Starting from zero..literally.

Keepcalm · Post by **Keepcalm** » Thu Jan 31, 2019 9:17 pm

I posted a while back about a friend who had some debt and had thoughts of using his IRA to wipe it out. Long story short he did, and he has zero debt, and zero retirement.

He literally has 6K to his name, and even sold his house to use the small amount of equity to pay towards the debt. Sold his Audi for a Camry. He also now rents for a fraction of what his mortgage was.

What is some encouragement or food for thought I can give him? He is pretty depressed he sold it all off. However he would have been in debt paying it off for years.

He is 32, can he still get on track starting from zero?

He is a fellow engineer, and although he is a smart guy in his field, he has clearly made some mistakes financially.

As much as you want to roast him for his actions, he is a good friend and I probably owe him my employment. I do not think I would have landed where I am if it wasn't for his reference.

What do I say to this man to solidify the fact he can start a new life just fine?

squirm · Post by **squirm** » Thu Jan 31, 2019 9:19 pm

Yup still young. I had nothing at 32.

Independent George · Post by **Independent George** » Thu Jan 31, 2019 9:24 pm

1. Quite a lot of people are still deep in student debt at 32. There's nothing wrong with zero, and still plenty of time for him to build assets.
2. If he sold his assets to pay off his debts, then he was already at zero (or less) net worth before. All he did was re-organize his accounts, and...
3. Without his debts dragging him down, his monthly net income should be significantly higher than it was before. It should be very noticeably by the end of the months, and he won't be at zero for much longer.
4. With this, of course, comes the temptation to start spending again. That is something he will have to guard against, but this is a better class of problem to have.
5. As an engineer, probably the most convincing argument he can face is an excel spreadsheet showing his previous monthly net against his new monthly net.

arcticpineapplecorp. · Thu Jan 31, 2019 9:39 pm

32 with no debt and no retirement is not the end of the world. If he plans to work til a normal retirement age 65 or 67 full retirement age he's still got plenty of time.

Does he have access to a 401k with matching money? If so, he should first put enough in to get the match. So if the company will match 100% of the first 5% of his pay, he's got to contribute that 5% of his pay to capture the match. He's got to do that no matter what because it's free money that should not be turned down and potentially a huge rate of return (100% match even on 5% of your pay is still a doubling of your 5% per year. Can you get 100% on your money every year guaranteed with no risk anywhere else? Nope).

Secondly, it sounds like he needs to build an emergency fund if he's only got $6000. Should have 3-6 months generally so start there. You know, in case the car dies or he has to move, loses the job and needs money to live on until the next one, etc.

Once he has that done, he can continue saving what he's been putting into short term savings for emergencies but now put back for long term savings (retirement).

Perhaps what he should do is automate his savings. How disciplined is he regarding saving? Most people get their pay and pay their bills and see if there's anything left to save. Because of the fundamental economic problem (we have unlmited wants but limited means) you can always find something to spend every dollar you earn. So you've got to save first before you spend. Buffett said "Don't save what is left after spending; spend what is left after saving." Makes sense. If you save it, you never miss it. But you'll be damn glad you did later on. Automating savings help here because it's taken out so you learn to do with out. You don't really get a chance to miss it.

BolderBoy · Post by **BolderBoy** » Thu Jan 31, 2019 9:40 pm

Keepcalm wrote: ↑Thu Jan 31, 2019 9:17 pmHe is 32, can he still get on track starting from zero?

Yes, absolutely.

BionicBillWalsh · Post by **BionicBillWalsh** » Thu Jan 31, 2019 9:45 pm

He has 33 yrs until 65. He could become a billionaire in that timeframe.

Davinci · Post by **Davinci** » Thu Jan 31, 2019 9:51 pm

What do I say to this man to solidify the fact he can start a new life just fine?

Tell him that he is doing much better than most for his age. I recently read an article that the average 30 year has ~$100k in student loans, $50k in credit card debt and essentially zero retirement.

samsdad · Post by **samsdad** » Thu Jan 31, 2019 9:54 pm

I think he’s set himself up great to live below his (current) means.

I had squat at 32.

Selling the house and renting for less, getting rid of the expensive-to-repair Audi for a Toyota are great moves in my opinion.

Build up a nice EF. Then save and invest as much as possible. I’d go 100% equities for awhile.

