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From $500 in the Bank to Retiring Early

“I didn't even have a white picket fence.”

When Tom’s then-wife exclaimed, “We’re going to work until we die!” he knew something had to give. They made good money, but the couple’s salaries were no match for the mortgage, student loans, two car loans … or life, in general, actually.

Listen in to this week’s episode of Debt Stories: Real People Beating Debt & Winning Financially to hear how Tom went from drowning in debt, with a piddly $500 in his checking account, to early retirement.


Hello everyone! This is episode two of a new YNAB podcast series, Debt Stories; real people beating debt and winning financially.

Today, I want to introduce you to Tom. Tom lives in Kenton, Michigan, a city that’s located between Detroit and Ann Arbor. He’s a retired IT business analyst, a career that helped him earn pretty good money. But, as you’ll soon hear from Tom, even a six-figure salary isn’t enough to guaranteed stress-free finances, in a realization that became crystal clear to him during a conversation with his-then wife.

“I don’t remember the exact question, but I remember the response. She was running up from the basement and she said, “Hah, we’re going to work until we die.” Wait, I didn’t sign up to this! That was the first wakeup call and then….”
How did Tom get into such a tight situation?

“I got into debt the same way I think a lot of people do. I had a pretty good job and my wife was a teacher and she had a pretty good job. So it’s like, let’s go and buy a house. I said, sure. Then let’s go buy a car. Let’s go buy another car because the other car was having trouble, so we just went out…actually, we went out and bought two new cars the same day. That set up a really ugly cycle of cars falling apart at the same time and needing new parts at the same time. Yeah, it was, kind of, brutal.”

The house, the cars, car maintenance and repairs, toss in a couple of student loans and they’re just your typical modern day family, right.

“…she went to school to get her teaching degree and went on to get her masters.”

Tom says those were around 20 to $25,000.

“So I had two car loans. I had two student loans. I had the house mortgage. I had a credit card that was pretty much at the top most of the time”

The credit cards were around 3500.

“I didn’t even have a white picket fence.”

In 2008, when the stock market crashed, Tom had $500 in his bank account, a 150-175,000 salary, and he was barely staying on top of his finances. It was like a game of financial Whack-A-Mole.

“I’m making way too much money to have nothing and I was trying to figure out what to do about it. I was still trying to figure out what’s all this 401K nonsense and I was watching co-workers getting just crushed. It really brought it into perspective. It was like, this isn’t just not working for me, but this whole scheme doesn’t work. I’m not alone so I started looking out, looking outside of myself and my small circle to see what works out there.”

For the next four years, Tom experimented but his budget didn’t take shape right off the bat. He was in a bit of a panic mode, just shaving money off of his expenses wherever he could. So where did he cut back?

“I didn’t have a specific spot because I wasn’t that organized but I just knew there was so much fluff with my income and my-then wife’s income. At the peak of this, we were over $200,000 a year. It was like, there’s money to be had, but rather than trying to figure out exactly where I’m going to take it, I just said, I can live with $100 out. Do that for a couple of months, I can live with $200 out; did that for a couple of months. And then I could start building out a picture of what the budget was going to be as that was going on. I didn’t want to wait until the budget was perfect and fine-tuned and running like a well-oiled machine, I’ve got to start bailing water.”

But those squirreled away dollars added up, and soon enough, Tom had enough in savings, while maintaining his cost of living, that he was no longer afraid to commit cash towards his debt. So he did, and between 2008 and 2011, he paid it all off except for the house. Then he saved some more.

“…and then I was able to also build up about $35,000 in the bank. I remember the time by which I was getting into a routine where I was running all of my budget on last month’s income. I was that far ahead in my savings. I realized I was actually sleeping better, literally sleeping better. I was no longer worried about what are my finances doing? Am I going to have money for this? Am I going to be able to pay for that? It really brought in a lot of confidence around the ability to, I guess, roll with the punches.”

Now that he was living on last month’s income, with considerable savings in the bank, it’s a way better place to be, especially when life inevitably surprises you. Or maybe it doesn’t surprise you because I’ve never met a house that didn’t need repairs.

“…I had to get work done on the roof. And of course, the guy goes in there, it’s like, “Okay, we can do this,” and then he finds out, “Nope, it’s a complete tear-off. We have to replace half the boards underneath.” It was a big project all of a sudden.

The furnace and the air conditioning was another big project. And I remember my son going up and asking me, “Dad, how do you do this? How did you pay for that?” I said, I wrote a check. And he’s like, “What?” He goes, “Well, how did you pay for the furnace?” I said, I wrote a check for that too. He said, “Wait, I don’t understand.” So then I had to sit down and start explaining more of this to him. It’s like well you don’t have to always put everything on the credit card.”

And that, dear listener, is how you get your kids to budget. Lead by example.

“I can roll with the punches by choice. I’m not getting beat to the mat. Rather than just being driven by whatever’s broken next, by whatever bill’s coming next, I can start moving forward and say, no, I’m going to do this instead. I have the ability to respond to the situation as opposed to just reacting out of panic. It was really empowering.”

