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Small Decisions With Big Financial Effect Down The Road

by retirebyforty on February 17, 2014 · 24 comments

in financial independence, lifestyle, money mistakes, wealth

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It’s funny when you look back at your personal finances over time. A little decision 20 years ago can make a huge difference in your financial situation today. At 40, I’m still a little young to go back much. However, I think it will be valuable to our millennial readers and I would love some feedback from our older readers as well. We call all learn from each other’s successes and missteps.

First of all, we have been extremely lucky. Our finance has been on a steady upward progression since we finished college except for a few down years along with the stock market. We haven’t had any big setbacks and that’s quite amazing. I think avoiding major financial setbacks is just as important as saving and investing.

Let’s go over some of my personal situations to see what I did right in my 20s and 30s.

small decision big financial impact effect consequences

Moderate Lifestyle Inflation

I have always been frugal because we didn’t have much money when I was growing up. My parents scrimped and saved so the kids could go to college. I knew how hard they worked so I tried my best as well. When I got a job after college, I suddenly had a lot more disposable income, but my younger brothers were still in school. I helped them out a bit and that capped my discretionary spending somewhat. This was a good thing. Many of my friends spent most of their paychecks and increased their lifestyle too rapidly.

Living frugally was second nature to me and my college friends, but a majority abandoned that lifestyle as soon as they could. Luckily, I stuck with being frugal a bit longer. That enabled me to enjoy a modest lifestyle and saved some money for investing.

Take away: When you have a big increase in income, don’t ramp up your lifestyle right away.

Started Investing Early

When I first started my job, I didn’t want to invest in my company’s 401k plan. I thought retirement was 45 years off, so why save now? I also wanted a new car and extra cash to send to my brothers. Luckily, my dad convinced me to invest in the 401k and now it’s a major part of our net worth. (Thanks dad!) My parents continued to fund my brothers’ higher education and I helped out with what I could.

In 1996, I started funding my 401k right away and maxed out the contribution several years later. I have been adding the maximum contribution amount every year since. The investment choices weren’t that great, but the retirement account still did well over time. This taught me to keep investing through the up and down stock market.

Take away: Start investing as soon as you can. Compound interest is your friend when you are young. You will also learn about investing earlier than the average employee and that can translate to long term prosperity.

Married a Frugal Gal

Here is the luck factor again. Mrs. RB40 has always been frugal and marrying her was the best decision I’ve ever made. We have similar financial goals and we work together to achieve them. Our net worth is a lot more important to us than living a luxurious lifestyle. We did spend quite a bit on traveling in our 20s and 30s, but we saved even more. Traveling makes great memories and now that our kid is a 3 year old, we can get back to it again.

Oh yeah, did I tell you Mrs. RB40 does NOT like jewelry? Her engagement ring was worth 3 months salary, but that’s my old college student salary. Heh heh heh. I was already working in a real job when I proposed.

Take away: Talk about your financial values before getting married. If they do not align, then it will be a rough ride.

Having a kid

Having a kid was a big turning point for us. The truth is that RB40 Jr. made a huge negative impact to our wealth accumulation rate. I quit my well compensated engineering career to be a stay at home dad/blogger and my income is much less now. Over the course of 20 years, that loss of income could be worth millions. It’s not all doom and gloom, though. We are still accumulating wealth, but it’s just at a slower rate. There were other reasons why I left, but having a kid is high on the list.

On the other hand, money really isn’t everything. I am much happier now than I have ever been since I was a kid. Being a stay at home dad has its challenges, but I love it all the same. Life is full of joy now (mostly) instead of the stress of enduring a job I didn’t care for. I guess we’ll see how it turns out in 20 years.

Take away: Having a kid can be a big financial catalyst so think it through before you procreate. ;)

Luck plays a big role

Overall, I think we have been extremely lucky and had a good personal finance track record so far. We never got into consumer debt and haven’t had to consider bankruptcy. Of course, we had some missteps like everyone, but I consider them a learning process. For example, buying a home in 2007 was a mistake, but we have recovered since. The housing bubble won’t have a long term negative effect on our finance.

What about you? What are some turning points in your personal finance lives? Please share some of your past decisions that had far reaching effect so we can all learn from your experience.