Your friend might be depressed because he’s not keeping up with the Jones’s. He’s already surpassed many.

greg24 · Post by **greg24** » Thu Jan 31, 2019 9:57 pm

Many have a negative net worth at 32. He has an education, a job, and has cut expenses. All the tools needed to save up a nest egg. Time to get to work.

BionicBillWalsh · Post by **BionicBillWalsh** » Thu Jan 31, 2019 9:59 pm

samsdad wrote: ↑Thu Jan 31, 2019 9:54 pm I think he’s set himself up great to live below his (current) means.

I had squat at 32.

Selling the house and renting for less, getting rid of the expensive-to-repair Audi for a Toyota are great moves in my opinion.

Build up a nice EF. Then save and invest as much as possible. I’d go 100% equities for awhile.

Your friend might be depressed because he’s not keeping up with the Jones’s. He’s already surpassed many.

The value of being unburdened is inestimable.

cheezit · Post by **cheezit** » Thu Jan 31, 2019 10:15 pm

Since he's an engineer, just plug the numbers for some reasonable savings rate and asset allocation into a Monte Carlo simulator with a 30 or 35 year period. The 50th percentile numbers will be fine to finance a retirement on their own; the 10th percentile numbers added to 79% of his social security payment will still replace his current income in retirement with a conservative withdrawal rate of 3-3.5%. That ought to reassure him that he's not in such bad shape starting where he is.

Watty · Post by **Watty** » Thu Jan 31, 2019 10:20 pm

Keepcalm wrote: ↑Thu Jan 31, 2019 9:17 pm What is some encouragement or food for thought I can give him?

According to this web site,

https://www.thestreet.com/personal-fina ... e-14730772

Net Worth: Under Age 35
For American households with a head of household under the age of 35, the mean net worth in 2016 was $76,200. But the median net worth was just $11,100.

With the a paid off Camry and his household goods he probably has more than the median net worth.

The average household income is about $61K and that includes a lot of two income households and he likely has a higher income than that.

https://en.wikipedia.org/wiki/Household ... ted_States

averagedude · Post by **averagedude** » Thu Jan 31, 2019 10:27 pm

I think this guy will be fine. Anyone who goes to that extreme to get out of debt, will probably not find himself in debt again. I would encourage him to start investing and have it automatically come out of his future paychecks.

TN_Boy · Post by **TN_Boy** » Thu Jan 31, 2019 10:32 pm

Davinci wrote: ↑Thu Jan 31, 2019 9:51 pm
What do I say to this man to solidify the fact he can start a new life just fine?
Tell him that he is doing much better than most for his age. I recently read an article that the average 30 year has ~$100k in student loans, $50k in credit card debt and essentially zero retirement.

I think you should re-read that article. I don't think the average 30 year old has anywhere near 50k in CC debt (that number could be off by a factor of 10) and I'm pretty sure the *average* student loan is far less than 100k.

If you find that article and it has those numbers, please post a link. I'd like to know where the numbers come from.

To the OP, your friend is not in a great place, but if he is healthy and has a decent job, he's not in that bad a shape at 32.

beyou · Post by **beyou** » Thu Jan 31, 2019 10:35 pm

Tell him to read the story of “Col Sanders” of KFC fame.
The guy had so many failed jobs and ventures until he was in his 60s, and didn’t make his real money until his 70s. He was a colorful character, interesting to read, and inspiring in terms of never giving up ! Never too late, and your friend did not have the same hardships as the Colonel !

https://en.m.wikipedia.org/wiki/Colonel_Sanders

Erwin007 · Post by **Erwin007** » Thu Jan 31, 2019 10:51 pm

I had a substantially negative net worth at 32. Like probably negative $350,000 net worth. He’s doing fine. Granted, I had a pretty big shovel once I graduated fellowship, but that doesn’t change the fact that I was poorer than the guy living under the bridge. He’s got plenty of time but hopefully knows he needs to make better choices going forward or he’ll repeat this cycle in another few years.

Thesaints · Post by **Thesaints** » Thu Jan 31, 2019 11:18 pm

Why did the OP's friend felt the urge of repaying all that debt now ? Rates in general are low.
Maybe the first step towards helping and advising him would be understanding if he did something foolish.

AerialWombat · Post by **AerialWombat** » Thu Jan 31, 2019 11:28 pm

At 32, I was just starting to recover from bankruptcy and homelessness. At 40, I’ve achieved “functional financial independence” and in one more year I’ll arrive at a more traditional, Boglehead-approved definition of FI.

