There’s a lot of excitement on the internet courtesy of the infamous “By 35” article that Ali Malito wrote going viral on Twitter. Tons of people lost it on the idea that by 35, a person or couple should have a net worth equal to twice their salary. The laundry list of excuses came pouring in, including student loan debt, great recession, housing bust, lack of income growth, and lack of access to good retirement plans.
We’re now technically a few months past 35 and thought “damn, all those things happened to us too!”. Its time to unpack the history of the Shirts family and how we accumulated our net worth.
Part 1: Six Years of Working and Zero Net Worth
Age(s) 18-25: I incurred just over $10,000 in student loans and graduated in three years from a low-cost state school and graduated a few months after my 21st birthday. The difference was paid between some state/federal grants and savings I had through working during the summer and through a work-study program. Mrs. Shirts had undergraduate assistance from her parents, but signed up for four years of veterinary school. Total cumulative student loan debt: $110,000.
Housing #1: We purchased a townhouse during her first year of veterinary school at 22. This came from a basic rent/buy decision and the availability of a 1st time home buyer loan. The townhouse would work as a rental if we ever left and it reduced our cost of housing by $300/mo. We managed to sell this when she graduated and made almost $30,000! Sounds exciting, but just wait for that next house…
Retirement Accounts: I accepted a job out of college with a financial institution for a whopping $34,000/year. Many of my peers were getting offers in the $40,000 – $45,000 range, but I had some experience with this company and its ability to develop someone’s skill set. They also were known for paying less in cash but having good retirement benefits and a traditional pension (what’s that!?). They also provided a 6% 401k match that started paying after the first year. I saw minimal income growth in those first three years, but always made sure to contribue enough in to earn the additional match.
Roth IRAs were also available to us, but additional money was really tight. Mrs Shirts managed to get some light summer employment and I got two very small bonuses. We got something into the Roth IRAs as well during this time period.
Combined Net Worth Update after Retirement Contributions at 25: Less than zero! We were negative, but a little less with housing gains and retirement accounts.
Graduation, it had finally happened. Mrs. Shirts has finished her graduate degree and we were free to move to a larger city to pursue our career, increase our income, get that new house/car and take on the world! I had arranged an internal transfer/promotion and we were moving to a big city in 2007. Even more exciting, I negotiated a whopping $60,000/year salary. (Unfortunately my employer’s success was tied to financing residential housing construction, more on the salary constraints from that later). Mrs Shirts, with her additional four years of education landed an opportunity that involved Saturday/Sunday hours and $50,000/year. We had made it, the DINK life was upon us!
Housing, Act 2: We took the money from made from the sale of the house #1 and financed 90% of the next home, the big house in the suburbs. It was fairly far out of downtown and we were not stretching on the price, but bought at the near peak of the housing market in spring of 2007. Within a year the $250,000 house was worth $200,000 if you could find a buyer and the gains we had made in the townhouse had officially been set on fire!
Spending: We generally keep our spending in check. We managed to live on $2,000 – $3,000/mo inclusive of housing and kept this number about the same. The excess allowed us to increase our retirement contributions, start knocking down debt, and actually fund Roth IRAs.
Investments: We’ve always tried to contribute something into our investment accounts. A little here, a little there, but there wasn’t a ton of excess money until the second half of 2007, when Mrs. Shirts started working and I received my first bump. We were finally making some progress saving $1,000 – $3,000/mo all in.
Net Worth when we turned 26: Its early 2008 and we’re bumping along around $0
“Are we just throwing money at a black hole?”. This was basically or thought for the next 12 months!. We were grinding away finally making two professionals salaries, but the stock market was declining, our house value was falling, I was hustling as hard as I could at my job but finding limited opportunities to sell. Mrs. Shirts was grinding away at a 2nd tier workplace with a brutal commute. Is this the American Dream?
We managed to build up a financial statement that had a high five figures in investment accounts, but was offset by the same amount in student loans. We had both increased our 401k contributions to the IRS limit, kept being frugal, and paid down debt when we could. It would feel like we put contributions in, then they were immediately gone! Our 27th birthdays would coincide with January and April of 2009, with the worst stock market crash of our lifetime bottoming out in between.
Net worth at 27: We’re negative again!
Our total contributions to our retirement accounts were significantly less than we put in, our house was worth less than the mortgage owed, and we still had $60,000 or more of student loan debt.
We had one thing going for us over 1/5th of the people in our area, we still had our jobs. Six years of working for me, just under two years of working for Mrs. Shirts, and our net worth still about zero. We were however still employed. Not only were we still employed, but we worked hard. It turned out the leader I worked for was very good at developing people. Mrs. Shirts was becoming more efficient at her job, especially being forced to work independently on chaotic Saturdays/Sundays. There were no raises/bonuses to be had in late 2008 and early 2009, but we did keep our careers and were providing value to our employers. We also knew we could live on one person’s salary if we had to, so the fear and anxiety about the horrible economy wasn’t as bad as it was for some. We were “doing everything right” but had not gotten ahead. This has to work out!
This finally started to turn in the second half of 2009…