Dylan and his work crew wasted no time in making the two most important fixes to the Haunted House. First, they plugged the hole in the roof to keep the rain out. Next, they sealed off the moldy, water-damaged wing from the rest of the house. The house inspector suggested this. She said the cost of repairing the damage would be astronomical, but if we sealed this section off, it would stop the mold from spreading and still leave us with plenty of house to spare.
I didn’t tell Dylan, but I had a plan for the vacant wing. Since it was a gut-job anyway, there was no reason we couldn’t eventually turn it into a beautiful, modern townhouse. The wing had enough space for a kitchen, living room, office, and three bedrooms. We didn’t need a gargantuan mansion, and I didn’t want to give up on the income from renting the other half out for parties and seminars. But I’d come to love the property with its orchards and view. I wanted a cozy home, and eventually, this would be perfect for us. This was where I wanted to raise my kids, and when the time came, renovating the damaged wing could allow me to do just that.
Speaking of kids, Kyle and Libby took an evening away from theirs for a double date. Normally, I’d arrange these get-togethers with Libby. She still called me her best friend even though we hardly saw each other now that she had one kid and a second on the way. Yet, this time, Kyle called me himself, saying he had something to celebrate.
“Well, well, don’t the two of you look the dapper couple,” Kyle said when we walked into the restaurant.
“Don’t the two of you look the pregnant couple,” Dylan retorted. “Is that all sympathy weight you’ve put on, Kyle?”
“I thought it would be inconsiderate to allow Libby to grow rotund on her own.” Kyle patted his stomach. “There’s nothing wrong with having a bit of meat on your bones. One of these days, Dylan, you’re going to realize that all those muscles make you look gaudy.”
“Gaudy is a compliment coming from you. Is that a Rolex you’re sporting?”
“Good eye.” Kyle wrapped his arm around Libby as we followed the host to our table. “A little present from the little woman.”
Libby patted his chest. “I got it for him when he made partner. They just announced it last week.”
We were seated at a corner booth. Libby barely fit into a spot at the edge.
“Partner, eh?” Dylan raised an eyebrow. “I guess congratulations are in order.”
“Spare your congratulations. You know what I want.” Kyle put out his hand, palm up.
Dylan took out his wallet, removed a dollar bill, and held it out to Kyle, but when Kyle reached to take it, he pulled it back. “Not so fast.”
“Come on, hand it over. A deal’s a deal.”
“Prove to me you’ve won.”
“What are you two talking about?” I asked.
Kyle ignored me. “Do you have any idea what a partner in my firm makes?”
“In this economy,” Dylan said, “I’d think you’d be on food stamps.”
“Oh? Did I never tell you I switched to the bankruptcy division a few years back? In my firm, we have an eat what you kill compensation plan.”
“That’s gruesome,” I said. “What does that mean?”
“It means not all partners get paid equally. The more money you bring into the firm, the greater a share of the pie you make. My clients helped us stay profitable during the down year. They had to transfer six associates onto my team from other divisions where there wasn’t enough work.”
A waiter brought us menus and a platter of homemade tortilla chips and dips.
Libby unabashedly grabbed a handful. “Kyle’s contacts from his days dealing with start-ups have been a huge boon to the bankruptcy practice.”
As I nibbled a chip, I wondered about Anthony. In good times, only a small percentage of his portfolio companies survived, and even fewer made money. What was happening now? Was he still able to pick out enough winners in this economy to balance out the rest?
The guys ignored the chips, their eyes still locked. “I haven’t checked the scoreboard in a while,” Dylan said. “What will you clear this coming year?”
“I’m a bit concerned about some of the other divisions dragging down the firm’s profits. But if all stays strong, I should break a million.”
Dylan whistled. “That’s not a small amount of money.”
“No, it isn’t.” Kyle leaned in, and his tone grew feisty. “Now give me what I’m due.”
The boys continued to stare at one another until the waiter came back with our drinks and asked if we were ready to order. “Dinner’s on us,” Kyle said, “so get whatever you want. We’re celebrating.”