Tell your friend that a net worth of $6,000 is far better than a net worth of negative whatever-it-was. He has plenty of runway left in life to set himself up for a comfortable retirement.

jabberwockOG · Post by **jabberwockOG** » Thu Jan 31, 2019 11:32 pm

32yo with zero assets but no debt is not the end of the world. Many are in worse shape but many are in better shape.

It is certainly possible to get your finances and your head straight at 32yo and do just fine going forward.

But here is what really matters - unless your friend makes drastic changes on how they think about money, assets, debt, spending, and most importantly saving, they will almost certainly be right back in the same sad shape in a few years, and then again a few years after that, and repeat.

Changing the way you fundamentally think about income, spending, and savings is absolutely critical to producing lasting and meaningful improvement in your financial security. Without it nothing will change, except the next time there will be a fresh set of excuses as to why it all went badly again.

The important question to ask your friend is what life style and behavioral changes are they going to pursue to insure they are never in this position again?

MotoTrojan · Post by **MotoTrojan** » Thu Jan 31, 2019 11:33 pm

Buy him Intro to Bogleheads or Random Walk Down Wallstreet and tell him he’s ahead of the curve already.

Dottie57 · Post by **Dottie57** » Thu Jan 31, 2019 11:35 pm

No debt is a good place to start at. 32 is not too old to restart or just start retirement. Investing.
P.s. I just read the original post. Really do think your friend needs some help in learning how todeal with debt.

I hope he can start saving AND investing as much as possible. A large savings account may help him in the future.

Lucien786 · Post by **Lucien786** » Thu Jan 31, 2019 11:46 pm

The fact that you feel pity for this guy kind of depresses me a little bit . . . I have less than zero, and so do many people this age, probably. OK, to be honest the percentile with negative net worth is actually pretty small. In any case, I have a high income but high student debt from graduate school. I still think I'm better off than if I had nothing, because I have an emergency fund (though it's not big enough yet) and because I've been able to take advantage of tax-advantage space, and that's still an advantage over someone who hasn't put anything in those funds (because of the annual maxes, you never get the opportunities back).

Anyway, yeah. It's funny to think that there are people out there who view people like me as sad cases. Haha.

FireHorse · Post by **FireHorse** » Thu Jan 31, 2019 11:54 pm

Only 32, what's the worry. Many of us started later than 32 and yet still be able to retire early.
The key is that your friend has learned his lesson and moving life forward.

Sandtrap · Post by **Sandtrap** » Fri Feb 01, 2019 12:10 am

Davinci wrote: ↑Thu Jan 31, 2019 9:51 pm
What do I say to this man to solidify the fact he can start a new life just fine?
Tell him that he is doing much better than most for his age. I recently read an article that the average 30 year has ~$100k in student loans, $50k in credit card debt and essentially zero retirement.

+1
And, many do not have job skills, professional degrees, or lucrative careers, as well.

I know quite a few folks that were "late starters" but amassed substantial assets and retirement by age 65.
Your friend has a lot of time as long as he:
Starts now
Stays on track
Keeps his priorities

tarmangani · Post by **tarmangani** » Fri Feb 01, 2019 12:17 am

jabberwockOG wrote: ↑Thu Jan 31, 2019 11:32 pm
The important question to ask your friend is what life style and behavioral changes are they going to pursue to insure they are never in this position again?

This right here. As others have indicated, he's got a firm financial position: solid income, stable job (I assume on both accounts), and no debt. But if his debt came from bad habits, and those habits are likely to recur, then there's a serious problem.

Keepcalm · Post by **Keepcalm** » Fri Feb 01, 2019 12:25 pm

I will pass the encouragement on, thanks all.

2015 · Post by **2015** » Fri Feb 01, 2019 1:02 pm

Lucien786 wrote: ↑Thu Jan 31, 2019 11:46 pm The fact that you feel pity for this guy kind of depresses me a little bit . . . I have less than zero, and so do many people this age, probably. OK, to be honest the percentile with negative net worth is actually pretty small. In any case, I have a high income but high student debt from graduate school. I still think I'm better off than if I had nothing, because I have an emergency fund (though it's not big enough yet) and because I've been able to take advantage of tax-advantage space, and that's still an advantage over someone who hasn't put anything in those funds (because of the annual maxes, you never get the opportunities back).

