The Compounding Returns Of Habits
“You leave old habits behind by starting out with the thought, ‘I release the need for this in my life.’ ” ―Wayne Dyer
The concept of Financial Independence is so new that it can be viewed as more theoretical than practical. Sure it makes sense on paper but how many “real people” have actually achieved Financial Independence?
That is why I spend so much time researching case studies of real people who have achieved financial independence. This is my favourite case study to date. Tony Gayden applied the discipline and confidence he gained from losing 260 pounds to get the career he always wanted, to pay off his $50,000 debt and create passive income through real estate investing.
For those who think Financial Independence is only for the privileged among us, they need to hear Tony’s story. Tony grew up in a lower-middle-class family in a household that did not talk about money. One similarity between people who struggle with money is growing up with money as a taboo subject. Money and personal finance is certainly not taught in school, so where are we supposed to learn how to manage money if not from our parents?
Tony struggled with food addiction and at 14 weighed over 300 pounds. Things did not improve in his twenties when he moved out of his parent’s house. He worked the overnight shift at Walmart making less than $20,000 per year. This job gave him no fulfillment and his eating habits became worse and he spent much of his free time playing video games.
He was also struggling with his spending habits. He was living well above his means using credit cards to fund his lifestyle. Eventually, he racked up $50,000 in debt. Which on a $20,000 annual income can feel like a life sentence with debt.
The day he accepted the fact that he had an addiction to food might have been his rock bottom. Most bathroom scales max out at around 300 pounds so it had been quite some time since Tony got an accurate weight measurement. One day at work, he stepped on an industrial scale and saw to his horror that he weighed 476 pounds. This was the moment he began to come to terms with the fact that he had to make a change.
A few months later at Christmas, he saw himself in his family photos and he made a New Year’s resolution to drop the weight. He was so determined he could not wait for New Year’s and on December 26th he started exercising and changing his diet.
The changes were small at first. He did not have money for a gym membership so he started walking 30 minutes a day despite the fact that it was freezing cold and snowing outside. When it came to food, Tony knew he wasn’t going to start eating kale salads overnight. He was smart enough to recognize if he was going to stick to the new eating habits he had to still enjoy what he was eating. Rather than making radical changes to the types of food he was eating he limited the portion sizes.
I think this was a really smart way to approach things. I lost 60 pounds myself during my last year at University and I can tell you first hand the best way to make sustainable changes to your life is to start small. I started by simply introducing some vegetables into my life by keeping the lettuce and tomatoes on my burger. Over the next several years I kept making incremental improvements, until one day I was eating salad with no dressing and baked chicken breast.
The same was true for Tony, he eventually moved up from 30 minutes of walking to two-hour sessions in the gym. Eventually, he dropped 260 pounds.
If this is where Tony’s story ended it would be impressive on its own. But this is just the start, he used the confidence and the habits he formed through the weight loss process and begin to take his career and his finances to the next level.
Turning His Career Around
Losing 260 pounds does not leave you the same. The kind of transformative change in one area of your life bleeds into all areas of your life. Once Tony lost the weight he was filled with confidence and motivated to turn his career around.
He moved from his $20,000 per year job at Walmart to a $50,000 per year job at a cable company. A nice 150% increase in his income. Tony describes how getting this job changed his life. I can relate to Tony on this. When I got my first “career” job after my Master’s Degree, it changed my mindset completely.
However, the road to success is not a straight line, there will be lots of bumps along the way. Sometimes you can do everything “the right way” and life will still kick you in the butt. Shortly after starting this job the financial crisis hit in 2008. Tony was informed that he would be one of 12,000 employees laid off from his company.
The six months following that job loss were some difficult times. He had to cash out his 401(k) just to pay the bills. As tough as the times were Tony was even tougher, as evident by the fact that during this period he managed to stick to his good habits and keep the weight off.
Tony always wanted a career in law enforcement. After six months of applying for jobs, he got fired working as a corrections officer at a state prison in Kansas. He had to take a significant pay cut from his job at the cable company and was only making $26,000 per year at the prison. Tony was okay with this because anything was better than living off unemployment insurance and this got his toe in the door to a career in law enforcement. He would use this job as a stepping stone to the career he dreamed of.
After a year of working at the state prison, he was hired to work at the nearest federal prison. Where he worked for two years before he accepted a job as a federal uniformed officer in Arizona. Tony was 31 at the time and took the gamble to move across the county leaving all his family and friends behind and moving to a town where he didn’t know a single person.
