My Path to Reaching Financial Independence – Part 1
Everyone who has reached financial independence has taken a different journey to get there. But there are similiarities. Looking back, I took steps toward reaching financial independence in my early years, even before I was knowingly pursuing an FI goal. Likewise, many of you are setting yourself up for achieving FI even without consciously going after it! I’m sharing the major steps I took throughout my life to achieve FI not to suggest following the same path that I took. Rather, I encourage you to examine your spending, saving, and investing habits, regardless if you are pursuing FI or not. I also share what I did right and what else I would have done if I could start over, particularly so some of you don’t make the same mistakes I have.
#1. I Learned
From a young age, I was lucky enough to be taught the value of money and how to care for it. Among my earliest memories, my parents taught me the importance of saving, even if the only bank I had was a large Tootsie roll container with a coin slot on top. When I was at the age of earning a small allowance, my parents insisted that I keep a journal in order to log every cent coming in and going out. This is where I first learned the importance of knowing how I earned, saved, and spent my money, down to the penny.
As I got a bit older, I remember going to the bank to open my first savings account with my mother. My head hardly reached the bank teller’s counter. I didn’t know what was going on, but I did remember writing my first attempt at a signature during this visit. I also remember how big the bank was. Upon returning home, Mom described interest, and how the money just grew more money by “sitting there” in the bank account.
Middle and High School
As I advanced into the middle grades and high school, when I worked part-time jobs, my parents required me to save half of everything I earned. As a selfish kid who just wanted to spend money, this was extremely painful at the time. I wasn’t making much, anyway – I’d hardly have anything left to spend! In retrospect, this was the integral financial step in my formative years. What I learned was two-fold:
- I learned the importance to save at a high rate early
- I learned the importance of living within my means
Of course, I don’t imply with the second one that I was supporting myself! Rather, I learned to take extreme care in my spending decisions, knowing that after saving I only had limited remaining money to spend.
- What I Did Right: Learned to save and account for all money at an early age. Learned to thoughtfully and deliberately make spending decisions.
- If I Could Start Over: Learn more deeply the exponential long-term benefit of saving.
#2. I Saved, and Learning Continued
Throughout high school, I continued to save at high rates. Much of this effort was to contribute to my higher education, but also some saving in order to make the money grow, like I had learned in my earlier years. In high school I started learning more about how taxes worked, largely because I was shocked at how little I had left in my paycheck from my busboy job at Steak and Ale. I vividly remember making $2.13 per hour, plus a share of tips. I did get a shiny plaque, though, when I was employee of the month.
A few accounting classes in high school helped, as well. I liked math since grade school, but I first discovered here that I actually loved working with numbers, especially when the numbers involved money. At this point, I thought I wanted to be an accountant when I grew up. I didn’t end up becoming an accountant, but I can attribute my love of personal finance mostly to my high school classes.
Brief Sidebar: From my perspective, there should be a nationwide financial literacy course requirement for all high school students. It seems that so many individuals make significant financial mistakes simply because they don’t understand basic financial principles.
College
I think the major accomplishment which helped me financially during my college years was working in a professional environment. After enrolling in the co-op department, interviewing, and obtaining employment, I subsequently took a few semesters off during college. I benefitted in three ways:
- First, I earned a few college hours per semester.
- Second, I earned at a much higher pay rate than I would have working in my college town. I, consequently, saved much more.
- Third, I built rapport and established connections which could contribute to future work opportunities after college graduation.
Also, I jumped into credit for the first time in college. I was approved for a Citibank Mastercard with no rewards program my freshman year. I put the majority of my spending on the credit card. Based on my parents’ guidance, I treated all spending on the card as if it was cash. I ensured I had the money already prior to spending on the card, and I paid the statement in full each month on time.
- What I Did Right: Increased my savings and learned formal accounting principles. Through my university’s co-op department, I took time off from school to work full-time.
- If I Could Start Over: Learn more about taxes and credit card rewards programs. Start a Roth IRA while in college.
#3. I Invested Early and Often
After college, I started investing for the first time. In retrospect, I could have started earlier. I’m still hard on myself for not opening a Roth IRA prior to finishing college. But I did start investing immediately upon entering my first job after college. I was earning acceptable but not eye-popping money in my first permanent job, and I was also living in a high cost of living area. I held my head high by contributing up to the matching amount in my employer-sponsored retirement plan and saving a solid amount in my then-cutting edge online savings account. Interest rates were close to 5% at that time! While I wasn’t contributing a huge percentage amount to my retirement account, I was aggressive and unwavering by consistently investing exclusively in stock funds. After all, time was on my side, so I didn’t focus on bonds at all.
Gradual Investment Improvements
At 22, I could have done more. In addition to the necessities, I was more interested in going on dates and blowing a few bucks at Tower Records than additional saving. But I saved enough to buy my first real estate, though. It was a one bed, one bath condo in a great location. I liked the simplicity and stability of a conventional, 30-year mortgage and didn’t succumb to any ARM gimmicks.
