This week I am excited to introduce you to guest Joe Udo, a fellow Portland resident who followed his dream and left his full-time job before his 40th birthday. Learn how he did it in this week's episode.
Eric Rosenberg: Ladies and gentlemen, boys and girls, children of all ages, welcome back to the Personal Profitability Podcast. As always I am your host, Eric Rosenberg and I am excited to introduce you to a friend and guest today, who I know in real life. He was an internet friend a long time ago. We met through this group called the Yakezie, I've spoken about before. It's a network of online finance bloggers; not quite as active as it used to be when I got to know Joe but we met in person for the first time I believe at the second FinCon in Denver.
One thing, just a funny little anecdote from me and Joe, he has this great blog called Retire by 40, which we'll talk quite a bit about in a minute, but because of his blog was interviewed in the Denver Post, when I lived in Denver still, and he emailed me and said, ‘hey, I know you live in Denver. Can you grab a copy of the paper for me?” So I grabbed a copy and brought it to FinCon for him so he could have a real hard copy of his Denver interview back here in Portland.
And now we're practically neighbors, well not really neighbors, we live about 2 miles away from each other. We have a river in between us. So that's why we have to record on Skype because we're too far to cross the river.
Anyway, Joe Udo is on the line with us. Joe, give everybody a big hello, a shout out.
Joe Udo: Hey, everybody this is Joe Udo.
Eric: If you're a long time listener you know I like to say personal finance should be fun, it shouldn't just be boring. So this is your opportunity if it is safe and you are able to hit the pause button and join us for a beer. Joe sadly told me that all of his beer's warm right now. So he is not having a beer, we're just hanging out. But on my end I'm enjoying a Left Coast Brewing Hop Juice Double IPA from San Clemente California. Hit the pause button if you wanna grab a beer, a wine, a scotch, whatever your drink of choice is. Or if you're a non-drinker, a pop, you know, if you can grab a Coke or something, the real thing is at night you don't want the caffeine, maybe a nice tea or something like that. Anyway, pause button.
Okay pause is over, we're back again here with Joe Udo. So Joe, as I was saying, I met through the Yakezie because of his site, Retire by 40. And he started this site quite a while ago. The name is actually pretty, it's pretty clear what he is trying to get at there.
The Journey to Early Retirement
Eric: So Joe, could you share with everyone how you came up with the idea for Retire by 40 and how you got started in the beginning?
Joe: In 2010 I was getting really bored with my job and it's really stressful. I was an engineer so I sat in front of the [inaudible 3:31] all day and whenever I had some down time I'll look through personal finance blogs and personal finance sites to figure out how to increase my net worth and save more money and all that good stuff. So one day I was sitting in my computer and reading with it, ‘hey, Retire by 40, that's a great name. Maybe I can start a blog and it just tells you what happen and that's it.
Eric: If you wanna go visit that again that's Retireby40.com; not to be confused with other blogs with similar spellings, Joe's is the original Retireby40.com
Joe: It's actually dot org.
Eric: What was that?
Joe: It's actually dot org, ORG.
Eric: Oh my bad. I apologize. Dot org. Retireby40.org. So that's Joe's site. One thing that makes Joe really special, not only is his site called Retire by 40 but he actually retired by 40, which is a hugely amazing feat. So congratulations on doing that.
I am sure there are tons of people out there that wanna know what your strategy was, how you arranged your savings and your income and what allowed you to leave your full time job before you turn 40. How did that process started? You said you were reading all these blogs, you started your own blog. What happened next?
Joe: So my original goal was to retire by 40 which is about five years after I started my blog. I was making pretty good income so I was able to save a lot of that. And it took me awhile to convince my wife to get on board with the program to let me retire by 40 but eventually we got on board and we lived modestly and I saved all of my income and just live on her income [inaudible 5:27-5:29] passive income we have.
How to Live Modestly and Still Save
Eric: So you were, you mentioned an engineer, I know you worked at a major software and hardware company. What was it like initially? Were you living on both of your incomes and big spenders and decided one day I'm going to, we're just gonna live on my wife's income? How did that idea come to be and what was the process like? Were there any pain points, did you have to give anything up to get to that point?
Joe: Initially I was making pretty good money but I never was a big spender. And my wife, her income was up and down, you know. She worked at a corporation for a while then she went back to school to get her graduate degree. So for a few years her income was pretty much zero. Then she went back to work again and her income started increasing again.
But we never spend a lot of our money. We saved a good chunk of it and we never got into consumer debt. So it wasn't a huge transition to the point where we saved all of my income and just live on her income. We did have to make some adjustments but it wasn't huge.
Eric: Can you give any examples of adjustments you made?
