$90K in Debt to Coast FI with $1.5M (Here's the Blueprint)

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2:58Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Mindy Jensen, and with me as always is my budgeting pro co-host, Scott Trench. Thanks, Mindy. Great to be here. And today we're going to talk about a wonderful financial model in Erica and her fantastic journey. We're so excited to welcome Erica Young, a financial coach who's experienced financial rock bottom so that you don't have to. We're going to break down her journey from$90 ,000 in debt to$2.5 million in net worth and cost fi and discuss some of the options that she's considering with her own personal portfolio, including whether to pay down her mortgage, buy a rental, or pursue other investment alternatives like building a cash position.

3:36Welcome, Erica, to BiggerPocketsMoney. Thanks for having me. I'm glad to be here. Awesome. Well, let's kick things off and start with this debt background. How did you rack up$90 ,000 in debt and what did that feel like? Yeah, you know, honestly, I was pursuing the American dream. I think it's really easy to go in debt. It's just hard to get out and or I would say you need consistency to get out. And we did what everybody told us to do. My husband and I were both people who wanted to get a good job. And we thought that was the path to go to college. And that was some of the debt. That was a good portion, more than half of the debt.

4:13And then we wanted decent cars. We're from the Motor City. And so you got to have a nice ride. And that came with a loan. And both of us had one. And then we also got taken to the cleaners when we were in school, when everybody was on campus trying to get us to get the credit cards. And we both fell for it to the tune of about three a piece and maxed those out. So honestly, we did debt well, right? Like we just knew how to like take it on. That is how our$90 ,000 came to be. And like I said, most, you know, half of it was the student loans. And we thought we had to, and we didn't have people who could help us financially go through college.

4:52But honestly, this is what a lot of people go through when they don't necessarily have the cash to pay for stuff or know how to navigate without debt. we ended up being, you know, just the poster child for all of the different kinds of debt you could have. And we lived there for a hot second. At what point did you realize that this wasn't how you wanted your financial life to look? I'm an engineer by trade. So my degree is electrical engineering and I had a good job. My husband had, he started in sales and so his career grew. But in the very beginning, I realized an engineer shouldn't have this much trouble paying the bills, right?

5:26So we got married and for about a year, we floundered, we got pregnant right away, we had childcare and the expenses were adding up and the money just wasn't stretching as far as we wanted it to go because when we looked at our student loan debt at the time, this was years ago, I won't date myself, but it was years ago. And that student loan payment was$451 because we had consolidated it. And we had, you know, child care and we had car payments. We had a lot of obligations. And when we added it all up, it was over$1 ,200 a month in debt payments. And so that was scary. And we had our child in that first couple of months, our car died and we had no credit.

6:10We had no cash to fix the car. And they'll give you a terrible loan when you don't have great credit. And we did that in order to get another car. So that was kind of our rock bottom moment when we realized we didn't have like fifteen hundred dollars to fix the car, but we could go get a loan for another 20 grand. That was pretty crazy. What happens next? What this wake up call happens? How do you begin resolving the situation? Honestly, we found Uncle Dave. my husband had a long trek to work and he found Dave Ramsey on the radio and that was our first insight into there could be a way out of this but I'm also an engineer so when I heard about you know what it looks like to create a budget to get out of debt I was like okay I like this and so I just started number crunching in Excel and figuring out what would work for us but um there had to be the trigger.

7:05And it really was finding someone else who, you know, would hit you upside the head and kind of talk to you real sternly because there was no one out here, you know, telling us to do something different than to keep the debt besides him. So we went down that path and it took us about five years to get out of the$90 ,000 in debt. We used the debt snowball and budgeting was a big part of that puzzle to stay on track. What was your lifestyle like on a day-to-day basis before and after this mindset shift? We didn't have a whole lot of fun at first. I mean, we didn't have a lot of money. Our incomes didn't stretch enough with these payments in order for us to have a whole lot of fun.

7:43So there wasn't a bunch of travel. There wasn't a bunch of spending money. Little thing that I did without sharing with my husband was dining out for lunch with friends at work because that was the thing that was accessible. You know, just spending$10 or$15 without his knowledge on a credit card. And when we realized that that was sabotaging our efforts to move forward, he put it on ice. Like he literally took all of our credit cards and put them all in a bowl of water in the freezer to physically represent not using it again. I love that suggestion because it's still there. If you get a$1 ,500 car payment or car, you know, repair bill again, you can go over there and saw them out and go use it.