Soon after, I “finally” opened a Roth IRA. Again, I’m still annoyed at myself for not starting a Roth IRA much earlier. At any rate, my main goal was to contribute the maximum limit to my Roth IRA from that point forward. Similar to my employer-sponsored retirement plan, I was aggressive in my Roth IRA investments.
- What I Did Right: Contributed up to the matching amount with my employer-sponsored retirement plan, opened a Roth IRA. Chose aggressive investments in each.
- If I Could Start Over: Contribute much more to my employer-sponsored retirement plan at the beginning of my career.
Reaching Financial Independence – Wrapping Up For Now
My financial prosperity was moving along smoothly into my mid-20’s. I was enjoying gradual increases in saving, investing, and returns before reaching financial independence became a goal. However, a few surprises (good and bad) came my way soon after. Next time, I will share what happened, what I learned, and how I adjusted.
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My dad told me two things at a fairly young age:
“Don’t do what I did financially.”
“I won’t have any money to contribute to your college.”
I took him at his word. He and mom never made a lot of money, and he is still strapped to a mortgage at 62 for another 15 years. But his blunt honesty helped me learn from his financial mistakes. We’re nowhere close to FI, but I graduated college with just $3,000 in debt and we are now 100% debt free.
Benny, Congratulations on your hard work!
I typed Benjy, but my phone changed it.
If you think your privilege and how you ended up in your position is political than you make very clear how little you understand about the socioeconomic issues in our country.
If you don’t see your privilege in your situstion and the degree of help. Literally what percentage of kids finish college with out debt? Do you know how many people’s parents are financially illiterate themselves. This knowledge and where your at was easy to obtain because of your parents. My dads an accountant and I recognize my blessing since all my friends around me had parents were less fortunate and had planted the wrong ideas about how to rich long term or not know at all. Again your a product of privilege. Your responses show it. This isn’t about left or right at all it’s about privilege.
The majority of people from the beginning if their LUCKY enough to go to college end up with years worth of debt because there was no solid mentors around a person to provide guidance.
It’s easy to speak down on people when you’re in your position. I used to do it to but I’m human and recognize not everyone was born with my fortune and it’s unrealistic to make people believe FI is possible without letting them know the multitude of factors that set you apart.
1. Early financial education (a lot of people’s parents don’t have it so how would they know to learn any different then what their parents say)
2. Half you education paid for? By the way how much was your degree? Real cost don’t bullshit me. Over $35k probably. Yeah not so easy for someone who doesn’t have parents who are already set.
3. You found a high paying job BECAUSE of your degree which was in part paid for by your parents.
3. You had no children and good portion of the time.
4. Also did you reach FI off your own accord or do you now have a partner ( who also likely earns a lot of money) in which you’ve combined your money with.?
5. My guess is at ONE POINT OR ANOTHER someone helped you get to the position your at. At the end of the day life is all about who you know. There’s a reason minorities MORE OFTEN THAN NOT are under white people in positions of power and money and it’s because the system was built that way not because they lack intelligence or experience. That’s exactly why different social movements are going on and yet here you are not understanding your privilege making it seem like anyone can make it to where you are with out recognizing the constructs that define their situation make that reality a lot HARDER to achieve then someone of your privileged upbringing.
Not sure how a person sharing his personal story has become about race or privilege. I am also confused where he talked down to anyone. He shared his story, what he did right along the way and what he wishes he could do differently. I think everyone reading this can do the very same thing. Regardless if you are chasing FIRE or not Benjy shares things that everyone could work more on. Should everyone try to save more and reduce expenses, yes. Can everyone reach FIRE? Maybe, maybe not, but he never claimed everyone can do it. He simply showed how he did it and was hoping people could pick up some things from it that may help them.
All of your comments discount the work and effort Benjy put into this. Does working a job making $2.13 an hour sound like a job others can’t get to you? How many college students take semesters off to work in order to pay for classes? It took a lot of effort and sacrifice to make it happen and you basically make that nothing. I am not sure if it is jealousy or what but how can someone encourage saving money and reducing costs create such a reaction? It is a sad realization of the world we live in these days I am afraid.
I totally agree with Mark!
For you to brush over my points and think that by making some simple point about low paying jobs and getting work over summer is something that other people can’t get then you miss entirely what my points were and fail to see that he was blessed regardless of color unlike many other people.
I even explained in my comment I also come from a well off family so for you to assume it’s jealousy further shows your overall lack of understanding about this world as a whole and the factors that affect others situation outside your own.
Is FI possible, but I bet if we looked at the amount of people who accomplish it they fall into a certain socioeconomic category and just like everything else being questioned there’s reasons built by history for that.
You can travel the world all you like and still have little understanding about the obstacles many others have to overcome as you so have displayed here.
Will all of your claims are based off of assumptions on Benjy’s life. You know that clever saying about people and assumptions don’t you?
Achieving and maintaining FI for life requires different skill sets & ways of thinking. Ask some professional athletes, entertainers, & lottery/game show winners as telltale examples.
Just as much attention must be focused on deriving a sustainable spend-down strategy as with the accumulaton of assets. Income & asset protection are also critical to any plan but are too often overlooked or neglected in favor of more desirable spending goals.