Now, in the years that I’ve been talking to people about they paid off their debt, very few folks have done it all by themselves. Once you start chipping away and you’re really committed to becoming debt-free, you tend to realize that you’ve got more money than you thought. And even better, it’s not uncommon for life to have a surprise or two in store. One of Tom’s lucky breaks was the result of following his gut and taking action.

“The crash worked out really well for me. I got wind of it coming about the day before it hit. Literally because I was watching TV and I realized this guy in Bloomberg was literally scared. He was genuinely scared as a human being. It’s like, I don’t know what he’s doing but I’m going to transfer what I have in a 401k into the most boring, pathetic bond fund that exists. That was the perfect timing, perfect move because the next day, all hell broke loose. That was luck. That was not smartness. I waited three months and I threw everything to the other extreme.”

I have to interject here. This is not how you make investment decisions. Luck is the key word. If you want to do well with your investments, check out our Whiteboard Wednesday series Invest Like a Pro, or check out JL Collins Stock Series. We’ll link to it in the show notes. Tom’s other windfall came via an inheritance.

“I sat on that for three months, just to get used to the idea that I have more money now. I made a list of everything that I want to do; pay off the house was actually the first one but I wasn’t going to do it yet.”


“I believe some of that credit goes to the Behavior Gap, Carl Richards, and that’s the one that talks about if you get a windfall, just park it. Get used to the idea that you now have a lot more money. At the end of three months, I paid off the house and moved pretty much everything else into investments and then got myself a little treat.” I bought a Tesla Model S.”
Today, at the age of 54, Tom has been comfortably retired for three years. And he’s proof that a big salary isn’t a foolproof way to financial freedom. In fact, his budget helped him discover that his job was actually costing him money.

“By the time I got to 2013, I had a budget that was refined enough and working enough that, yeah, I had a lot of history I knew what was going on with it. I knew what worked. Then I started applying Your Money and Your Life into what I was actually spending money on. How much am I spending on clothes, the food, the gas, the maintenance on the car, all this stuff? I believe it was something like 30 or 40% of what I was spending was in some way attributed to my job. So if I didn’t work, I could take a 30% cut. Then I went back, I was doing the math, it was like, okay, do I have enough or do I have to cut other things. I was able to sort that out; it looked like I could. Terrifying concept! I literally sat on that for six months. After six months, I felt bad because I realized I don’t need to come into work.”

Today, Tom still follows his YNAB budget and he’s just enjoying life.

“This summer, some of the things I’ve been working on is putting together some cycling trips, little bit of camping. And I’m getting a little more active in the community and getting a little more friends because when you’re working all the time, sometimes they’ll tend to be work-related friends. Also trying to figure out if this is where I want to actually live.”

And the YNAB love is contagious.

“Both my kids use it and their significant others use it as well.”

Tom even shares his love of budgeting with his community. One woman in particular was having a tough time managing the budget for her yoga studio. She didn’t think the business was doing well, which couldn’t have been further from the truth. Tom recalls her saying…

“”I don’t have any money. I don’t know what I’m doing. I can’t figure any of this out.” I was like here, let me show you this then. She asked me a couple of questions about how to get it set up. It was like text, text, text, text, text, quiet. Two hours later, I’d get a text, she goes, “My God, this has changed my life!” Things started to click with her very, very quickly and she realized she was better off than she thought, which is really common. They’re terrified of setting it up but once they everything entered in and look at it, it’s like okay I thought it was worse.”

We hear that a lot. If you’re struggling with debt, the hardest part is just to face it. Once you do, when you’ve got a plan in place, you just feel better. You can get out of debt and the best tricks for doing that are simple, if not easy.

“It’s living below your means and also you define what you do with your money. It’s okay to like money. There is a lot of messages that come in about money is evil. Money itself is not evil. Money is what you get for your life when you go to work. It allows you to take your work and convert it into something else, whether it’s a vacation or a car or whatever. It’s that option.
Everyone is out there telling you what you need to have in your life to be happy. I think that was one of the things that I got first from Early Retirement Extreme is those gadgets don’t do anything for you. I think part of the wake-up there is I realized, like with the credit card, I have bought things that I’m still paying for and I can’t even tell you where in the house they are. That’s how much I don’t care but I’m still making payments against it. You’re robbing your future self so badly.”

Well, there you have it, boring but true. At the end of the day, whether you earn a little or a lot, the challenge is to live within your means, and grow them, if you can. Spend less and set aside a little whenever possible. Those little amounts will add up and they could make all the difference when life throws you an expensive surprise.

“I was surprised at how quickly I was able to turn things around when I started. I started pushing, and just keep going, keep going, keep going. And every time you start hitting a little win, a little milestone it gives you more power to say, okay, I can get the next hill. At a certain point look around, it’s like, wow, everything has changed. It’s a great awakening I guess.”

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From $500 in the Bank to Retiring Early