8:26But it's such a block. Literally, it's a block of ice, but it's such a block to just swiping and swiping and swiping. And it's not, I don't think it's the big expenses that are the budget killers. It's the little death by a thousand cuts, the$10 here and the$15 there. And it's only a dollar, it's only$10. Well, only$10 every day is a lot of money that adds up every month coming out of your ability to pay off your debt. Absolutely. And for us,$10 every day at work was over$2 ,000, almost$3 ,000 a year. And we just didn't have that. And so we had to stop the bleeding in addition to do some more aggressive things in order to get free of all of that debt.

9:06During this period while you were paying off the debt, was there any accumulation? Did you just literally follow baby step one, build$1 ,000 emergency buffer and pay off the rest of the debt? Or did you take a 401k match or begin investing in any way while you were attacking the debt? Yeah, so that's where Dave and I disagree. we always got our free money. We definitely always got our free money because we could afford to do so. I mean, if we were in such dire straits that we couldn't afford to do that, maybe we would have said no, but no, we wanted that free money. We were young and, you know, with time on our side, that stuff can grow and that's a hundred percent return in my book.

9:40So yeah, we definitely took that on and didn't touch it. So you took your 401k match and then applied the rest after that to your debt. Absolutely. Yep. I think Dave Ramsey sometimes gets a bad rap, especially because of these baby steps, because so many people think, well, you know, baby step one is great. If you've got no emergency fund, then yeah, save up a thousand dollars for an emergency fund. But there are, you know, is a thousand dollars enough? Hey, it's better than nothing. So yeah, start there. When you have a goal of a thousand dollars and you currently have zero saved up, that can seem unattainable.

10:16So having a goal of$10 ,000 is even more unattainable. And when you have unattainable goals, it's easier, so much easier to be like, oh, I'm never going to get there. Why bother? So I love Dave Ramsey as a first introduction to this, just because he could be a little mean. And I'm not a little mean. I'm like, hey, you know what, Erica, you made mistakes. That's past Erica. I'm talking to present Erica. So let's just, these are just facts now and let's move on and build from that. But Dave is like, oh, I mean, sometimes he can be like, oh, you're a terrible person for making all these bad mistakes.

10:52Like, well, I never had the education. So how am I supposed to feel so bad? But he is a great first introduction to this idea that you can fix your finances. Here are some little ways to do it. So I love that you found Dave. When did you find FIRE, the concept that you could actually retire or retire early? Man, a lot later, a whole lot later. I mean, almost to the point where we were at Coast FIRE when we figured it out. It was a long journey, to be honest with you. And I honestly wish that we had found it earlier. We realized that this was a community that we were, we call it adjacent to and didn't really know it.

11:32It took a long time. I'm going to say it took over 10, 15 years for us to actually find the FIRE community. Let's go through a couple of stages in the journey. You know, it sounds like one year after you graduated college is when you began to really transition the way you were thinking about paying off debt and aggressively pay it off. It took you five years. And during that time period, you mostly just attacked the debt, but took the 401k match or other free money at work. When you paid off the debt five years into your journey, what was your net worth at the time? Was it a few thousand bucks, tens of thousands of bucks?

12:06What did things look like? Yeah, it was just a couple few ten thousands of dollars. I mean, it wasn't a whole lot to speak of, but we were consistent because it was around five or six years where we were taking that minimal, the minimal amount to get the match. We didn't make aggressive progress with our financial future until there was the point when our kids didn't need the child care and the business, financial coaching business was actually born and we were making some money. And so it took a few years, honestly, after that to actually get a little bit more aggressive. So we weren't doing more than that minimum for a few years.

12:44And then when we really started to get aggressive, we just would add every single year, every single time we would increase our income over time until we could max out all of our pre-tax retirement dollars. And that took a little time. It took a good 10 years before we were able to max it out fully. We have to take a quick break. But while we're away, we'd love if you would head on over to YouTube and subscribe to our channel. You can find us at youtube.com slash biggerpocketsmoney.

13:19Welcome back to the show. So after five years of debt payoff, we're at zero and you just continue to save. But now instead of paying off the debt, it's going in a tax advantaged order of operations. It sounds like the 401k. You were maxing out the 401k and applying every dollar to that that you could. There wasn't really much after that because there wasn't enough of a surplus to go down the next layer into the stack into the Roth or those types of things. But as your income grew, you were able to then begin maxing out the Roth and some of these other accounts. Is that the right way to describe it?