Paying Off The Debt
Even with his career success, Tony still did not have a good handle on his finances. At the time he moved to Arizona he was still carrying $50,000 in debt. This was the next area of his life he wanted to address.
He read the “Total Money Makeover” by Dave Ramsey. The message of the book really struck a cord with Tony he read the book cover to cover in a single day. He would use the lessons from the book as a blueprint to pay off his debt.
The first step, he printed out all of his bank statements and began tracking where his money was going. He stopped wasting money on buying things he really did not need.
He Built An Emergency Fund
One of the biggest mistakes people make when paying off their debt is throwing every penny at their debt before they build up an emergency fund. It’s very tempting to throw every penny you’ve got against your debt. But if you do that before you have an emergency fund that puts you in a vulnerable position.
If you have no access to cash because you put it all against your debt, what happens when the car breaks down and you need to pay the mechanic? Where are you getting that money from? You are borrowing it. You get thrown right back into the cycle of debt and that can be so discouraging it keeps some people from ever climbing back out.
The best way to keep the debt off is to ensure you have enough cash on hand that you’ll never have to rely on debt for your day to day expenses ever again. If you have a strong emergency fund set up before you attack your debt, your chances of staying debt free increase.
The Snowball Debt Repayment Strategy
Since Tony was following the Dave Ramsey roadmap it’s no surprise that he opted for the “snowball strategy” to paying off the debt.
The “snowball strategy” was developed by Dave Ramsey. Here is how Dave explains the strategy:
Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
So if you have multiple credit cards or loans, take the loan with the smallest balance and throw all your resources into paying off that small balance first. This gives you the feeling of having “a win”. You actually paid off a loan/credit card in full. This gives you the confidence to keep going and the belief that you can one day escape the debt spiral.
This is exactly what Tony did. He started by paying off his credit card with a $1,000 balance. Then he moved to his debt with the second highest balance. With each debt he repaid he gained another “win”. Those wins added up quickly and within one year Tony paid off his $50,000 debt while making a $60,000 income (plus overtime).
Not only was Tony throwing every penny from his job against the debt he also chased out his 401(k) and Roth IRA to accelerate his debt repayment. I need to caution that I would think long and hard before considering similar action. Becoming debt free is important but so is saving for retirement. You should crunch the numbers and talk to an advisor before considering a similar move.
Building Wealth That Lasts
Once Tony paid off the debt he was hungry for more success. He began reading books on real estate investing and much like the weight loss and his career and his debt he went all in on building wealth.
Using the habits he acquired from paying off the debt he began saving money until he had enough for a 25% down payment on a 4 unit income property in Phoenix. He was extremely nervous about making such a huge financial investment. But after losing 260 pounds, moving halfway across the country and knocking off $50,000 in debt, he had learned to push past fear. He bought the income property.
Shortly after that, he bought another. But this time he was going to use this property as his first “house hack”.
This property was another 4-unit property. Tony lived in one unit and rented out the other three. The $1,800 he collected in rent was more than enough to cover his $1,000 mortgage. Much like his debt repayment, his savings were beginning to snowball as well.
Not too long after buying the second income property Tony received another promotion. He got a job working for Homeland Security in Omaha, Nebraska. He bought a fixer-upper in Omaha for $125,000 that is worth around $200,000 today.
This promotion came with a nice pay raise. Between his job and his income properties, he increased his income to $150,000 per year and has built a net worth of more than $500,000. A hell of a long way from $20,000 a year at Walmart and being $50,000 in debt.
Compounding Returns Of Habits
The major takeaway we ALL should have from Tony’s story is the power of habits. Our habits have a compounding effect on our lives over the long term.
When Tony weighed 476 pounds and was $50,000 in debt, that was the result of bad eating and spending habits he adopted early in life. Over the course of multiple years, those habits had a negative compounding effect that led him to hit rock bottom.
Once he began changing his habits his whole life began to change. It started with his eating habits. Which led to exercise habits. This helped him lose over 260 pounds. Before long these positive health habits began to affect other areas of his life. He began working on his career and doing whatever it took to achieve the career he always wanted. Before long the successful career habits led to good financial habits which allowed him to pay off his debt and build a $500,000 net worth.
We don’t grow in a vacuum. Sometimes the road to success starts with a simple 30-minute walk through the snow.
If you have 90 minutes to spare (and I recommend making the time) you can listen to his interview on bigger pockets.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions