Lessons from the 2012 Investing Challenge

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One year ago, I announced that I’d invest every dime I earned in 2012. Will and I would live on his income while investing mine.

The naysayers claimed we couldn’t do it. They were wrong!

It’s now January 2013, and we can announce “Mission Accomplished.” Here are the lessons from a year of not spending a cent:

#1: It’s All in Your Head.

Money management is 90 percent mindset and only 10 percent logistics. When you’re in the mindset that you make gobs of money, it’s easy to spend.

This pledge hooked us into the mindset that we’re a one-income couple. We stopped thinking about my income. Shifting to that mindset was the bulk of the battle.

#2: This is Great for Lazy People

I’m lazy. I hate budgeting. I’d rather sit on the couch eating Cheetos while staring into space.

The best way to avoid bill-planning? Amass a big ‘ol cash cushion. It’s friggin’ great for lazy people who have zero desire to balance their checkbook or scrutinize their statements.

#3: “You’re Rich!”

The whiners crawled out of the woodwork after I announced this project. One of my favorite comments came from a guy calling himself Tom, who claimed ordinary people aren’t “rich enough” to do this.

Oh Tom, you have so much to learn. Let’s look at the lifestyles of the rich and fabulous, shall we?

This year, Will and I:

  • Wore the same clothes again and again … and again.
  • Lived with two roommates.

“Isn’t Will, like, 33 years old? And aren’t you 29?”
“Yeah.”
“Isn’t that kinda old to still have roommates?”
“Depends on what you want from life.”

  • Drove beater cars.
If you can read this, click 'display images' to see the picture

See this cosmetic damage to my bumper? It’s been there forever. I’m not fixing it because, frankly, I don’t care.

If you can't see this picture, visit the website directly

One day when I’m ultra-rich, I’ll get hubcaps. I think they’re, what, $20?

  • Lived without a bathroom or kitchen, in the middle of a massive construction project.

“Wait a sec, you’re still living there?”
“Yep.”
“With no shower?”
“There’s a shower at the YMCA. “
“Seriously?”
“Yep! The YMCA even offers free towel service. Score!”
“And no kitchen?”
“I can go to my parents house when I’m feeling desperate.”
“Why don’t you just rent a place temporarily, while your house is under construction?”
“Because we’re investing roughly half of our income.
“Only rich people can invest that much money!”
“Uh-huh. Right.”

The whiners can go home. In another 10 years, when we’re actually rich, they’ll pretend that we were born that way. (Cue Lady Gaga song). Then they’ll sit in front of their flat-screen TV, sulking about the fact that they’ve made so little progress.

#4: But It’s No Sacrifice

None of these things I’ve named are a real sacrifice.

So my car has some cosmetic damage. So what?
So my clothes are old. Who cares?

Is that a sacrifice? Really? More than a billion people on the planet don’t have enough food. I’m not going to whine about a dinged car.

We still joined our friends when they invited us out to eat. We took a camping trip out West for a week. I even developed a Starbucks habit.

Where Did The Money Go?

“So, Paula, you mentioned investing. Where did the money go?”

$10,000 went into our respective Roth IRA accounts. Taxes gobbled a larger-than-I-like sum. A few thousand went into this website. The rest went to real estate.

Dude, real estate drinks your money. It’s scary how small of a dent a full year’s income makes.

We paid in cash for many repairs and renovations – like the $17,021 that we spent upgrading one of our rental units. It now rents for an extra $3,600 each year, which means it’ll pay for itself in less than 5 years.

We also paid cash for a $10,000 upgrade to the house that’s giving us a 17 percent return-on-investment. Woohoo! (You’ve gotta read that story, if you haven’t yet).

We’re using a combination of cash and loans to pay for the renovations to our crowning rental unit, a 3-bed, 2-bath within our triplex. It’s pretty ugly right now. Let’s see how it changes …





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29 Responses to “Lessons from the 2012 Investing Challenge”

  1. Mrs. Pop @ Planting Our Pennies
    09. Jan, 2013 at 1:03 pm #

    That’s how we roll. We basically live off of my take-home pay. (Which is already depositing a boat-load into my 401K to not leave any matching on the table…) And for now Mr. PoP’s paychecks are working off on paying off the debt that we took on to invest in real estate during the crash so we can wash, rinse, and start again with some more investments.