Joe: We used to have a car each and then after we decided to go on this journey we went to one car for the family. And that worked out okay. Just one other example, we eat out a little bit less and cook at home more. You know, the little things.
Eric: So lots of little things add up to a lot. It's something that I like to talk about a lot on the podcast and the blog. Changing your financial situation doesn't have to be this super dramatic thing. There is a hugely popular bloggers out there like Mr. Money Moustache who proudly live on under $20,000 a year to feed their family and everything they need.
But you don't have to give up everything you do to live a financially modest lifestyle. Joe's saying, going down to one car from two cars. That could save thousands, there's insurance, hundred and something dollars a month probably, gas, if you have any car payments, that adds up to a lot. Do you know how much you ended up saving in total in dollars along the way? Do you have any idea?
Joe: Not really. I didn't keep track of that but it definitely saved quite a bit. Just like you said, you know, insurance and there are a lot of fixed costs to owning a car.
Online Income Sources
Eric: As you were saving more I know from reading your site that one of your big income sources, you make money on your site from Retire by 40, is that your only online income adventure or do you have any other things you're doing to make money on the side?
Joe: When I first started that was my only online income but it wasn't much. Of course, when everybody first started it was really little maybe, you know, hundred dollars a month or something like that.
Eric: I remember those days.
Joe: Yeah. But after a few years it increased. I also did some side hustle. I did some, what do you call this, the survey group and a few other things. But those didn't make much money either.
Eric: So the big side money maker was Retire by 40. Is that still contributing quite a bit? And how much time do you still put in on the website, every week or month?
Joe: I spend about 20 to 30 hours on the website. It is bringing in a decent amount of income. It made around two or three thousand a month, it just depends.
Stock Market Investments
Eric: That's great. That plus all your other investments. That's the next thing I wanted to ask you about. I know you have quite a bit in the stock market. You do pretty well with dividends, you're building up a better cash flow from dividends. Can you share something about where those savings came from, how you decided to start investing and what your dividends strategy looks like?
Joe: Sure. When I first started blogging Retire by 40, pretty much all of my stock investments were in growth stocks. And then after a couple of years I figured out that if I'm gonna retire early I need some extra income and one source of that would be dividends. So I've converted all of those into, all my stocks and investments, into dividend stocks, into taxable accounts.
Eric: Did you focus more on mutual funds made up of high dividend stocks or did you buy individual companies or some mix of the two?
Joe: I focused on individual blue chip stocks, solid companies that have a good record, good track record of growing their dividends. So those are called dividend growth.
Eric: How much do you make on a typical year now. Let's say in 2015, how much will you bring in from dividend stocks?
Joe: In 2015 my goal was to have my dividend income to be over $10,000 and I think we'll beat that with this month, a little bit over $10,000.
Eric: About how much do you have invested in those stocks to come up with that $10,000 a year?
Joe: Right now they’re worth about $300,000 but the stocks have increased quite a bit over the last few years. I need to go through my record to see how much I really invested in there.
Eric: That's something important for any new investor to think about. There's two ways that your wealth can grow through the stock market. One is equity returns, so the stock price going up and the other is through the cash provided by those stocks. So those would be the dividends. And both parts are very important. How you invest as a young investor or an investor trying to retire at 40 or someone trying to retire farther down the road; I imagine most people on this site do not wanna retire farther down the road if you're listening.
You have to really think about how you want your investments to grow. For me, my strategy has been, I do all of the individual stocks I have, I actually post those now on my monthly investment income and entrepreneurship income posts, didn't say exactly which stocks I have. And very few of them are anything risky. But majority are, just like Joe, those big blue chip companies, the Walmarts and General Electrics of the world who I'm not worried are going anywhere.
Because I'm not trying to retire right now I want those to grow, I'm reinvesting my dividends. But all I have to do if I want to turn that into dividend income is I have to go and hit a switch on my brokerage account and instead of having those dividends go back into the stocks they start getting paid out to me just like they're getting paid out to Joe.
Ten thousand dollars a year, I imagine that covers more than one or two months of your mortgage or your rent where you live. Is that right?
Joe: Right, right. Yeah. Actually we're still reinvesting most of that because my wife still works so we still have more income than we need to spend.
Full Time Stay-At-Home Dad
Eric: So one thing that holds up a lot of people from trying to leave a full time job at a relatively young age such as 40 or 30s is having a family and trying to support everyone. Joe has a wonderful and incredibly cute little boy and he's always just so much fun to hang out with. For the listeners listening, what has that experience been like, being a parent and being married and leaving a big corporate job in your 30s and 40s?