“You’re treating Dylan?” Libby asked. “You never treat Dylan. You always said it was cheating.”
“Not anymore. Not now that I’ve made partner.”
I raised my wine glass. “To making partner.”
“Screw the partnership,” Kyle said. “I’ve known I was going to make partner since my second year in the firm. We’re celebrating my victory over Dylan.”
“You’re 100% certain that dinner is on you?” Dylan asked.
“Absolutely. Go on and order whatever you want. We can all put on a little sympathy weight tonight. Just hand over what you owe me.”
“Well, if you insist you’re treating…” Dylan ordered a skillet steak, a bowl of chili verde, and a mesclun salad.
Libby turned to her husband. “You do realize that dinner is going to cost a hell of a lot more than the dollar you’re getting?”
“Oh, hush.” Kyle rubbed her back. “It’s all about the bragging rights. I’m going to hold this over Dylan’s head for the rest of his life.”
“Really?” Dylan finally reached into the chips. “I’m not so certain.”
“It’s right there on the scoreboard in black and white.”
“Hold this safe, honey.” Dylan handed me the dollar and pulled out his phone. “I have to check something.”
Libby held up both of her hands. “Will you boys finally tell us what all this is about?”
“Of course.” Kyle kissed her on the cheek. “As soon as I collect my winnings.”
Dylan shook his head. “My apologies, Kyle. It appears I’ve been a little lax.”
“No harm done, little buddy, as long as you can admit it. Just hand over my winnings, and all will be forgiven.”
“I meant I’ve been lax in keeping up the scoreboard.” Dylan turned his phone around to face Kyle. “It appears I haven’t updated my numbers since I moved down to Ecuador. I’ll have to rectify that tomorrow.”
“Don’t give me that tomorrow crap.” Kyle dipped his chip into the ultra-hot chili sauce. “Scoreboard or no scoreboard, you’ve always known your numbers down to the penny. Are you willing to admit defeat or not?”
“Defeat?” Dylan’s lips formed a sly grin. “Oh, no. My position is far too strong to admit defeat.”
“Will someone please tell us what this is about?” I said.
Dylan put his hand around my shoulder. “Just a little bet that Kyle and I made in Mexico.”
Libby’s eyes narrowed. “What kind of bet?”
“You see, Kyle thought—.”
“I’m perfectly capable of telling my wife what I thought,” Kyle said. “Dylan and I were the ideal test case: two guys preparing for solid, professional careers; one stays on the sane track, while the other decides to play Mexican fisherman. For some crazy reason, Dylan thought this would be a healthier career path.”
“Kyle told me I was a fool. So I said, ‘you wanna bet?’”
“Hell yeah, I wanted to bet. I bet him that by the time I made partner, my financial position would trounce his own.” Kyle slapped the table. “And it does. There’s no way he can compete with a million a year.”
“Let me get this scoreboard thing straight.” Libby grabbed another handful of chips. “You two have been sharing financial data this whole time?”
“We were supposed to. But as you heard, Dylan’s gotten a little lazy over the years.”
Libby glared at her husband. “You’ve been sharing all the details of our financial life with Dylan, and you didn’t even ask me for permission?”
“Sometimes, privacy has to take a backseat to matters of science.” Kyle kissed her hand. Libby shook her head but had become too used to Kyle’s antics to mount a real protest.
“But isn’t Kyle right?” I asked Dylan. “We don’t make anywhere near a million a year, do we?”
“Not even close,” Dylan said.
“Then Kyle won. Didn’t he?”
“You see, Dylan? Even your fiancé can see sense. Be an honest fellow and give me my due.”
“Absolutely not.” Dylan popped a chip into his mouth.
“You’re one stubborn bastard.” Kyle’s slowly shook his head. “Just like me. So how are we going to resolve this?”
“That’s easy.” Libby winked at me. “You two boys shared our private data. It’s only fair that we get our revenge by getting to play judge and jury. Right, Amber?”
“Right.” I slid over next to Libby. “Kyle, you brought the claim. You can make the first opening statement.”