  2. Anna K.
    09. Jan, 2013 at 1:43 pm #

    I’ve been reading and enjoying your site for a while now, but this is the first time I’ve left a comment. Apologies in advance for the length…

    I’ve been intrigued by your 2012 investing challenge and I think that is SUCH a smart thing to do with two incomes. In a few months, my husband will be done with grad school and for the first time in our married life we will have two FT incomes (since one or the other of us has been in school for the last four years). Our plan is also to use one income to invest in RE so I’ve been eating up your stories and advice.

    Here’s my question: I’m not an attorney or financial pro, but my impression is that there is a certain amount of risk mixing money to this extent with someone you aren’t married to. It’s not so much the what-happens-if-you-split-up? argument because marriages obviously end all the time. However, with marriage there are legal protections in place such that one person can’t run away with everything that the two people worked together to build. As a personal example, I sort of put my career on hold to put my husband through a good MBA program (in a small town with no great jobs for me), but if he were to run off with his secretary at the new fancy post-MBA job he’ll be starting this summer then I would have a legal claim to alimony if I wanted it based on the fact that he wouldn’t have that MBA without me. (Or, I would be making more money right now were it not for his MBA.) And vice versa. For reasons like this I would be really nervous giving up part of my independence and future prospects to someone I wasn’t married to.

    Okay, I guess THIS is the question part:-): Is that something you’re concerned about? I’m not questioning your relationship, just the legal and financial implications. What advice would you give to someone else planning on mingling finances with someone they’re not married to? I know this is something that people in the LGBT community deal with all the time, but I’ve never known the details of how one would make it work with minimal risk.

    Anyway, that’s my query if you’re interested in answering it. Thanks for a great site!

    PS The part about hubcaps made me laugh. I don’t have hubcaps either…it’s super tacky but I can NOT bring myself to spend $80 on them and, to be honest, it’s sort of a point of pride at this point. Don’t like my car? Well, this is what financial freedom looks like, beeyotch!

    • Afford Anything
      09. Jan, 2013 at 6:32 pm #

      @Anna — That’s a great question.

      All of our houses are owned by an LLC. This is a simple process: we file some papers with the Secretary of State to create the LLC, open a bank account for each company, and then use a form that’s called a “quit-claim deed” to transfer the house into the possession of the LLC. Then we both list ourselves as “managers” (owners) of the LLC.

      This ensures that we have equal claim to the houses, in the same way that any two business partners would who are not-romantically-linked.

      The investing side has come from my pocket and the paying-bills side has come from his, but those two sides are about 50/50. As a result, we agreed to each have 50 percent stakes in the LLCs.

      If our levels of income become disparate (if he starts earning 3x what I make, or vice versa), the higher-earning partner could simply own a larger percentage of the LLC.

      One thing to keep in mind, legally, is that a person cannot “gift” more than $13,000 to another person without triggering a gift tax. That means Will can’t transfer more than $13,000 into my account per year, nor can I transfer more than that into his. We can, of course, contribute as much as we each want to our LLCs without triggering a gift tax, as long as the money is spent on legitimate business-related expenses.

      • Anna K.
        11. Jan, 2013 at 12:19 pm #

        Oh, that’s smart. I’ve heard some people say that you should do this anyway if you invest in RE because of the reduced personal risk. I’m not sure if you still get a reduction in risk if you ARE married to your co-manager, but I’ll have to look into that. Thanks for the informative reply.

  3. AmyLou
    09. Jan, 2013 at 1:44 pm #

    This. Is. Awesome. Spot on.

    I’m just starting, and I am going to do amazing things this year. Things that people routinely tell me are impossible. I don’t own any real estate yet, but part of my plan is to build a RE portfolio, starting with my first house in one year. I have a friend – who spent $600 to have her sports car detailed – that feels the need to warn me that houses are nothing but money pits. Choices, people! It’s all about your choices.