Joe: That was actually one of our biggest motivation for having one parent stay home. Because I was working when my son was born and every day we drop him off at the daycare at seven in the morning and then we pick him up at six in the evening. I feel like I don't get to spend any time with him. We did that for about a year and a half and by then we were ready to have one person stay home. So that was me.
Eric: Do you have any idea how much money that is saving you? How much were you paying to send you son to daycare that you saved by leaving your job?
Joe: We're paying about $1100 a month for daycare. I think that cost would go down a little bit as he get older but not much. Portland has very expensive [inaudible 15:07].
Eric: So there is about another probably $12,000 a year you saved? All these things are really important and good strategies. I know you lived in the same place for quite a while do you mind sharing what your costs are for where you live and your thoughts on….do you want to stay where you are, do you want to move somewhere else? What's your long term thought on housing and living on low expenses?
Joe: We live in downtown Portland and we live in a condo with a 2 bed, 2 bath condo. It's a pretty good sized for the two of us actually. When we had a kid it was still pretty good. My mom, she visits us pretty often on extended visits so we will need some extra room in the future. Right now it's working out pretty well but in 3 or 4 years we'll probably move into our rental home which is in northwest Portland.
Eric: So you own that rental home in addition to the condo you live in now?
Eric: How did you end up with the rental property and is that giving you guys cash flow as well?
Joe: Yeah. The rental property, in fact, is kind of a long story. About seven years ago we still lived in Hillsboro, which is a suburb of Portland. It’s near where I used to work. And that was convenient for me but when my wife found a job downtown we decided to move downtown and it's a lot more fun to live downtown. That was our main motivation.
So when we moved we kept our old house and then converted it to a rental and then we kept it for five years. And then we did a 1031 exchange, so that means we sold our old house and then we purchased a house in northwest Portland. Normally when you sell a rental home you have to pay capital gain tax but we did a 1031 exchange so we roll everything into our new rental house. That's a lot closer to where we live right now and it's in the area where we once live. Eventually in three or four years we'll move back home.
Eric: Is that making you guys a good amount of money each month or is it kind of breaking even?
Joe: It is making us some money mainly because the rent has been going up quite a bit in Portland. Next year it should make us maybe five or six hundred dollars a month depending on how much or [inaudible 18:51] we have to do.
Eric: For people who don't know what's going on in Portland in real estate which I imagine most people, real estate here has been totally crazy. I've lived in Portland now for about two years and I am definitely one of the contributors to, people keep moving here because it's such a great place to be. The upside of that as a property owner especially if you have multiple properties, is rents keep going up and up and up and up at an incredibly fast rate.
We live in a rental, our first year here. But we've been on our house now, actually we just past a year this last week. We've been in a great spot since we've been in our house but watching and reading Portland news, rents are going up sometimes in 20%, 50% or more per year for some locations in town. It's definitely not a good time to be a renter in Portland. It's a great time to be property owner in Portland. So kudos, Joe that you're on the right side of that.
Joe: Thanks. Actually we try to keep the rent increase to about 5% for the people that live there but when somebody move out, somebody actually moved out in November and we renovated the place, we put new hardwood flooring and cleaned up the place really well and you know, I painted the place and there was increase in rent 20%. The new renter they're actually getting increase from their current rent and actually I should have increased the rent a little bit more.
Eric: Do you manage the house yourself or do have a third party property manager?
Joe: I manage the house myself. It's actually a duplex, so there's two units.
Eric: That's great. The package is starting to come together as to how Joe is able to leave the big job. It wasn't just one thing that he did that let him retire by 40. It was building up his website, his online business to create one cash flow. He did some side hustles to create another cash flow. He has his investment portfolio creating another cash flow. He has two rental units in a house that are creating another cash flow. When you add all that up it ends up being a pretty good income.
I know, as you said, your wife is still working. What are her plans regarding early retirement or sticking with work? What are your longer term plans?
Joe: Yeah. I have a warning to all the listeners here. Early retirement is catchy. At first when I left my job, she liked her job and she planned to work the normal amount, in five or six years but over the last year or so she's feeling like maybe, she's seeing that much fun I've had and how much my quality of life's improved thinks more to join me in early retirement. So her plan is to leave her job by 2020, so that's in 5 years. So we need to work on increasing our passive income and my online income and hopefully we'll limit our expense in five years.
Eric: Do you have any specific plans laid out for the next 5 years for how you're gonna continue to grow that side income?
Joe: Yeah. For dividend we'll just keep investing, try to grow the dividend income. The rental income, it's also the same way, just to improve the property and keep increasing the rent as we get new tenants. My online income, I'm not sure, it's kind of up and down. I'd probably try and put a little more hours into it once my kid goes to school. Because now I spend a lot of time with him.