Anyway, yeah. It's funny to think that there are people out there who view people like me as sad cases. Haha.

I don't view you or those like you as "sad cases". You simply chose to invest in your earning potential through attending graduate school, which is a very wise choice. Focusing on creating rare and uncommon value in the talent market place is a wiser choice than trying to strike it rich by becoming a "student of investing." The former choice is a much better bet, and something which you have total control over as opposed to the latter.

Traveler · Post by **Traveler** » Sat Feb 02, 2019 3:36 pm

At 32 I have about $28K in student loan debt and owed about $155K on a house that was worth about $165K. I also had maybe $20K in a 401K. Now at age 46 I plan to retire around age 54. Your friend is better off than I was at that age but he needs to address why he got into debt and how to prevent himself from doing the same thing down the road.

lostdog · Post by **lostdog** » Sat Feb 02, 2019 4:00 pm

I started getting serious at 33.

JBTX · Post by **JBTX** » Sun Feb 03, 2019 12:35 am

If he can save $15K per year, every year, and increase each year for inflation, in 30 years he could have roughly $1 million at 62 years in today's dollars (5% real return), or $1.5M in future dollars assuming 2% inflation. Work another 5 more years to 67 and that becomes $1.4M in today's dollars. Obviously the more he can save the larger that number becomes.

catchinup · Post by **catchinup** » Sun Feb 03, 2019 12:58 am

I had negative net worth until I was 42. Before then, I was appallingly irresponsible with money. I had done really stupid things like postponing paying off my student loans --allowing interest to accrue, living in credit card debt cashing out a 401k and spending the money... and one time I got a business contract that earned me $65K ... so I took a year off and spent it. UGH!

After I finally paid off all my debt, I felt so free -- but so behind on saving for retirement. (Hence my handle "catchinup")

Then I swung in the other direction and became really strict about my spending and started saving like crazy and investing.

By the time I was 57 I'd achieved a net worth of just over $1M.

I'm almost 58 now, and I've just inherited some money on top of my savings. That couldn't have been counted on, but I guess at this point, I'm pretty well caught up.

Let's hope I don't blow it by making poor investment decisions!

catdude · Post by **catdude** » Sun Feb 03, 2019 1:38 am

When I was 32 I had next to nothing. And I really didn't get started investing till I was 40.

If your friend gets with the program, he'll be fine.

SarahS · Post by **SarahS** » Sun Feb 03, 2019 4:23 am

Your friend may not have a lot of money now, but he does have more of one thing that most of us here on this forum have (and wish we could have more of). That being ... time. And with that time, he can work the magic of compounding.

Call_Me_Op · Post by **Call_Me_Op** » Sun Feb 03, 2019 7:06 am

Keepcalm wrote: ↑Thu Jan 31, 2019 9:17 pm He is 32, can he still get on track starting from zero?

I know a man with 3 kids and a stay at home wife and a modest salary (engineer) who has amassed a substantial fortune (several million in net worth). His secret? He is extremely frugal. It's all about what one socks away. Your friend has 35+ years, in which time one can build a large fortune.

student · Post by **student** » Sun Feb 03, 2019 7:42 am

I am in academia. Almost everyone I know starts from 0 at age between 28 and 32. Some even have student debts.

tennisplyr · Post by **tennisplyr** » Sun Feb 03, 2019 8:12 am

I had virtually nothing at 40...home with mortgage, stay at home wife with child. Now, retired @61 no debt, enjoying life. Keep working, saving and living within means. There's always hope especially for the young.

Michael Patrick · Post by **Michael Patrick** » Sun Feb 03, 2019 8:25 am

I started from less than zero.

I joke with my wife that we didn't need a pre-nup because neither of us brought any assets to the marriage, we each brought debt. Credit card debt from me, and student loan debt from her.

I was 32 years old when we got married, and in the process of putting my life back together after years of drug and alcohol abuse. We methodically paid down the debt and have managed to sock away enough that we won't be living in a refrigerator box under an overpass in our twilight years.

Obviously, starting in your 20s is better. But at 32, your friend has time. He just needs to come up with a plan and stick with it.

UpperNwGuy · Post by **UpperNwGuy** » Sun Feb 03, 2019 8:59 am

My net worth was zero at age 32.

harrington · Post by **harrington** » Sun Feb 03, 2019 11:04 am

These days 32 and no debt would be considered pretty good. Don't make the same mistakes going forward and he'll be fine. I had nothing at that age. I'm now in the 7 figure club and retired at 49.