Kyle rose to his feet, stepping into full-on lawyer mode. “Your honors, I present to you a most simple case. It is a case of two men with very disparate incomes. One has reached the zenith of his career, becoming a partner at one of the most prestigious firms in town. The other has no career, and spends his days ridding his properties of roaches so he can rent them out for a few pesos more per month.”
I refilled my wine glass; I was going to need it to make it through Kyle’s speech.
“Yes, esteemed members of the jury, one man makes a million dollars a year, drives a Lexus, has a gorgeous 6000 square foot home, and belongs to the finest country club in town. The other makes only a small percent of that, drives a used pickup, lives in a home a fraction of the size, and proposed to his fiancé with a ring that came with a free gumball. I offer for your consideration that there is no comparison between the two men, and that the one making the million dollars a year is in a far greater financial position.”
“Thank you, counselor,” Libby said, “you may step down.”
Kyle gave a half-bow and took his seat.
I’d let Libby have her fun with Kyle, but Dylan was all mine. “Dylan, how do you plead?”
“Uh, Amber,” Dylan said, “you’re confusing things. That’s just for criminal cases.”
“Who’s the judge here, you or me?” I poured on my thickest Italian accent. “I’ve seen My Cousin Vinny. I know how these things work. The next word out of your mouth had better be guilty or not guilty, or else I’m holding you in contempt.”
Dylan sighed. “Not guilty.”
“That wasn’t so hard, was it? Now move along with your opening statement. You’re starting to bore me.
“It’s very simple,” Dylan began, but I wasn’t done with him yet.
“You dare speak before this panel while seated?” I filled my wine glass for the third time. “Have you no respect for this court? Get to your feet, counselor.”
“You are having entirely too much fun.” Dylan stood. “Ladies of the jury, I present to you two men. One is very proud of his income, but if you listen closely, you’ll detect something else beneath the pride: fear. He’s a man running on a treadmill. While he’s earning a million dollars a year, he can keep up with its ever-increasing pace. But disaster lurks one misstep away. The other lives without fear, for he has learned to control the treadmill’s speed.” Dylan bowed and sat.
“Thank you, Dylan,” Libby said, “that was both short and pointless.”
“Let’s get to my favorite part,” I said. “Cross-examination.” I was my father’s daughter, after all.
“Who gets to cross-examine?” Dylan asked.
“We do, of course,” I answered.
“You can’t be the judge, the jury, and the cross-examiner,” Dylan said.
“This is my court; I can do whatever I want.” I smacked my spoon against the table like a gavel. “And if I hear one more word out of you, I’ll hold you in contempt.”
“Fine. Ask away.”
A waiter swapped our empty basket of chips for a full one, and Libby scooped up another handful. “Kyle already shared his income, so let’s start there. Dylan, how much do you make?”
“I guess that depends on how you define ‘make,’” he said.
Kyle snorted at this. “I think one lawyer in the room is more than enough. Just give us the obvious answer.”
“I’m not salaried like you are, so it’s not so obvious. I’m currently collecting over $40,000 a month in rent from my properties. After paying all expenses, that leaves me with about $10,000 a month.”
“Then your income is $120,000,” Kyle said. “Simple.”
“Except it’s not so simple. Almost half that money goes to paying down my loans. If I wanted to, I could slow the rate of repayment and pocket more cash each month. But would you consider that making more money?”
“What do you mean?” Libby asked.
“I take out 15-year mortgages on my properties. If they were 30-year loans, I’d pay less each month.”
“But you’d have to make payments for twice as long.”
“Correct. But my current income would increase.”
“I’ll give you that.” Light flickered in Libby’s eyes. She was starting to get it. “I won’t credit you with the interest payments, but reducing the principle can count in your favor. How much is that?”
“Another $5000 a month.”
Kyle jumped back in. “OK, so that brings your income to $180,000. It’s still well below my million.”
But Dylan wasn’t done yet. “Well, hang on a second. Why are we counting the amount I’m paying down the principle? Isn’t it because I’m building equity in my properties?”
Kyle crossed his arms. “Yeah. So?”
