Still, Netzley managed to become debt free within three years, freeing up more time and money to help him launch an investment business. This month he released a book, Make Money, Live Wealthy, in which he shares lessons he learned from conversations with 75 entrepreneurs.
Netzley recently spoke with The Washington Post about how he balanced paying off his debt with saving for retirement and investing on the side. This conversation was edited for length and clarity.
How much did you think about your student loans while you were in school? Is it something you worried about or had a good grasp on?
In college I didn’t know anything about entrepreneurship, didn’t know much about investing other than I was intrigued by investing. I had this plan, I wanted to be the CEO of a large company. I wanted to get my engineering degree, get an MBA, get some sales experience and those three things were going to make me become a CEO. I went down that path and I kept asking, “What are my loans? What are my loans?” And finally my senior year I got the bill and figured out what my loans were.
I played football, so I got half scholarships and grants, basically half of my tuition covered. I got the bill and if I had paid the minimum throughout the life of the loan it was going to be over $72,000 and that just made me sick to my stomach. I still remember the feeling today.
It was my own fault for not really understanding the debt I was getting into. I kind of thought a lot of people do it, that it would just be taken care of. That it wasn’t necessarily bad debt, it was good debt. I disagree with that now. Anyhow, once I got myself in debt there was nothing that I could do with it. I had two months of school remaining so I went and finished it up and worked for an oil company in Houston and started to take my finances very seriously and within three years I paid off that debt. But during college I didn’t think about it. I did think about how to get rich, but I didn’t think much about the debt.
Once you graduated, did you want to tackle your debt right away? Or were you more concerned about setting money aside for something else or getting started with investments?
Sometimes I was super stressed. Other times I was more attracted and appealed to getting rich, so I started investing.
My first assignment on the job was to start saving in my 401(k), so I put a large percentage of my income into that from day one. Then I was going back and forth from investing money to paying off as much debt as I possibly could.
About two years into my career I started investing heavily and day trading. I started making more money in the stock market than I was paying on interest in my loans. So what I started to do was for at least six months I started to pay the minimum on my loans while I put as much money as I could toward my investments.
Then I just got sick of having that cloud of debt hanging over my head, so I paid off my remaining balance all at once, which at this point in time was like $35,000. So I took my money out of stocks and paid it all at once to get rid of it. That’s when I was officially free.
People say it’s a weight off your shoulders when you pay off debt and it really, really is. It was amazing.
Tell me about where you were investing. What percentage were you saving in your 401(k)? Did you have money elsewhere or did you take the money out of your 401(k)?
I never touched the money in the 401(k). I always had a taxable account on the side.
From day one, I put 10 percent and I moved it to 12 percent and I moved quickly up to 16 percent, sometimes even more, of my income straight into my retirement fund. That was between my roth IRA and my 401(k).
In 2009, I started to give money to my friend who was investing in a taxable account for me. Unfortunately, he wasn’t doing too well. I would give him maybe $2,000 at a time and it was up to $10,000 in 2009. And he wasn’t doing too well even though the market was going up, so that’s when I started to manage my own account.
Then I had probably $25,000 in there and started to grow that rapidly. So at one point I was putting well over 30 percent of my income toward investing, whether it be the 401(k), the Roth IRA or the taxable account. And that’s really how I kind of grew my funds quickly.
When you took control of your investment account, what kind of vehicle did you use? And where did you look for guidance?
I failed a lot. I would make a lot of money and then I would lose a lot. I was trading options. I was trying to day trade. I was doing a lot of things that now I tell people not to do. So I actually stopped trading short term for about six months while I read a lot. I joined some online groups whether it be on LinkedIn or Meetup.com just to be able to talk to anybody and learn from anybody how to invest.
I saw the potential and I saw what compound interest could do over time so I was really, really into it but I was also stressed out when I was trading and just like anybody else, my emotions were playing against me.
Then I started to have a strategy. Eventually, I created my own investing algorithm and automated it and that’s one of the businesses I have now. Long story short, I started trading anything and everything and I wasn’t making a lot of money after all the commissions and the failures. Then I stopped trading, took it seriously and started to make money.
Are you mainly using individual stocks or are you using index funds and other mutual funds?
I use ETFs as well as individual stocks. My long-term investments are in mutual funds, they are in index funds. My short term stuff is mostly in individual stocks.
Did you essentially sell all of your taxable investments to pay off the debt or did you have more set aside?
I probably had $15,000 to $20,000 in cash. I also had at least $50,000 in my taxable account.
I think I pulled out $25,000 from my brokerage account and also used $10,000 worth of cash.
As soon as I pressed submit I just teared up because it was such a burden on my for a while.
Do you think you would have been able to pay off the debt nearly as quickly without the investments on the side?
I don’t know if what I did is necessarily the best option. I think the best option for a lot of people is to take it one step at a time. I was trying to learn the game of investing while I was trying to pay off a massive debt. I could have paid it off even quicker than I did because I was saving a lot of money.
I definitely don’t regret investing, especially in my 401(k). That’s the first thing I tell everyone to do even if you do have debt because that’s free money you don’t want to leave on the table [if your company is matching contributions].
