Tag Archives: Saving

Was it Luck or Good Habits?

Has anyone ever told you that you are lucky?  I don’t share my financial situation with many people.  I do on this blog, but I do so anonymously.  There have been a few times in my life when I broke my code of secrecy.  I share about my financial situation when someone asks me for financial advice.

I am not a financial advisor, so I cannot give advice on a professional level.  I can, however, share my experience with others.  People seem to get more out of a story than from a list of steps to follow.  This is where I started, this is what I did, this is where I am.

When I have shared my relative level of success, it was never to sound braggadocios.  It was always in the spirit of trying to help that person improve their financial situation.  Most of these conversations where started by them asking if I think they should take out a car loan or if they should start buying stocks.

I never share closed-ended answers.  I just share about how I navigated similar situations.  My approach is to let my results be their guide.

Most of these conversations were enlightening discussions for them.  The other person walked away surprised by what was financially possible if they applied some discipline in their life.  They thanked me for sharing my experience with them.  Some said that I was lucky to be in the financial shape that I was in.

That comment made me think.  Was I lucky?  I never thought of myself as unlucky, but I never thought about if luck contributed to my financial situation.

On some levels, I was lucky.  I was born into a stable and loving family who always supported me and would correct me when I needed it.  There have never been any major health issues in my life.  I also have been blessed with the most selfless person who I have ever met for a wife.  Yes, I do count my lucky stars every day for those blessings.

Debt

Debt causes me fear.  At a young age, I took out a small car loan.  The car ended up being a junk and I had a few grand in debt and nothing to show for it.  I swore off debt from then on.  Fortunately, debt spooked me at a young age.

Being afraid to go into debt forced me to work my way through college.  That allowed me to pay cash for my first two years of community college.  The only debt that I had to take was to pay for my second two years.  I came out owing only $18,000 and my student loans were only $156 per month.  Many of my coworkers had student loan payments of over $700 per month.  They lived in dorms, partied, took out the meal plan, and did not hold a job during college.

The same fear carried over when it was time to buy a house.  My wife had bought our house before we were married.  She was able to make payments on her salary alone.  Instead of moving to a bigger house in a new development, we just decided to stay in that house and pay it down quicker.

Savings

Saving money just came naturally for me.  I did not have debt, so I had money in my pocket.  The work that I performed for my first few years of full-time employment was hard manual labor.  It just felt like the right thing to do was to save the money.  It would have depressed me to blow it on what I felt was stupid crap.

My saving rate was always at least 30%.  Saving money was fun.  It was like a game.  How could I find ways to save more?

That mindset became ingrained in me.  As I earned more, I saved more.  Saving money gave me pleasure, so I kept doing it.

Saving is like exercise.  It is hard but addicting.  A hard workout is painful, but also provides pleasure.  There is a sacrifice with saving money, but the sense of accomplishment is more pleasurable to me than the feeling I get when money is wasted.

Investing

I did not want the money that I was working hard to save just sit in an FDIC checking account.  It would not grow fast enough there.  I wanted my money to grow and work for me.

After reading about compound interest, I decided to invest in mutual funds.  They felt like the right fit for me.  Individual stocks seemed to take up too much time with having to research companies.  With mutual funds, an investor can buy a basket of stocks in a single fund.

My approach to investing was based on life-cycle investing.  When I started investing, I did not have much money, so I wanted to maximize returns.  In my 20’s, I was invested 100% in stocks for about ten years.

After I had a nice little nest egg, I took some risk off the table.  I added some bonds to my asset allocation.  They helped reduce the volatility when the economy tanked in 2007-2009.

Ten years later, I reached financial independence and decided to add even more bonds to reduce risk.  The game is not over, but I have a big lead.  It is now time to run the ball and play stingy defense.  For the next ten years, I just need to earn about 6% based on my savings rate to reach my goal of early retirement.

Conclusion

I was lucky to be born with an able mind and body.  Yes, I have caught a few lucky breaks in my life.  However, I feel that I had taken the required actions and developed the right habits to put myself into the position to be successful.

Lottery winners are lucky.  I worked my butt off for everything I have.  I did not go into debt because I did not want to be backed into a corner by creditors.  Saving money seemed logical to me because I did not want to waste all that energy to just blow it.  As an investor, I took a risk and accepted market returns during booms as well as recessions.

Even though I do not believe that luck has had much to do with what I have achieved, I count my blessing every day.  Life has taught me that it is much better to be practice humility and to always help others.  As the result of all of that, I truly have a thankful and grateful heart.