“So mortgage payments aren’t the only way I’m building equity. Most of my equity comes from my properties appreciating.”
“Oh, come on,” Kyle said. “That’s a stretch. Housing markets go up and down.”
“I’m not talking about the appreciation that comes from normal market growth, like with your house. I buy properties from auction or wholesalers. Then I increase their value by fixing them up and renting them out. That’s where my real equity growth comes from.”
“Now we’re getting toward the absurd.” Kyle rolled his eyes. “Those are just paper gains, not money you can spend.”
“No? Once I refinance a property, I can take most of that money back in my pocket.”
“Only because you’re borrowing against your properties. That’s not income.”
“I thought you said income was money I can spend?” Dylan jabbed his finger into Kyle’s chest. “I can spend this. And it’s actual value I created.”
“I still say it’s not income.”
“Well, I’d argue with you, but you have a big ally on your side.”
“Who’s that?” Libby asked.
“The IRS. They also don’t consider it income. So even though it’s money in my pocket, it’s not taxable. In fact, they’re not taxing any of my real estate income.”
I whispered into Libby’s ear, and she nodded. “We think you’re both right,” I said.
“Oh come on, Amber,” Kyle said. “You elementary school teachers think you can resolve disputes by giving each kid a sticker and a pat on the head, but there needs to be a winner and a loser here.”
“Don’t worry, Kyle, I’m not about to pat you on the head. We’ve decided not to count the increase in Dylan’s property values as income.”
“Now we’re getting somewhere.”
“Don’t celebrate yet. It’s not income. But the question before this court isn’t who’s got the biggest salary. If it was, you’d win. The question is, who has achieved the greatest financial position. And there’s no question that all of that equity Dylan’s amassing goes toward his net worth. Tell me, Kyle, what is your current net worth?”
“Uh, truthfully, I’m not sure.”
“What do you mean you’re not sure? It’s right here on the scoreboard.” Dylan held up his phone. “Despite your great big salary, you still owe $86,000 in student loans. You’ve got almost the same amount in retirement accounts, so those two cancel each other out. You lease your cars, so there’s no value there. You’ve spent a ton on clothes, jewelry, etc., but you’d only get a tiny portion back if you had to sell. Most of your net worth is in your house. You still owe almost a million dollars on that, but even in today’s lousy market, it’s probably worth two to three hundred thousand dollars more than that.”
“That’s all we’ve built up?” Libby asked Kyle. But before he could answer, she turned to Dylan. “So…what’s your net worth?”
“Over two million dollars.”
A chip froze halfway to Libby’s mouth. “How exactly?”
“That’s what happens when you avoid bad debt, invest most of your income, and give it time to compound.”
Kyle picked up a napkin and held it in the air.
“Are you waiving the white flag?” Dylan asked.
“It’s not white, it’s yellow. I’m calling a penalty.” Kyle dropped the napkin on the table.
“Roughing the passer?”
“Unsportsmanlike conduct.” Kyle held his arms out like a referee.
“For what?”
“For trying to distract the judges with this net worth crap.”
“Net worth is not crap,” Dylan said. “It’s far more important than income.”
“If we were 65, I’d agree. But I’m at the beginning of my career, not the end. Your net worth shot past mine the minute you dropped out of school and stopped taking on loans. But I consider all of that debt an investment, and now I start reaping the rewards. Hell, I haven’t even received my first paycheck on my new partner salary. But I’ll be making over a million a year for forty years. The reason I didn’t live in a crypt and squirrel away dimes was because I knew this day was coming.” Kyle got in Dylan’s face. “Now, I’m ready to trounce you.”
Dylan backed away. “I don’t think you are.”
“That’s why we have these two beautiful, intelligent, discerning judges to decide for us.”
“Trying to butter them up?”
“I’d never do such a thing. But ladies, let’s not forget who’s buying your dinner tonight.”
I got the waiter’s attention and held up the empty wine bottle. If I had to put up with Kyle’s dross, I’d gladly add a refill to his tab.
Libby turned to me. “Dylan wins on net worth, and Kyle wins on income. So how do we settle this?”
