Here is a tough question for you. What was the best financial decision you’ve made? Life is really good for us right now and a large part of that is due to many smart decisions we have made in the past. I also think we are very lucky because we haven’t made any huge mistakes or had any major accidents so far. Lucky is good and I’ll take it.
For me, there isn’t just one best financial decision that I can pinpoint. For example, I didn’t invest in Apple when they were cheap. If I invested all the money I had in Apple circa 2003, we’d have millions now. Instead of a big home run, I made a series of conservative base hits. This worked out for us, though life is different for everyone. What worked for us, might not work for you. I’m very curious about your best financial decisions and I hope to learn from them. I’ll start the conversation off by sharing my 5 best financial decisions and then I hope to hear yours.
My Best Financial Decisions
Major in Engineering
Unless this is the first time you visit Retire by 40, you’d know that I retired from my engineering career after just 16 years. I liked being a computer engineer when I started, but I got completely burned out and had to bail from Corporate America. That doesn’t sound like a successful career so why would I pick major in engineering as one of my best financial decisions?
Simple, I made a decent salary as an engineer and that enabled me to make other good financial decisions. At the end of my short career, I was making a little over six-figures and we were saving all of it. A decent paying job is a great base to build upon. If my kid wants to major in engineering, I would tell him to go for investment banking instead. They make a lot more money. Just kidding! I would encourage him to pursue engineering if he is good at it, but plan for early retirement. Engineering is fun, but you can’t stay in a technical role for long unless you’re really lucky. Anyway, you need to make a decent income or else it will be very difficult to get ahead financially.
My number one rule of personal finance is – NEVER ever spend more than you make. It’s a downward spiral if you can’t follow this rule consistently.
Actually, I didn’t make a conscious decision to live modestly. It just turned out that way. My parents struggled financially for many years when I was young and I was used to living frugally. College was expensive and I knew my parents worked really hard to help pay for my education. I lived as cheaply as I could and rarely spent any money when I was a student.
That frugal habit stuck even after I started making good income. I never spent all my income like many other people did. A big factor here was that I made good income. Life was still very comfortable while saving 50% of our income. Living modestly came easy to me, but I know that’s not true for everyone. Over the last few years I have been tracking all our expenses and that helps us put a cap on spending. It’s very useful to know what you spend money on.
Start Investing Early
Another great decision I made was to start investing early. I didn’t want to invest in my 401k when I first started working, but my dad convinced me to do it. I continued to increase my 401k contribution and maxed it out after just a few years. I’ve been maxing out my 401k contribution ever since and it is the biggest part of our net worth now.
I know it is difficult for young people to max out their 401k contribution every year, but you should do it as soon as you can. Saving a significant percentage of your income has two huge effects.
- You live on less because you don’t have as much disposable income.
- Your investments have a lot of time to compound.
Every experienced investor wishes they invested more when they were young. Time is on your side when you’re young. A $1,000 every month can turn into $3 million in 40 years. So start investing as early as you can or else you will regret it.
Buy a House
In general, I don’t think buying a primary home is a good investment. However, it worked out well for us. We purchased a house in 2000 and turned it into a rental home in 2007. Eventually, we sold it and did a 1031 exchange into a tiny duplex. We made a $40,000 down payment in 2000 and now the property adds over $500,000 to our net worth. That’s not bad at all.
In retrospect, buying a home was good for us because it was a form of forced saving. We paid our mortgage instead of spending money on discretionary items. Once we turned it into a rental, it became a real investment and our tenants paid the mortgage for us. We’re lucky with the housing market too. We took a hit when the housing bubble popped, but we’ve recovered since. Now, our rentals are generating a little income every month and the price keeps appreciating. I can’t complain about that.
Married the Right Partner
Marrying the right partner is absolutely the luckiest thing I’ve ever did. I met Mrs. RB40 in college when we were both trying to find our way in life. She was as frugal as I was and we got along relatively well. After college, she joined the Peace Corps and went off to Uzbekistan for two years. I convinced her to move in with me when she came back and we got married soon after.
I was an engineer and earned a stable salary so she had a chance to try several different type of work. In 2005, she went back to school to get her Master’s degree and started a new career in HR. Now, she is working while I’m a stay at home dad/blogger. She likes her job and she is making very good progress with her career. However, she wants more time to pursue her other projects, so she plans to retire by 2020.
Mrs. RB40 is a great partner. She is reasonably frugal and we have similar financial goals. We prioritize building our net worth over spending money and our finance continues to improve every year. It is much easier to accomplish your financial goals when you work as a team. I can’t imagine a better partner because we works very well together.
What’s your best financial decision?
So those were my best financial decisions. Notice that they were all decisions that I made in my 20s. Those smart conservative decisions add up over time and we are reaping the dividend now. It feels like we will continue to do well if we just keep it up and avoid making any big mistake. All in all, I am very happy with where we are. We live a comfortable life and don’t have a lot of stress. Base hits aren’t as exciting as home runs, but they work well for us.
What about you? What are your best financial decisions? I want to hear about some home runs. 🙂
Mrs. RB40 lived with her mom in CA after she got back from Peace Corps and she flew up to Portland to visit me. I wanted to impress her so I picked up a dozen long stemmed red roses on the way to the airport. In those days, you could still go through the security checkpoint to wait at the arrival gate, so that’s what I did. However, the metal detector beeped and the security lady had to wand me. So picture this – I’m standing with my hands outstretched, holding the roses while the security guard wanded me. Everyone in the airport was grinning from ear to ear. Mrs. RB40 appreciated the roses and the trial I had to go through. Ahh.. the good old days.
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