13:48It is, Scott. And I will add one thing that I think is real life for a lot of people is there was a point when we were out of debt and we had these child care payments and we said, let's really go like give me the opportunity to go all in and help other people with their finances because I wanted to utilize our journey to help other people get free of their own debt through the use of coaching. And so I left my job. So, you know, I did coaching on the side. I moonlight nights and weekends. And then after a year of doing that, I was like, OK, you know, engineering is not suited, honestly, to my personality.

14:30Enjoy the creation and the statistics and that kind of thing. But some of that was just not something I could see myself doing long term. And I really wanted to be people facing versus computer facing. And so I left my job. So that was an income dip. And that was part of the shift as well is, you know, this is why for a while we were just doing kind of the minimum into our retirement accounts because we needed to regrow income in a new space. And that took a little bit of the time into why we weren't necessarily growing our investment portfolio. And before you switched full time to this entrepreneurial pursuit, did you build up a cash position outside of the retirement accounts for a time?

15:13We did. Yeah, but it wasn't big enough. Like I tell people all the time, I wish we had 12 months of expenses. We had just over three months of expenses. We were just out here thinking this would be enough. And thankfully, nothing traumatic happened. And it took about two years in order to really grow the business into some income that we could see at home. But yes, we did have an emergency fund. We didn't necessarily have to use it, thankfully. But I think that that's a smart thing to call into this conversation because you don't want to leave without any money. Yeah, three months is actually on the lower side from other entrepreneurs that we have talked to.

15:49We've heard, you know, 12 months, we've heard 18 months from one particular entrepreneur, which I thought was a little much. When you left your job, did you do the math and make sure that you could live just off of your husband's salary while you were building your new business? I will tell you, I was the budget queen when I figured out how to create a budget. So we made these dollars stretch and work. And honestly, I will say that once a year, we still would drive. We lived in Arizona at the time and we could drive to Disney and stay in a hotel for a couple of days or go to San Diego or be with family on a vacation.

16:27So we didn't deprive ourselves of those types of things. Again, it was just once, maybe twice a year. And we used cash. So we didn't say no to everything. But when we were at Disney, we didn't eat their food. We had our little sandwiches and our little thing that we got from the grocery store in the car. And then we went back into Disney to have our little fun. You know, we just had to do it differently in order to still enjoy ourselves and not spend a ton of money doing so. I love that you incorporated fun into your journey because I didn't. And my journey, I bet, was a lot different than yours.

17:05There were lots of times when we weren't having any fun and we, you know, we didn't live close enough to drive to Disney, but we didn't go to Disney and we didn't do all of these fun things. We put our nose to the grindstone and we just kept going. I think it's just so important to incorporate enjoyment into your life so that you can then continue on the path. Absolutely. I think that having fun along the way is how you are sustainable. Like it makes it real. And then we had two kiddos. I mean, so I think the other part of this was life is short and we just wanted to enjoy those younger years and find a way to do it on a budget.

17:41One of the biggest things that we did in their childhood was they had a pass, a city pass in our town. And we did all of the museums, all of the free things. We went on the free days, the free evenings. So we had lots to do that didn't require cash out of our pocket. And that helped us tremendously because we really got a chance, one, to see the city, but also to make sure that, you know, we weren't stuck in the house fiddling our thumbs or just, you know, playing with crayons all the time. Honestly, like we got out the house. It's so easy to just throw money at things and spend money to do things, but it's equally easy to use your creativity and the internet.

18:23I mean, we've got the internet now and it tells you all the free things you can do in your city and surrounding cities. So it is really easy to get out and do things with your kids without breaking the bank. Okay, so let's look at some real numbers. You were$90 ,000 in debt. What was your income at that time? When we got married, we were right at around$65 ,000 between the two of us. I mean, let's be real. This was a long time ago. And then it grew a little bit. So when the both of us, after around six or seven years, we were right at around 100 because my husband was in sales and basically half of his income was from commission dollars.

19:03And then he found another job where it was just a bit more stable than that. And so we were able to that's when we were able to say, all right, Erica, you know, we can let that income go for a while until we build up this business. And so frankly, for a while, we just hovered right beneath 100 grand for a while until the business started to grow. But we started at like 65. We had more debt than we had income. It was scary, especially with two kids. Yeah. And I think it's really important to note that this was several years ago when you said 65 ,000. I was like, wait, you're a double E. What do you mean 65 ,000?