“Well,” I said, “like a wise man once told these boys on a fishing trip, it’s not what you make that counts, it’s what you keep. Perhaps Kyle’s right that his net worth in forty years will dwarf the two million dollars that Dylan has now. But if I know my fiancé, his net worth is hardly going to stagnate for the next few decades either. So I’m wondering, whose net worth is growing at a faster rate?”
“You can quit your wondering, Amber,” Kyle said. “You have any idea how fast a million dollars a year accrues?”
“I’d think very fast if you actually put away a million a year.” I had too much experience with my father’s lack of savings to believe that a large salary guaranteed a substantial net worth. “But saving has never been your forte.”
“At a million a year, I can enjoy a few finer things and still save enough to create a giant nest egg.”
“You can,” I said. “But will you?”
“Why wouldn’t I?”
The waiter brought our dishes and a new bottle of wine. Dylan and Kyle leaned towards their meals, but Libby said, “oh no, you don’t. You guys aren’t getting a morsel until we finish this.” I guess she did know how to get back at her husband for his antics.
“I already see one tragic flaw in your plan, Kyle.” I added guac to my burrito. Just because the boys couldn’t eat didn’t mean the judges had to suffer. “You think you’re actually going to make a million dollars.”
“Look, Amber, even if I’m short a million because the firm had a tough year, it’s no big deal. The economy will pick up; it always does.”
“I’m not talking about your salary on paper, I’m talking about what you take home. How big of a chunk will you lose to taxes?”
“Between federal and state taxes?” Kyle looked up as he did the math. “Probably half.”
“Tell me, for the remaining half million, have you created a budget so you know exactly how much you can spend?”
Libby laughed. “Kyle is allergic to budgets.”
“Have you decided what portion you’ll invest annually?” I’d learned a few things over the years. “Choosing a percentage and taking it off the top, so you’re not tempted to spend it.”
“That I’ve done. As soon as I made partner, I upped my 401(k) contribution to $50,000 a year. That money gets invested before I ever see it.”
“How are you investing it?” I bit into my burrito, which barely held together.
“Dylan convinced me to put it into index funds over mutual funds.”
“That sounds like a solid move.” I wiped the burrito sauce from my chin. “Anything besides your retirement accounts?”
The gap between Kyle’s brows tightened. “Remember, you’re supposed to be an impartial judge, not arguing your fiancé’s side.”
“Welcome to Amber’s cross-examination. Just answer the question, counselor. Have you decided how big a portion of your take-home income you’re going to put aside each year for saving and investing?”
Kyle’s head fell like a boy caught skipping class. “Not really.”
“That means no,” Libby said.
“So here’s my problem, Kyle.” I gave up trying to eat my burrito by hand and went at it with fork and knife. “You want us to guess how much you’ll invest each year. But most people spend virtually everything they make, no matter how high their income. And you’ve never proved that you’re any different. So how am I supposed to determine how much you’ll put away now that you have your big raise?”
“Even I can’t spend a half million a year, Amber.”
“I’m not sure you can’t,” Libby said. “You told me that once you made partner, we could get live-in help to assist with the baby and housekeeping. You also mentioned rewarding yourself with a new car and basketball season tickets. And we’ve discussed private school for the kids.”
“Saving is like a muscle, Kyle,” I said.
“If that’s the case,” Libby said, “you’re kind of a weakling, honey.”
“I’ve had enough berating from the two of you.”
“That’s the beauty of cross-examination.”
“Look, here’s what you need to consider…”
“If you’re going to start a speech, let’s move to closing arguments,” Dylan said. “I’m getting hungry.”
“Fine.” Kyle recomposed himself and again rose to his feet. “Lost in all of this discussion of dollars and cents, is the bigger question of how money is best used. Will I spend money to get my kids a fabulous education? Absolutely. Will I spend it to bring in help when the baby arrives so my beautiful wife can sleep through the night and spend her days bonding with her children instead of doing the laundry? In a heartbeat. I will also spend it on vacations, nights out, and cars that don’t have giant dents in the side and can survive a drive to lunch with friends without conking out.”