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Be Intentional

I recently attended a leadership training seminar at a local college.  This seminar was about managing the multi-generational workforce.  The facilitator covered many topics and I am not going to get into any of those details in this post.  He said many interesting things, but the one statement that made me think was that he said that we should always be intentional.

Everything we do should be with intent.  Our actions should have an intended outcome.  Our words should have an intended message.  Even our thoughts should be focused and have a purpose.

The purpose of this training was meant for workforce development.  The message can easily be applied into everyday life.  It is ideal for managing money.

Too many people just coast in life.  They walk around making noise and bumping into things.  By not having a plan, they will just land at a random destination.  What could possibly go wrong with that approach?

To be successful in all your affairs, practice being more intentional.  A great place to start is with how you manage your personal finances.  You should know the why behind everything that you do.

Savings

Do you know what your savings rate is?  You should be able to answer this question without giving it any thought.  Is it 10%, 20%, or more than 30%?  Your savings rate is the most important factor that will determine if you will reach financial independence or not.  It is also one of the rare aspects that you have control over.  Nobody can control what the S&P 500 will return this year, what direction interest rates are headed, or if there will be a spike inflation.  Everyone, however, can control what their saving rate is.

Spending

Your savings rate is directly impacted by your spending.  Do you just spend money without thinking?  Do you go to the mall, outlets, or online and buy things that you do not need?  If you want to change this trend, become intentional with your spending.  Before you buy something, ask yourself if you need it or truly want it?  If you must spend the money, did you shop around for the best price?  Is there a low-cost alternative to making the purchase?  Even if there isn’t a better alternative, at least you did your due diligence and gave thought to the purchase.

Debt

Does your credit card bill arrive, and you cringe when you look at your balance due?  Do you make late payments or just pay the minimum balance on your credit cards?  Do you know what your credit score is?  Do you know what your debt-to-income ratio is and what a healthy ratio should be?  Do you know how to calculate your debt-to-income ratio?  If you want to improve how you manage debt, take a more intentional approach.  Learn what your credit score is, identify if you have too much debt for what your income is, and ultimately establish a plan to get out of debt.

Earnings

I bet you know what your annual salary or hourly wage is?  You get a paycheck every week or bi-weekly, so you are reminded frequently about that rate.  Do you feel that you are underpaid?  Doesn’t everyone?  Maybe you are underpaid or maybe you are overpaid.  Before you ask for a meeting with your supervisor demanding a raise, you should do your homework.  Be intentional and research what the market rate for your position is based on your location and level of experience.  If you are under market rate, you might have a case.  If you are over market rate, but not satisfied, you might need to develop more skills or ask for a more challenging assignment.

Investing

If someone asked you what type of investor you are, could you answer them?  Are you a market timer?  Do you buy and hold equities?  Are you a passive investor who invests in a few different mutual funds?  Do you simply try to capture what the market returns with a total stock market fund?  Do you use value tilts?  Do you buy dividend stocks?  Are you trying to get rich by investing in Bitcoin?  You are free to decide how you invest your money, but you should know the why behind your plan.  Your approach to investing should be intentional.  Nobody knows what the future market returns will be, but you should at least know what you are intending to accomplish with your asset allocation.

Financial Independence

Do you know how much money you need to have in savings to reach financial independence?  To declare financial independence, the general rule is to have 25 years worth of living expenses in savings.  That is based on a 4% withdrawal rate that most financial professionals consider to be acceptable.  Do you know if you have obtained this milestone or how close you are?  Most people who reach financial independence do not get there by accident.  They live intentionally for many years.

Early Retirement

Do you have a target-date as to when you want to retire?  It might be next week, or it might be in 10 years.  If you have an established early retirement date, what are you doing to make that goal a reality?  Are you doing everything you can to maximize your salary and taking on side gigs?  Are you saving until it hurts?  Do you have the right mix of investments to both reach your goal and sleep comfortably at night?  If you do, you are acting in an intentional way.

Conclusion

The nice thing about being intentional is that you can start this process now.  Start by reviewing your current financial situation.  Can you answer why for all your financial decisions?

If you have a financial plan, use it as a guide.  If you do not have a written plan, write one.  That is a good starting point if you want to become intentional.  Review your plan for areas of your financial situation that might need to be amended.

Some fixes are quick, and others require time to implement change.  Moving forward, wherever money is concerned, ask yourself why before you make a final decision.  If you cannot answer why you are doing something, give it some thought and find out what your true intentions are.

This is just another example of how to improve your financial situation.  It provides a pause before you act.  Sometimes giving a decision an additional few seconds of thought can turn a bad decision into a good decision or a good decision into a better decision.

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