    “The whiners can go home. In another 10 years, when we’re actually rich, they’ll pretend that we were born that way. (Cue Lady Gaga song). Then they’ll sit in front of their flat-screen TV, sulking about the fact that they’ve made so little progress.” Love!!

  4. Brick By Brick Investing | Marvin
    09. Jan, 2013 at 1:47 pm #

    Congrats. I love when you can show the naysayers your results and tell them to shut up. The funny thing… 5 years down the road after your investments have had time to grow and flourish, people will call you guys an overnight success and try to do what you did with about 20% of your effort.

    Great job, I love seeing other people take what others would consider extreme sacrifices in order to ensure their financial future.

  5. cca
    09. Jan, 2013 at 1:47 pm #

    You are so awesome, Congrats to making you goal. This was so inspiring

  6. Pat Chiappa
    09. Jan, 2013 at 2:51 pm #

    you guys are great – I LOVE your no BS style Paula. No whining from you, just determination, and drive and absolute clarity in your priorities. I’m convinced nothing can stop you two. Congratulations on reaching your 2012 investing challenge goal!

  7. StartEarly
    09. Jan, 2013 at 3:13 pm #

    Posts like these make me love that I found your blog. As a 22 year old with a great job out of college, I have friends and co-workers buying brand new cars, clothes, and toys. I’m talking fancy too.. Brands like Audi and Brooks Brothers, while I still rock that 2001 Prizm w/o hubcaps and used clothes. No hubcaps = less weight = more speed right? If I had a dollar for all the conversations I’ve had like the ones you share in #3, I would already be financially independent.

    Cheers to reaching your goal for 2012. Looking forward to hearing what 2013 brings your way!

  8. krantcents
    09. Jan, 2013 at 4:05 pm #

    You gotta do what you gotta do! I was able to invest in income property when my income was low and you need to adjust your priorities. You are right it is all mindset! Funny thing, when you are “rich”, you still aren’t that different.

  9. Pauline
    09. Jan, 2013 at 4:43 pm #

    Great job! I only have one property in common with my BF so my goal is to live on my base income and reinvest all additional income, rental, blog, dividends… and repay $25K of debt. It is all possible if you don’t limit yourself with wrong beliefs. Bring on 2013!

    • Afford Anything
      09. Jan, 2013 at 6:35 pm #

      @Pauline — That’s a fantastic strategy. Is the $25K mortgage-debt or other debt? Keep reinvesting all your income, rental income, blog income, dividend income, etc. You won’t “miss it.” And the results will add up quickly.

  10. Kathleen, Frugal Portland
    09. Jan, 2013 at 5:40 pm #

    I’m not sure how I’d function without a kitchen but I bet you get a lot more exercise having to shower at the gym! Great work in 2012, what are your big plans for this year?

  11. Ian
    09. Jan, 2013 at 6:57 pm #

    Super awesome congratulations! I’m glad you proved the naysayers wrong, your right, its all about the mindset.

    I really enjoy learning about your real estate adventures. I would like to get involved in real estate invthe near future and have picked up some awesome info here over the past few months, thanks! Oh yeah, it kinda looked like you took a picture of my tires, ha.

    • Afford Anything
      11. Jan, 2013 at 12:06 pm #

      @Ian — I’ve been surprised at how many people have said that! Apparently lots of people in the Afford Anything community are hubcap-less! :-)

  12. Eliza from Happy Simple Living
    10. Jan, 2013 at 9:39 am #

    Your story is so inspiring, and I appreciate you sharing all of the details of your financial decisions (and sacrifices) so transparently. Congratulations on successfully achieving your 2012 goal! :-)

  13. Cherleen @ My Personal Finance Journey
    10. Jan, 2013 at 11:24 am #

    Congratulations! I knew you can do it! This is exactly what we are planning for this year — spend his earnings while put mine on our savings and investment. I must admit that I have second thoughts if this could be done. Thanks for the inspiration and motivation!