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{ 24 comments… read them below or add one }

[email protected] February 17, 2014 at 1:02 am

Joe investing early and staying invested are my two big things. Once we have kids things will slow down financially, thus we’re accumulating as much as possible now.

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retirebyforty February 17, 2014 at 4:56 pm

That’s what I learned early on and I’m thankful for that. Some of my friends don’t invest in the stock market and they are really missing out.

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kammi February 17, 2014 at 1:05 am

Thanks for bringing up the financial compatiblity. That is HUGE and it’s one of the top three reasons for divorce, yet it is largely ignored among couples. I personally would NEVER marry someone who either had debt (if they did, we’d work on that FIRST before getting married and wipe that out) or whose financial values did not match up with my own. I have been fortunate to have been brought up by two parents who are still together and have very strong values, and all of these things you have mentioned were discussed from a very early age to me. Because of my parents, I was able to also attend college and come out debt free. For me, every time I look around and see my peers spending money they don’t have, I look at the older generation and see two types of people; people like my parents who live comfortably and are well prepared for living the rest of their years because of sacrifices they made when they are young and being financially educated, and people who are elderly and struggling and do not have ten dollars to their name. Seeing that burned an image into my brain that I NEVER (as long as I can help it) an elderly person in society living in destitution. That is really what drives me to continue along my path. Having money in this society gives you freedom so that you can make better choices and you aren’t stuck.

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retirebyforty February 17, 2014 at 4:59 pm

We married quite young and we were very lucky to have compatible views. We are both naturally frugal so I don’t think we’d be attracted to extravagant spenders.
I see older people with little money all the time. They get by, but life would definitely be more comfortable if they saved up.

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Ben February 17, 2014 at 1:20 am

It’s amazing how important starting early is to building a next egg. I’ve been in the workforce for 14 years, and have never had a paycheck that didn’t have 15% going towards my 401k and Roth IRA’s. Thanks to this, and the power of compounding, I have almost $500k tucked away for retirement (at age 36).
I feel lucky to have received this advice (and listened to it), starting at a young age!

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retirebyforty February 17, 2014 at 5:00 pm

Great job! $500k at 36 is outstanding. Congratulation.

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C. the Romanian February 17, 2014 at 5:10 am

Very nice article! Indeed, luck plays a part anywhere in life, but you can’t count on luck alone to do as well as you are doing right now. And indeed, there are small decisions that could weight a lot a long time into the future, and that is something most of us tend to ignore as we go for effects that are visible as soon as possible.

I’m going to be 30 this year so I have even fewer financial decisions to be proud of, but hopefully 20 years from now I’ll be able to put “started reading Joe’s blog & other PF blogs” on the list, it certainly helps a lot!

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retirebyforty February 17, 2014 at 5:01 pm

You still have a ton of time at 30. I’m sure you’ll be in a great position in 20 years. Good luck!

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Holly@ClubThrifty February 17, 2014 at 5:35 am

Being married to a frugal spouse is awesome. I have so many friends whose husbands buy gadgets, cars, and sports tickets all the time. It would make me crazy!

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retirebyforty February 17, 2014 at 5:01 pm

I agree. I’m sure I’d go nuts if my wife constantly spends money on all that stuff.

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William Cowie February 17, 2014 at 6:08 am

Yes, I agree with the “marry a frugal spouse” thing, and I think it goes both ways (husband and wife).

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John S @ Frugal Rules February 17, 2014 at 6:20 am

I could not agree more about discussing financial values before you get married. It’s not one of, if not the highest, the leading causes for divorce for a reason. I was coming in to our marriage with a fair amount of debt, but I was on an established path to knocking it out. Thankfully my wife learned quite a bit from her parents about finances so we were on the same page going in to our marriage.

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retirebyforty February 17, 2014 at 5:03 pm

Great job turning it around. Many people couldn’t get out of that debt spiral. Working on your finance together as a couple is the way to go.

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Justin @ Root of Good February 17, 2014 at 6:58 am

I think you make a lot of your own luck. Ever seen my “I have a Luck Making Machine” article? :)

In regards to the frugal wife – do you think you would have married a spendthrift who’s main hobbies were shopping, shopping, and shopping? I think a woman like that would set off an alarm in my head to stay away.

