, and we’ve even thought, you know, maybe my fiancé could keep his job for a while, and maybe I just need six months off to reset my brain and my body. We don’t really know yet, but healthcare is definitely probably the biggest one.
Scott Trench: That’s it, that’s a big one for a lot of people.
Kate: Other than that, I’m looking forward to everything that comes with being in control of my own time.
Scott Trench: Just to chime in on your fear here, I think it’s well-grounded fear. You know, we’ve talked about this at length. But the premiums will go up every year as you age. And then the other part is they’re rising very fast right now. I think they rose like 20% last year, year over year, unsubsidized, for Affordable Care Act plans. And they’re set to increase about 17% again this year, year over year. And that’s because, you know, if people don’t like this— and they say it’s too strong a word, but I’m going to use it anyways—I think we’re in the insurance death spiral in the Affordable Care Act right now, as premiums go up. So healthy people opt out or find different ways to self-insure or just don’t have insurance at all, leaving the pool of people who will remain on Affordable Care Act plans to be unhealthier. The insurers understand this, and so they raise premiums accordingly because there’s a higher risk pool in the population. And that has happened every year now for two or three years, and there’s no reason it won’t continue into 2028 unless something breaks. The end result of that is it will have to blow up. Something will have to change structurally. Either they’ll have to revert to a true single-payer system and bring everybody back in, which will lower the average cost of plan participants, or they’ll let it privatize and let people splinter out, and that will lower the cost for otherwise healthy people while leaving the people who most depend on the system in a pretty tough spot. But I do think that you can bet on that changing in the next couple of years. What that change will look like is anybody’s guess, but it will not continue to inflate at 17% for more than a few more years before it implodes, whatever that’s worth. So that’ll be a fun one. But I think that’s like the big question mark on everyone’s mind here. Forget markets or careers or your spending in other categories and how well you’ve got that. Healthcare is—how can you possibly guess at what’s going to happen there? Fun challenge in there.
Kate: And it might be a situation where I take on a role that’s not quite as demanding, with much lower earning potential, just so I can have health insurance through an employer. It’s not the ideal situation, but it’s definitely something I can always fall back on. We’ve also considered moving abroad, so there’s that too.
Scott Trench: I love your answer and I hate it at the same time. Like, I hate the fact that that’s where you have to come to, because think about what you just said: I may create financial independence for myself, but I will still have to find an employer willing to pay for my health insurance. That power dynamic between employer and employee, I think it’s like a fundamental problem with what’s wrong with American society today. Childcare for a period of your life, if you have kids, if that’s something that you want, that can be a big issue. But other than that, you can choose almost everything else in your life. You can choose housing to keep housing low. You can choose food. You can choose your entertainment budget. You can choose what you do with your day. It’s hard to opt out of health insurance and the traditional healthcare system here. Like, it’s just not— that’s not really the same option. And that single thing, I think, ties so many people to their employer in a just unhealthy, unreasonable, unfair way in this society. I think it’s gonna— I hope it breaks and something emerges in the next few years, even if there is a little bit of chaos in there, because this is not fair.
Kate: I agree with you completely. It makes me stark raving mad to think I might have to go back to work just to have health insurance. But at least for a period of time, I think it’s definitely going to give us, you know, the money that we’ve saved and invested is truly a safety net. It’s not lost on me how blessed we are to be in this position. I know a lot of people that are struggling right now, and we even had to have a conversation on our last money date about increasing our grocery budget, because the grocery budget is dwindling day by day, and it’s not lasting as long as it used to, even for us. And you know, we don’t buy anything terribly fancy or anything; it’s just life. It’s just inflation. And so, you know, I feel for people out there that are struggling and don’t have the ability to increase their income, or, you know, the harder they work, they can make more money—that’s not an option for a lot of people. So just know that it’s really not lost on me that we’re in a really, really great position right now. And, you know, we are trying to make sure that we give back, donate to causes that we care about and value, and also, you know, give our time when we can.
Scott Trench: Well, let’s end on a high note. Where are you going on your honeymoon? And what are you looking forward to most? What’s like the highlight of a day in the life of this wonderful, sustainable, wealth-accelerating journey that you’re on right now?