Eric: That's not bad; spending time with your kid. Me, having to go to work all day, I'm little jealous of that one. My wife gets to stay home with the baby and I miss her all day. That's just a little internet tear that you guys just heard. It's a cute benefit.
Advice on Creating an Early Retirement Plan
Eric: If someone knew your story, knew you were able to retire by forty, knew very little about how to manage their own finances to get this way, what advice would you have for someone who wants to get started on a plan to retire early?
Joe: To get started, I would say the most important thing is to track your finance so you know where all your income are coming from and what you're spending all your money on. Before I started my site I didn't really track my finance that closely. But when I started tracking my expenses really closely I could see that there were a lot of things that I could cut out and it wouldn't impact our quality of life that much. I think that would be a good starting point.
And also just start investing even if you don't have a lot of money. Just start investing because you need to go through a few cycles of the ups and downs so you can see how you react to a stock market crash. Then you can come up with a good investment strategy that's perfect for you.
Eric: Did you have a lot of investments in the market already when there was a big downturn around 2008?
Joe: Yes. I went through a couple of crashes. I went through the dot com crash, the dot com bubble. And then the 2008 crash. The first time I sold some stocks, I moved things around and it didn't really worked out that well. So I know the second time in 2008, all you need to do is just keep investing, just keep adding at my funds at hand. And eventually the market just recovers.
Eric: I totally, a hundred percent agree with that strategy. I was a fairly new investor around 2007, 2008, I watched my stocks go down and down and down when the housing bubble burst. But then not too long later it came back to where it was and then some.
If you look back at the history of the stock market, which the S&P 500 is a great representation of the biggest companies in the US Stock Market overall, it always go up in the long run no matter what has happened; the Great Depression, the Great Recession, everything in between. It always comes back. So when it goes down don't think of it as losing money. Think of it as an opportunity to buy more on the cheap. Then you'll end up in a great spot like Joe making $10,000 in dividends every year which I can't say I'm not a little jealous.
Joe: Yeah, it's nice. I think that going through that down cycle was really a good benefit for you. Even if we hear that it's time to buy, if you haven't gone through it you still have that hesitation. If you've gone through it a couple of times you kinda know that it'll come up and you don't have to put more money into the market.
Eric: Do you have any plans in the future, I know you said you're gonna move into that rental property you own that's a duplex, do you plan to keep your condo that you're living in now as a rental? Or do you think you'll sell that?
Joe: We'll probably sell that and then use the money to pay off the mortgage on the rental. We have mortgage on both places right now. But if we sell this place then we can probably pay off the mortgage on the rental which will become our primary investment. But at that point we won't have any debt at all and our cost of living will be much lower than it is now.
Eric: Do you mind sharing what your mortgage is or the total of the two mortgages right now, what your real estate costs are each month?
Joe: Yeah, yeah. My condo, I'm paying about $2200 a month – and that's mortgage, insurance, HOA, property tax. That's kind of high but it's the location. On the rental [inaudible 26:50-26:57]. We pay about $1500 on our rental.
Eric: So when you moved in there, it sounds like you'll be saving quite a bit on your monthly costs. If you can pay off the mortgage on that, you'll have the cash flow from the renter and you'll be living rent free essentially. I can't imagine a better situation for that than for early retirement.
Before we go, this has been wonderful, super helpful, I hope all the readers and listeners out there, I always say readers coz I started blogging before I started podcasting. I hope all the listeners out there have really enjoyed this. And you can find Joe at RetireBy40.org, that's spelled out Retire By and then the numbers four, zero, dot org. If they wanna connect with you outside of their…do you wanna share your Twitter, any other social media places for people to find you?
Joe: My Twitter is also Retire by 40 but the 40 is spelled out – forty. I couldn't get the [inaudible 28:07] 40.
Eric: Like the most frustrating thing when you want your own name or your own something and it doesn't work. It's always frustrating. I was just trying to buy my own name website and it has not gone well. That's why I'm EricRosenberg.me coz the other options weren't available.
Joe: The easiest option is just, you know, you can even Google Retire by 40, I should be up first and visit my site and there's a contact form there if you like to send me an email or anything.
Eric: Great. Well than you so much for taking the time to join us today. Thank you listeners for listening along and hearing Joe's story. I really do highly recommend you check out his website. It's a great one. I've been reading it for a lot years now that I've been lucky enough to know Joe and follow his journey. So thank you, Joe. Thank you listeners. I'm holding up my beer to give you one final cheers as we head out for the day.
And until next time, stay profitable.
Joe: Thanks everyone
Eric: Thank you.