That last line hurt. So much for buttering me up.
“All of that is included in what I consider one’s financial position. It’s the ability to use your money to enjoy life. If you can do that, while simultaneously saving for retirement and providing financial security for your family, I’d count you a success. If your only goal is to die with the most money, then I consider you dead already.”
Kyle ceded the floor to Dylan. “I once told Amber that earning a living is like rolling a boulder. Those in debt must exert enough energy to provide for themselves and make the debt payments, so it’s like pushing the boulder uphill. For those of us with Cash Machines, it’s like rolling a boulder downhill. Many, including some at this table, have looked down on my lifestyle choices over the years, but I made them to get my boulder rolling. Each time I invested another dollar in my Cash Machine, it rolled a little faster. Each time I discovered a way to cut on expenses, learned a lesson about investing, or found a way to save on taxes, the slope of the hill got a little steeper.
“My boulder is now rolling so fast that it no longer needs a push from me to keep moving downhill. It took me over a decade, but I finally hit my goal: full financial independence.
“When I work one-on-one with a client or volunteer my time to teach about finances, I do it because I choose to, not because I need the money to live. When I buy a house on auction, fix it up, and rent it out, I’m choosing to invest my time so that my Cash Machine can grow even faster, so that I can live in greater abundance and be more generous with myself and others.
“Can I afford all of the fineries that Kyle treats himself to? Not now. Not yet. Not without eroding the base of my Cash Machine. But thanks to the magic of compounding, fueled by my understanding of investing, I’m getting there fast. And I’m getting there without having to sacrifice my time, my health, or my values.
“Kyle gave his definition of a strong financial position. Mine is the ability to spend my days doing what I most value without ever having to trade my time for money or live with financial stress.”
Dylan faced his friend. “Kyle, I hate to say it, but you look like crap.”
Kyle looked from Dylan to Libby. Her head fell. She didn’t want to admit her husband had lost his youthful veneer. He faced me, hoping for some support, but all I could think about was Dad.
Kyle’s shoulder’s sagged. “Tell me about it. I don’t have time to work out anymore.”
“Yep, you’re stuck in a bind.” The energy at the table had changed. Dylan’s voice no longer sounded competitive, but concerned. “You don’t have time for yourself, but if you don’t take better care of yourself, your career won’t last 30 years, let alone 40.”
“Make the time, Kyle,” I said. “Don’t wind up like my father.”
Kyle didn’t respond to me, but looked back at his best friend. “You’ve worked pretty hard this past year yourself, Dylan. You think you’ll be able to slow down?”
“I worked hard because I saw an opportunity. I wanted to get in while properties were cheap. At this point, I’ve invested all I’ve got, and already prices are back on the rise. I wouldn’t necessarily say I’m done buying. If the right opportunity comes and I have the funds, I’ll jump back in. But for the moment, I’m no longer looking. I’ve got a wedding to prepare, a honeymoon to plan, and a family to build.”
“You actually think you’ll be able to live well on your Cash Machine?”
“I can’t think of anything I need that I can’t afford right now. And as time goes on, my income will keep getting stronger.”
“Because you’ll keep buying places?”
“Perhaps. But the rent on my current apartments should also continue to rise, and, in a few years, I’ll pay off the mortgage on my first building, which will immediately increase my cash flow.”
Kyle looked at Libby, both of their faces defeated, then returned his gaze to Dylan. “You’ve got everything figured out, don’t you?”
“No, and I probably never will. There’s so much to learn, I doubt I’ll ever stop studying.”
“Still, what you’ve done is no small thing. I’m not sure I fully grasped it until tonight.” Kyle smacked his fist into his hand. “Crap!” He dug into his wallet and pulled out a dollar bill. “We don’t need to hear from our judges. You have all the money you need and, even more importantly, the time to enjoy it. I can’t compete with that. Take the dollar. You’ve earned it.”
“We can still drink to you making partner.” Dylan picked up his wine glass. “And I thank you for generously treating us to dinner.”
Kyle scowled and lifted his glass.