Kate: We are going to Greece. We’re going to be parking our butts and rotting on a beach for probably a week. So I’m really excited to not have anything on an agenda, nothing on my calendar, and nobody bothering me. Just spending really good quality time with my almost husband.
Scott Trench: Please don’t call Kate, Governor Polis, in the next couple weeks here, right? You got your time with her. She’s already pushed it back. Don’t, don’t give her a call until after that, but please still give her the contract.
Mindy Jensen: Yeah, you’ve got four weeks.
Kate: Yeah, I know it’s really close, but we’re really excited.
Mindy Jensen: Kate, when we first started this show, we had these four questions that we would ask, and we’ve kind of gone away from them, but one of my favorites was always, what is your best piece of advice for somebody who wants to replicate your scenario? What would you say to somebody who’s like, hey, Kate, how are you doing this?
Kate: I have a few different pieces of advice that I could give to listeners. The first one is manifesting out loud. You need to tell people what you’re building. You know, opportunity sometimes needs a little nudge. So if you don’t talk about what your plans are, then nobody’s gonna know about it or be able to help you. Think about my friend at the wedding who helped me get my job, and my esthetician that connected me with the real estate investor. Second one would be align spending with your values. You know, why are you spending money on things you don’t care about? As soon as you stop doing that, all of a sudden you’re going to have a lot more money to work with. Make it work for you. But yeah, just making sure that your money is going to a place that you feel good about. And then the third one would be curate your environment. You know, I invested in a money coaching program, and I spent countless hours on the road listening to podcasts and audiobooks, educating myself. You are a product of what you consume. So maybe instead of turning on the trash TV, listen to something that makes you go, oh, that’s new, I learned something today. Turn your dead time into learning time. Between manifesting, aligning spending with your values, and curating your environment, you know, I’m not going to promise that you’re going to make a half million dollars overnight, but those three behavioral changes can really help you get to the next level.
Scott Trench: Love it. And just to emphasize that first one and last one, last one—if you tell people what you’re doing, you can get lucky. That’s like, that’s what luck comes from, right? You got lucky on this. If you haven’t mentioned it, you wouldn’t have got lucky, right? And of course there’s also luck—there was whatever circumstances and privilege or whatever that led you to that wedding with those people to tell that story and have that opportunity. But also, you told people—like, that’s the luck piece. And then I always find that I lapse if I go too long without putting an earbud in my ear and listening to some kind of self-improvement business nonfiction, get better, you know, get a kick in the pants, self-help guru, whatever it is. I need that in my ear on a constant basis, because if I don’t have it, then I begin to relapse a little bit, and that’s no good. So I don’t know, that’s what I’ve observed in my life on these. I don’t know if you’ve found that to be the case for you at all.
Kate: I mean, sure.
Scott Trench: Fair enough.
Kate: I can fall down the rabbit hole of trash TV anytime, but holding myself accountable, and also having a great partner who likes to listen to those things with me—you know, if we’re out running errands together, sometimes instead of listening to music, we’ll throw on a short podcast together. And that’s a great discussion topic while we’re doing something mundane, like grocery shopping together.
Scott Trench: Awesome.
Mindy Jensen: All right, Kate, is there any place people can find you online?
Kate: Sure. We actually just built a website. It’s derekateonfire.com, D-E-R-E-K-A-T-E-onfire.com. You can also send us an email at derekateonfire@gmail.com. And for those who want to meet us in person, we will be attending EconoMe. That’s a great one.
Mindy Jensen: My husband’s going to be there.
Kate: It’ll be our first time, so tell Carl to show us the ropes.
Mindy Jensen: Yes, arrive on Thursday during the day, because there’s usually a welcome party on Thursday night.
Kate: Super fun.
Scott Trench: Well, Kate, thank you so much for sharing your story here. Congratulations on your massive success, and I’ll be looking forward to seeing people implement some of your great advice. Best of luck in the next couple of weeks with your honeymoon coming up, and best of luck in the next few years as you finish the journey.
Mindy Jensen: Thank you, Kate, and we’ll talk to you soon.