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retirebyforty February 17, 2014 at 5:05 pm

I did! I think it’s half and half. I just feel really lucky for some reason.
I’m pretty sure I couldn’t handle a spendthrift. :)

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freebird February 17, 2014 at 3:21 pm

I was really lucky as well, because I strongly disliked the first job I hired into out of school. I knew I wasn’t going to last long there so I went full throttle towards financial independence starting my very first day. Fast forward 25 years and that miserable ugly job turned into something I really enjoy doing now, enough so that I haven’t felt the urge to get out even though I can any time. So I guess if anything I regret that I didn’t know that my job was going to turn out fine and that it would have been OK to splash out more in my youth. Oversaving is a habit that is really hard to break out of when you’ve been at it as long as I have.

But it’s not a deep regret, and I certainly wouldn’t want to trade places with someone who saw the opposite happen– a job that looked like a lifetime passion on day one slowly eroding into a grind when approaching middle age with a boatload of obligations depending on that paycheck. I have family in that stuck mode and it hurts to watch someone who has to slink off to work when they really want to see their kid play soccer or sing in the school choir. They made all of the right choices for someone who was digging in for the long haul, only later they realized that they didn’t want to be in it for that long, and by then it was too late.

I guess my advice to young people starting out would be to moderate your early confidence and enthusiasm and prepare options so you have flexibility going forward. Saving and investing, widening your skills and interests outside of your career path, and finding sources of side-income are all worth at least some of your time and effort. Then later if a risky opportunity comes along you’ll be in a position to go for it.

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retirebyforty February 18, 2014 at 4:57 pm

Wow, that’s different. It worked out great for you. Great advice for the young folks. Saving and investing will give you a lot more flexibility down the road.

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Mom @ Three is Plenty February 18, 2014 at 11:48 am

I was lucky enough to get a “full-time” job while still in college, working for the university. I contributed to my 401(k) equivalent thanks to my father, and had Dad start contributing to his as soon as we started talking about finances in our relationship. My biggest mistake though is buying a house in 2004, not at the peak of the market, but we ended up selling it at a loss as well. Took quite a chunk out of our savings. I wish I had learned more about budgeting when I was younger – my dad didn’t really budget, he just paid things as they came up, so I didn’t learn that part.

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retirebyforty February 18, 2014 at 4:59 pm

Thanks for sharing. Did you buy another house at a more affordable price? I think housing will work out in the long haul as long as you don’t overspend on a huge place. Our place has mostly recovered and we picked up a couple of places during the downturn. So it all worked out pretty well.

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Mike February 18, 2014 at 1:12 pm

Joe, I think the big things that you are trying to say in this post are:

-Go into a field that has career potential. It sucks working low wage jobs that make it hard to invest and save money.

-Be wise with the money-set it in savings, IRAs, etc.

-Be careful with your spouse-marrying the wrong person can hinder your long term potential.

I think if most people get some of those points out of your post then they will be set for life.

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retirebyforty February 18, 2014 at 5:01 pm

Thanks for your input. Going into a career with good earning potential is a good idea. Education is the key there.

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DC @ Young Adult Money February 18, 2014 at 2:33 pm

Hmmm I got lucky that I got a really good internship (long story behind that) that led to a full-time job that I started just days after graduating. I also think my wife and I got lucky with the timing of when we bought our house (October 2010). We got a rock-bottom interest rate and the value of our home has only gone up since then. Also, I would say starting an emergency fund was a pivotal moment in our lives. There’s so much less stress when you have some money in the bank in case of worst-case scenarios.

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retirebyforty February 18, 2014 at 5:08 pm

Great job! That’s pretty lucky with the timing. Housing is starting to get expensive again and I feel bad for the people who missed the opportunity. Oh well, there will be another cycle.

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Erin @ My Alternate Life February 21, 2014 at 4:45 pm

Investing early and marrying someone frugal is so important! And while I’m enjoying the cheap life of being childless for now, eventually that will definitely take us down a peg. For now, we are paying down debt (which will have a huge effect!) and cutting expenses on things we don’t value.

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