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.
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.