Kate: Thanks so much for having me.
Mindy Jensen: All right, Scott, that was an awesome story. I love how she went from $120,000 a year with really no potential to $90,000 a year with huge upside. And I can hear people saying, oh, but she’s making $550,000. Of course she’s able to save—she only started making that last year. This year she’s making $100,000 less than last year, or $150,000 less than last year. But that is how you do this. That is how you go from $18,000 in debt to an $800,000 net worth in five years. It’s got to be income.
Scott Trench: I agree. And I think income in her case was directly derived from her lower spending. She lowered her spending, and then almost immediately an opportunity came into her lap that paid just the $30,000 difference that she had cut out of her spending as a base that allowed her more upside. Like, that’s not an accident, guys. That is not occurring to people in her situation who are spending at $120,000 a year—it’s not occurring to them as a possibility that this opportunity exists, because there’s no way they can cut back from $120,000 to $90,000. They haven’t cut back, so they can’t finance their lifestyle on the base salary of the new opportunity. So this upside never, never happens. And I get it, it’s annoying, because a lot of people work really hard for a long period of time and never make anywhere close to $400,000 or $500,000, or even, you know, half of that in a year. But that’s how this works in a lot of fields. That luck is an opportunity that directly translates from being able to bet on yourself and often comes with lower base salary. It’s an investment—it does not always pay off. There is going to be a survivorship bias that comes into play as we talk stories about this, even if we do our best to select for that. But it’s also a real phenomenon that happens to many in the financial independence space, and this is how a lot of people move into these higher income tiers. And also it highlights, if you are in one of those high-income tiers, it may not last. If you’re a doctor, you’re probably going to make a couple hundred thousand dollars a year or more for a long time. But if you’re a salesperson, you’re not going to make $500,000 a year for 30 years in a row. Almost nobody does that. And so don’t spend it all. Don’t build a life that requires it. Save your pennies and spend off your asset base if you’re going to go this route.
Mindy Jensen: Absolutely, Scott, I cannot agree more. The sales job is incredibly stressful. She doesn’t sleep at home every night. She’s constantly traveling all around the state in order to connect with governments, local governments, that will purchase the product that she is selling. That’s not a job that everybody wants to do. If everybody wanted to do that, it wouldn’t pay $500,000.
Scott Trench: Yeah, I completely agree. And I’m building on that, saying even if she wanted to keep doing it, that opportunity may not exist forever. She’s playing her hand perfectly. I love everything about what she’s doing. I think she’s gonna be very successful here. Hopefully she can ride this out for a lot longer, but she’d be foolish—and she’s not—but she’d be foolish to act like this is a new long-term state of income generation for her.
Mindy Jensen: Yeah. And she’s already making plans to leave, but on her own terms, that allows her to still get paid for these longer-term commission projects that she’s working on. I just, I love everything about her story. It’s really cool.
Scott Trench: Well, have a great honeymoon, Kate and Derek. Wishing you well, and thanks for joining us here on the BiggerPockets Money Podcast.
Mindy Jensen: And we know you, dear listeners, may have trouble finding a flat fee or advice-only planner who actually understands financial independence. So we are building out a network of these types of professionals and more over at biggerpocketsmoney.com/fipro. That’s biggerpocketsmoney.com/fipro.
Scott Trench: And if you feel like you got a specialist situation, by the way, I’ll say reach out to me, scott@biggerpocketsmoney.com. Reach out to Mindy, mindy@biggerpocketsmoney.com. And we will attempt to ask you some questions, hopefully help to some degree. But more importantly, we would love to learn about the types of situations that you are looking for help with and can’t find somebody to help you with. Maybe somebody we know can help, or maybe we can go and find them for you. So reach out to us if the professional you’re looking for is not on biggerpocketsmoney.com/fipro because we may know them or be able to add them to the network.
Mindy Jensen: Yep, that would be awesome. We would love to have an entire network of people that you are looking for, professionals that you are looking for, all in one place. All right, Scott, should we get out of here?
Scott Trench: Let’s do it.
Mindy Jensen: That wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench. I am Mindy Jensen saying toodaloo, caribou.