JTColton · Post by **JTColton** » Sun Feb 03, 2019 12:06 pm

Starting from zero is better than starting from behind. I didn't get serious until I was 36 about to change careers with a kid on the way. Your friend has low expenses and a decent job, he's in a perfect spot to hit the gas pedal on saving a good portion of his income. Buy him a couple of Boglehead-ish books or maybe even send him a link to this forum.

Earl Lemongrab · Post by **Earl Lemongrab** » Sun Feb 03, 2019 2:43 pm

As I recall, the original debt was all credit card. So the question really is not about starting over from zero, it's how to prevent the original problem from happening again.

Post by **LadyGeek** » Sun Feb 03, 2019 2:52 pm

This thread is now in the Personal Finance (Not Investing) forum (financial planning).

mcadams089 · Post by **mcadams089** » Thu Feb 21, 2019 11:55 am

Davinci wrote: ↑Thu Jan 31, 2019 9:51 pm
What do I say to this man to solidify the fact he can start a new life just fine?
Tell him that he is doing much better than most for his age. I recently read an article that the average 30 year has ~$100k in student loans, $50k in credit card debt and essentially zero retirement.

With the exception of the $50k in credit card debt, I'm in this boat right now at 29. I turn 30 this July and have a little over $100k in debt, about 90% of that student loans. I'm snowballing my debt and at my current income will be debt free and starting at zero by the time I'm 32.5. I look forward to being at zero! Because right now I'm at negative $100k..

Raymond · Post by **Raymond** » Thu Feb 21, 2019 12:23 pm

Keepcalm wrote: ↑Fri Feb 01, 2019 12:25 pm I will pass the encouragement on, thanks all.

And if he feels like it, he can join us all here.

Zero debt at 32, with a good job, $6,000 and a decent car is definitely better than a poke in the eye with a sharp stick.

ohai · Post by **ohai** » Thu Feb 21, 2019 12:25 pm

mcadams089 wrote: ↑Thu Feb 21, 2019 11:55 am
Davinci wrote: ↑Thu Jan 31, 2019 9:51 pm
What do I say to this man to solidify the fact he can start a new life just fine?
Tell him that he is doing much better than most for his age. I recently read an article that the average 30 year has ~$100k in student loans, $50k in credit card debt and essentially zero retirement.
With the exception of the $50k in credit card debt, I'm in this boat right now at 29. I turn 30 this July and have a little over $100k in debt, about 90% of that student loans. I'm snowballing my debt and at my current income will be debt free and starting at zero by the time I'm 32.5. I look forward to being at zero! Because right now I'm at negative $100k..

What? What interest rate do you have on that $50k of credit card debt?

yogesh · Post by **yogesh** » Thu Feb 21, 2019 12:38 pm

At 30 I was in the same situation with negative net worth. Please pass on encouragement that he can't change past but can change present/future with his deeds. First win is understanding and acknowledging that something is wrong. Here is what helped me come out of this situation:
- Paid off and kept credit card out of my reach. Use it only if you pay off full balance monthly. Rewards are gimmick to suck you in debt.
- Created two accounts "checking with ATM card" and "savings" in local bank
- Tracked income, expenses using local bank budget tool (mint like)
- Reduced expense to absolutely minimum
- Change payroll to take 15% out pretax to 401K (Target date index)
- Change payroll to deposit monthly expense amount to checking
- Change payroll to auto deposit rest to savings
- Reach savings account balance to be 1yr expenses as emergency fund
- Open brokerage account and put it in VTMFX or VTWAX
He is better off with something like Acorns which combines checking/saving/brokerage into one with automation.

Startingover2019 · Post by **Startingover2019** » Mon Dec 30, 2019 9:34 am

At 41, after marrying a gold digger who spent and spent, and took me to cleaners in divorce, I am literally starting over again. NW currently is about $0.

Thankfully, no more bad decisions and have a pretty big shovel and no kids, so I think I will be OK.

Will see where I am this time next year. Plan on NW of 300k God willing.

StoopieHippo · Post by **StoopieHippo** » Mon Dec 30, 2019 10:23 am

I had about -$100k at 32 and at 34, now have over $100k saved. It's definitely possible, just gotta live below your means.