19:37But I remember back when I got married and my income was a walloping 24 ,000. So of course you're 40. So yeah, yeah. Who's 40? You're 40. Me? In my mind, you're 40. You know what? I'll take it. I'll take it. Just looking at these two numbers, you were$90 ,000 in debt and you were making$65 ,000. If you could live totally for free, which you cannot, it would take you a year and a half to pay that off. Yeah, for sure. So paying that off in five years, that's awesome. What were your expenses when you were making the$65 ,000? Were you spending all$65 ,000 of it? Well, OK, so let's be very clear. We were givers.

20:16So we definitely were people who prioritized giving. We were people who, you know, when I learned how to get the budget down, we were spending quite a bit of money on paying down the debt. But we did live on the rest. I mean, there was about 3 % going into our retirement accounts. And so we lived on a good 70 % of that income. And at the time, we had no choice. That was what it was requiring in order for us to live as a family of two, then three, and then eventually four within those first four years. Okay. Let's talk about your COSFI numbers. Have you used the Pioneer's COSFI calculator? Woohoo!

20:58Yes. So we stumbled. We realized that we were at COSFI a few years back. And we were like, yes. So we hadn't calculated until we were right about there. And it took us about two years to kind of complete the number, but we were excited about that. So yeah, so our COST-FI was about 1.5. And so we're still going, we're still going strong. And it's been a couple of years. So that number has increased. And that's only for our retirement assets. It doesn't include our home. Okay. So your COST-FI number is your, that's your FI number that you will have at age 65? Well, this was what we needed to hit so that we were there.

21:38So we needed to hit the 1.5 in order to hit our number when we're that age. And frankly, we don't want to wait till 65. My husband is dead set on it being 59 and a half. So we'll see. We'll see. Good. Well, 59 and a half is attainable if you just continue to contribute nominally. And if you're self-employed and he's still doing his sales work, that could really reduce your taxable income by contributing to your 401ks and your IRAs. there's a lot of opportunities for self-employed people to like super contribute to their 401ks. Yeah, we're doing all of those things, even though if we stop now, we would be fine and we wouldn't have to contribute another dollar.

22:22But we're just continuing to stay diligent because you just never know. And I think the biggest thing that we're doing now that we've learned from FIRE is to get our cash position more solid. Because at any time, what if we decided that this was a time where we're like, you know what? We're done. We're done working. And we want to have a more solid cash position or funds that are not necessarily tied to the retirement accounts. And that's the piece that we're working on right now. I'd like to go back to when you started your business. It sounds like it took two years for you to get that up and running, which is not uncommon.

22:55I want to focus on one, the low cash position and two, what the transition was like from a time perspective. Were you able to focus full-time on the business with two young kids? or was that diluted in some capacity? And because it took two years, talk us through how much of that time was directly going to revenue creation and how much was going off on tangents, which I think are normal for new business. That's a really good question. So let me back up even further. When I realized that this was a business that I wanted to do, I spent about a year doing research and talking to people and having some potential clients just to kind of see if this is what I enjoy.

23:36and then also getting trained. So I did do some training prior to jumping in with two feet. And then when I did, it was a good part-time business. And I just reinvested that first year. So I just put dollars back in. I could have pulled money out, but I didn't really want to. So I needed a website and I wanted to do some other trainings and I wanted to figure out what was needed. It's a low cost business, let's be very honest. But I didn't want to pull funds for myself unnecessarily because, you know, we could live on that one income. And then I would say it was a good part time. I did grow my client base.

24:16I did have some people during the day. So I was working with a couple of businesses to see if that's what I wanted to do as well to help businesses with their cash flow as well. So that was something that I could do during the day. And so that wasn't taking up all of my nights and weekends. The beauty of all of that was that I figured out what I didn't want to do because I did not want to do bookkeeping. And I think I had to do some of that because, of course, that for businesses can go hand in hand with their cash flow planning and forecasting and things like that. And it took not too much time for me to realize that's not what I wanted to do.

24:49And so I just had to double down on the business. One of the biggest things that I did that helped me to grow, this was back in the day when snail mail was fun. I sent snail mail to everybody that I knew. I captured all of their addresses and I just wanted to let them know, here's what I'm up to. If you or anyone you know could utilize the help of a financial coach, send them my way. And that was a big way. I mean, I sent it and I tracked who these people were and their referrals and all of that good stuff. And it was awesome because that really helped me. And today I would tell someone definitely text, email, send the snail mail, continue to, you know, do more than what I did.