When I first started this blog almost a year ago now, which in itself is crazy, I created a New Years post laying out my goals for the upcoming 2019 year. One such goal was to save $50,000 this year and grow my net worth to over $100,000.
Well, I can finally say I made it. I’m a part of the 6 digit club, a true one hundred thousandaire. The best part was that I did it with almost three months left in the year which shows my estimations were off, in a good way.
I tell you this not to brag but to show you how much you can accomplish financially when you are driven and begin taking the small steps necessary that lead to this type of an accomplishment. And as I have said in the past, I also use this blog as a way to keep myself motivated to reach my goals.
So how did this happen?
First off, making some different career choices has helped. Instead of following the lead of the majority of my classmates. I ventured out and began traveling physical therapy which you can read about here. So that helped improve the income side of things, but in actuality income is the less significant side of this equation.
Truly, what mattered more for me was the savings side of things. Last year, I was able to save roughly 60% of my income and I’d venture to guess I’m around this number again this year which I’ll find out when I calculate it again at the end of the year.
If I made a million dollars but spent a million dollars, I’m no closer to retirement than the person who did the same on a $30,000 income. Yes, making a larger income improves your opportunity to save more but ultimately it doesn’t protect you against lifestyle inflation.
I’d even argue that it’s often times the person who lives on the modest income who is closer to retirement in many cases because they have learned the life lessons about the power of saving and have learned that they don’t need to keep up with their family, friends, and neighbors in terms of their lifestyle. I don’t think I have ever seen my middle class parents buy something because someone else had it.
Now compare that to the high income earner who often times steadily increases their spending to match their increase in salary. The high income earner can afford the bigger house, the newer car, the latest tech, or the daily takeout. So It may seem like they have more from the outside, but in reality, they often times are no closer to retirement then anyone else.
It’s much easier to retire when you only spend $30,000 a year, which roughly means you need to save $750,000 to retire then it is when you spend $100,000 per year and need to save 2.5 million before you can retire.
Compound Interest
I know I am sounding like a broken record but part of my success is due to the power that investing has had on the ability for me to multiply my money. As mentioned, I don’t do anything crazy, as I just invest in low cost index funds.
It’s not sexy, but it’s safe, easy, and returns more than enough for me to plan for an early retirement. The best part is that the longer I have my money invested, the longer time my friend compound interest has to grow my returns. So that’s why it’s so important to front load your retirement plan early in your working career before you get married, have kids, buy a house, etc.
Not that these things make it impossible to invest in your retirement, it’s just that they cost money and more importantly time that the money would have had to grow. Which remember, time is still the best resource we have access to.
Let me explain:
Person A: Plans to invest $15,000 a year right away in their working career for the first ten years of work. Then due to life events such as starting a family, buying a house, etc. has to cut their investing in half to $7,500 for the next ten years.
Person B: Plans to invest $7,500 per year for the first 10 years as they get on their feet again after starting a family, buying a house, etc. After they get established, they begin investing $15,000 per year for the next 10 years.
*7% return rate
Both people have invested the same amount of money over the 20 year period, so who can retire sooner?
In this example, Person A would end up with almost $110,000 more in their investment accounts than Person B. And they invested the exact same amount, they just took advantage of the time their money had to grow.
And I don’t want this to sound like I am bashing starting a family, because I am not, you truly cannot put a price tag on that. But what I am pointing out, is the importance of the early years in our working/investing careers. . Because when we can save a little extra early on it can have a big impact at the end of the day when you are looking to retire.
In this example, it’s less about the overall money you invest, and more about the plan that you have in place with your investing. Something most of us don’t think about when it’s really just a simple math problem.
The Mindset
Like I said, the investing side of things is easy. The hard part, is having the mental strength to save and invest the extra money when you graduate and begin your time in the working world. Because every instinct in your body is telling you to spend because you earned it after going through the tortures of school.
Your friends will be in this same stage. They will be going out more, eating out more, traveling more, buying cars, buying houses, and buying name brand products. And with social media, this will put even more pressure on you to want these things too as you will now have the money to afford it.
But what I have learned is that being able to afford something is much different than spending money on something because it impacts your life.
At the end of the day, life is about your own happiness, so asking yourself how much happiness each purchase will bring you is a good practice to get into. What you’ll find is that many of the things we purchase have a large financial impact but a low happiness impact.
For me, I like to spend on experiences/vacations as I’ve found this brings me the most happiness. But, I am at least conscious of what I am spending before I blindly swipe away and eventually tally the damage at the end of the trip. That doesn’t mean that I am counting pennies on vacation or something like that but I am cognizant enough to fly red eyes, drink at happy hours, or walk between locations to save money and be able to spend more on the once in a lifetime experiences.
As for the other things, some such as owning new cars or buying name brand products just don’t appeal to me. As for buying a house, I do plan to one day, but right now, I understand the importance of reaching my own financial goals first.
The best change for me
I began this journey a little over a year and a half ago after I stumbled into the FI community but the biggest change for me in terms of implementing these changes in my own life has been writing goals and creating a plan.
Nothing in my plan is ever set in stone but having a realistic and math based savings rate, and net worth goal every year has helped push me to successfully meet the expectations I have set for myself. Which ultimately will help me to reach my retirement goals.
I suggest that every individual or couple sit down and discuss their financial goals for the upcoming year. Eventually putting them on paper and planning to discuss the outcomes a year from then.
How much stress does finances put on oneself or one’s relationship? Having an agreed upon plan and set of goals can help decrease this stress dramatically. It also helps to begin the conversation about money which many couples don’t have. I personally feel that people in general should talk about money as freely as they talk about the weather but this is probably a rant for another post.
Conclusion
So here’s to 6 digits. An arbitrary goal but a goal that has motivated me to continue my financial journey. Hopefully, you all have learned a little bit on the ride so far!
As always, comment below or feel free to reach out with any questions or concerns here! I’d love to chat!