  14. Chris
    10. Jan, 2013 at 11:38 am #

    Since I am single-income at the moment I am working on getting 50% invested/saved. My single financial goal this year is to get enough savings to put a down payment on a house! If my follow my spreadsheet I will make it by November. This year are you going to invest just half of your income?

    • Afford Anything
      11. Jan, 2013 at 12:05 pm #

      @Chris — That’s fantastic! I love that you have a spreadsheet (which means you KNOW THE NUMBERS and you have a plan!)

      I’ll be saving a high rate this year, as I always do, but I’m not going to commit the entirety of my money. I do want to save enough to buy another 2-3 rental houses. There’s one other thing I want to do this year, which I’ll be announcing soon …

  15. Little House
    11. Jan, 2013 at 9:49 am #

    Very smart plan. When we were in our late 20′s, early 30′s, we had the choice to move into a dump and save money or live in a slightly better building for much more (but not a better neighborhood). Let me just say that I wished we had moved into that dump! We weren’t willing to sacrifice the living environment, which means we might have to sacrifice when we’re older (meaning retired and poor.) I think I need to rethink my living situation!

  16. Ross
    13. Jan, 2013 at 9:12 am #

    Way to be! This is the ultimate frugal living story with a massive payout in a few years! How much do you think it’d slow you down if you were single and only able to invest a piece of your income?

  17. Vanessa
    19. Jan, 2013 at 7:09 pm #

    While I wasn’t a naysayer necessarily, I remember reading your plan last year and being skeptical about it. I am SO impressed that you were able to save so much and I hope that I can be as disciplined as you in the coming years

  18. Zach @ The True Generalist
    31. Jan, 2013 at 11:30 am #

    OOoohh, you are awesome! I love how you THROW IT IN THE FACE of those who whine and say “I can’t doooo that.” Ooooh, it feels so good. Way to show off your “rich” life and how you’re growing your wealth through frugal apathy. :)

    One thing I was wondering about. Doing something like this requires ALOT of trust between you and Will. I don’t know what accounts are in whose name, but logistically if all your money was going into the investment accounts and real estate, i might assume that your name is on all of that stuff. Meanwhile, Will is paying all the bills. If something were to happen between you too, God forbid, you could totally skip out with all the investments and a free year of living! Do you have something in place to prevent this or is in 100% Trustsville?

    • Afford Anything
      31. Jan, 2013 at 2:12 pm #

      @Zach — Trustville is never a recommended route when it comes to business. Always get contracts in writing. :-) The way to do this is to create an LLC and list both people as owners (or “member-managers,” in legal parlance).

  19. Chris@The Credit Cat
    31. Jan, 2013 at 12:41 pm #

    You’ve highlighted the exact things you need to do in order to achieve financial freedom. I bet Tom feels ashamed now!

  20. Daniel
    06. Oct, 2013 at 6:38 pm #

    For the properties you have mortgages on, how are you able to transfer title to your lo
    Llc’s after closing on them? Does this not trigger the due on sale clause? I found your blog through the bigger pockets podcast and enjoy the straightforward way you explain your investments into real estate. My wife and i also love to travel and hope our rental properties will help us travel more in the future! Thank you!

    • Afford Anything
      08. Oct, 2013 at 12:25 pm #

      @Daniel — Great question. Not every mortgage has a due-on-sale clause: Some do, some don’t. That’s worth investigating when you’re shopping for mortgages. In addition, the due-on-sale clause gives the lender the right (not the obligation) to exercise that clause. Most lenders won’t exercise that right, as long as you continue to make on-time mortgage payments. Furthermore, the Garn-St. Germain Act prohibits lenders from exercising the due-on-sale clause if the house is transferred into a living trust, as long as the borrower remains the trust beneficiary.

      The bigger problem, in my experience, is not the due-on-sale clause but rather the transfer tax. Every state has different laws regarding this, so it’s worth checking into. If the transfer tax is too high, it might be worthwhile to simply buy a bigger umbrella liability policy.

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