Do you think you were able to do this because you had so much disposable income or because you had so much investment income?
What I tell people is make more money than you spend and invest the difference wisely. So the three pieces are your income, your expenses and your investments.
The better you do with all three of those pieces then the easier any goal is from a wealth standpoint.
My income was much higher than most people. Coming out of college I had an engineering degree so I did have a higher income. But I worked with plenty of other people who also had higher income and less debt but they didn’t pay off their debt as quickly as me.
The second piece is expenses, so it really doesn’t matter what you make. I really kept my expenses as low as I could. I lived in Houston. I lived in Jacksonville, Fla.
It doesn’t matter what you make. It’s what you spend. Of course, the third piece is the investing piece and that gave me the opportunity to make a lot of money and gave me the opportunity to pay it off quickly.
Aside from living in a low-cost city, what else did you do to keep your expenses low?
Everything I did from a financial perspective was strategic.
The two biggest expenses people have is housing and transportation. I always had a roommate early on. The first was renting for six months while I looked for a home. The second place I lived in was a home that I bought mutually with a friend. That was a good opportunity for us to get the lowest interest rate.
We reduced each other’s rent and we took advantage of Obama’s housing credit.
My third place was a foreclosure. I bought that by myself, lived there by myself and that gave me the opportunity to have a mortgage payment of $148. I did have some housing association fees on top of it, but my housing was really low.
I did what I could in whatever place I lived to reduce my housing expenses.
The second one was transportation. I lived within 10 miles of work. In Jacksonville, I worked from home. I also had a $9,000 Honda. So my friends were all buying BMWs and new Nissans and I had this old beat up Honda. It worked for me, it did the job and it kept me from getting into additional debt. I bought it right before I graduated.
That is the car loan you had when you graduated from college. How did you handle that debt?
That one had a higher interest rate than most of my student loans so I paid that off pretty quickly, I think within six months of graduation.
What was the plan of attack for the rest of your debt?
I put every loan I had on a spreadsheet. Every balance, every interest rate, every single piece of information.
There are two methods that most people talk about. One is the snowball method that Dave Ramsey talks about [which involves paying off the smallest debt first]. The other is the stacking method, which you go after the highest interest rate first, and that’s the one I did. Since the car loan felt to me like a bad loan, since it had the second-highest interest rate, I wanted to get that debt out of the way as quick as possible.
Long story short, I paid two times the required minimum payment every month toward the car and then paid the last $2,000. That was paid off well before a year after graduation. Then after that I had just the Sallie Mae loans left and attacked those one at a time.
At some points in time I would pay the minimum on all of my loans while I invested and made more money there. It wasn’t as strategic as it should have been, but once I learned how to invest I felt like it was a better opportunity for me to make money than to pay off debt.
One other thing I tried that didn’t work was I called into as many debt relief programs as I could. My salary was too high to qualify but I think it’s something important that other people can look into.
What can people learn from your experience?
The first thing is to really commit to getting out of debt. I was 100 percent committed. What I wanted was peace of mind and freedom from the worries.
I think that’s really the first step for everybody: to decide enough is enough.
That made it easy for me to make the decisions. To sacrifice on my car, to sacrifice on my housing.
Once you paid off your debt, what did you do with the money that was going to those monthly payments?
Every penny went toward my investing business. Then I eventually sold my foreclosure home and all of that money went toward my business. And that’s how I was able to build up my fortune so that I was able to leave the corporate world and travel around and do some pretty cool things. Really, investments became my number one goal after that.
One question I get most often from people is if they should prioritize paying down debt or if they should use their money to invest to save for a house or to invest in something that could grow over time. In your experience, what can you say to people about balancing those two?
If you have a 401(k) opportunity, you have to take advantage of that. It will save you one, on taxes. And two, if you get a corporate match that’s a great opportunity. Then the question becomes how much do you save? And I would say as much as you can and then some. It’s hard to do, but what it takes is making it automatic so that you don’t have to worry about it. Once it’s out of sight, once we don’t have that money to spend we find a way to get by.
The second priority is to attack that debt because it’s hard to get ahead until we’re out of debt. Whether it’s a mortgage or student loans or credit cards it doesn’t matter.
Start with a 401(k) then work toward the debt. And once you’ve cleared that debt then work on investing. I never reduced the payments toward my 401(k) or my IRA.
There’s a lot of emphasis now on making sure your college degree will lead to a job. Part of that debate is encouraging people to study science fields, or STEM. Is this something you thought about when you chose your major?
What I knew engineering school was going to do for me was open up some opportunities.
I would maybe push back a little bit with somebody who believes the major is the be all, end all. I’ve interviewed so many wealthy people and it’s interesting the careers they’ve gone on. They’ve either jumped from career to career or they’ve gone and done something different things from their major.
What I suggest to people is to look at where you want to go — and it changes — and what experiences you need to get there.
There’s a common set of experiences most people will want to kind of check off their list. Sales is something that is priceless. If you get sales experience it’s going to pay off in some way, shape or form. Another one is maybe operations, just understanding the flow of things. Another one is management. If you have understanding or at least experiences in those three you have the opportunity to do a lot of things.
It’s a way of using your career and experience as tools instead of what you “should” be doing.