FI is an ongoing process and not a destination in itself. The same tools and practices that might take us to one level may not serve us as well in the next. And until we know how long we’ll live on this earth we can never have a final, perfect plan – contingencies, protections, & flexibilty must be well thought-out & built-in to absorb the knocks along the way without bumping us too far off course.
My own sidebar: basic financial literacy should start by 6th grade
Saying that you need to be born rich is a crock. Look at the Forbes 400 and see how many people came from absolutely nothing. Look at some of the people who used to be on there and have dropped off. There are literally millions of millionaires in this country who are self-made.
I am 61, basically retired for some years. If I could go back in time, these are some of the things I would do differently and recommend to others. Don’t know if anybody cares, but here you go. I have wanted to write this up anyway for some time.
First thing in investing: Nobody knows nothing. Never forget this. Warren Buffett got out of airline stocks completely a few weeks ago and they are up something like FORTY PERCENT since then. Hideous decision. He is a genius, but he missed a chance to make many billions of dollars.
1. Max out investing until it hurts. Start as young as you can, even if only $5 a week.
2. Put every dime possible into retirement accounts and employer matching programs, especially the latter. Never turn down free money, ever.
3. Invest 100% in stocks while young. Reinvest the dividends. Buy the same dollar amount regularly, so that when prices fluctuate down you get more. Vanguard Total Market or similar from Fidelity/Schwab/etc. Forget bond/CDs. They stink over decades. I know people who got out of the stock market in 1987 after Black Monday and are STILL all in CDs, making their taxable 1%. Stupid.
3. Stop pissing away money on dumb stuff. Use coupons. Make your own coffee. When something is on sale, buy 2-3 years’ worth if it’s non-perishable. Shop at thrift stores. Don’t buy some piece of clothing for $100 and wear it once. Don’t go out for food and drinks all the time.
4. Wish I’d learned about frequent flyer programs at the beginning. I could have been lifetime AA Plat whenever they initiated that offer by putting inventory expenses on my Citi AA card in the 1980s.
5. I have always followed this one: drive a crap car. Save the difference. Even today I have two 2003 vehicles, an ugly beige minivan and a pickup. Drive them until they dissolve.
6. Think for yourself. If something appears to be nonsense, trust your gut.
7. Nobody is going to make you rich. Ignore stock “analysts” and “investment advisors.” If they knew what they were doing, they would not have to work 10 hours a day trying to sell you something.
8. Don’t screw with the IRS. Be as straight as you can. You do not want to get on their list.
9. All you have to do to be successful is to do what you say you will and be honest and work hard. Your reputation is everything; cherish it. You will never lack for work.
10. People who say there is no opportunity are completely wrong. Ignore them. Anybody can easily make $100 daily starting out. Anybody. Tutor. Cut grass. Clean out basements. Get discarded lawnmowers and learn to fix them by watching YouTube. My favorite: find something cheap and resell it on eBay or Facebook or Craigslist. Buy closeout stuff at Wal-Mart or go to garage sales or auctions. Scale up with experience and repeat customers. You can be 15 years old or 85, any race, either gender, any religion, ugly, fat, poor as dirt; nobody cares on the Internet.
11. Related: become an expert or really well known in something.
12. When you are young, you have energy. Use it.
13. The most important thing in life: if you are going to get married, for God’s sake pick the right spouse. The wrong one can set you back decades and make your life hell.
There’s probably more, but those are the basics for me.
Now get off my lawn.
Great comment – thanks for sharing! And some good tips too.
I will say having the benefit of starting from a place above nothing makes the path easier for sure or having a sound foundation to build off of. But to say that is the only way to get there is far from the truth as you said. And no one’s path is the same.
I always tell my kids that those who don’t understand basic math are at the mercy of those who do! The easiest way to cut through the BS of marketing is to run the numbers. When it comes to taxes, I have found that those who obsess the most over taxes have no idea what their effective rate is. How can you manage if you haven’t measured? I have a framed $1 refund check from the Treasury, happy to have my withholding work out so well.
Dave,
I love that line – “those who don’t understand basic math are at the mercy of those who do!” I plan to use that in the future. A $1 refund check – that precision is impressive. Although I’d be more impressed with a $1 tax bill owed. 🙂
The $1 wasn’t an intentional result, just a conclusion to careful planning. I could have adjusted my deductions down to get it perfectly even, but where’s the reward in that?
I used to drive my employer’s accounting department nuts with regular changes to my withholding. They could never understand that I didn’t want any overpayment. I’m self-employed now and don’t ever get a refund! That may be the worst “investment” most folks make.
Dave,
I’m with you! I’m still surprised, although I shouldn’t be, when a tax refund for so many is apparently considered free money and a reason to go spend. I, and I bet you, consider a tax refund for what it is – a tax-free loan to another entity.
Thank you for deleting Jeff’s post. It does not belong in this forum. Tired of people like him trying to ram their personal philosophy down my throat at every chance they get.
I’m curious whether you had any student debt upon graduating. I feel the biggest obstacle on getting FI for any fresh graduate is the huge student loans that one has to start paying after graduation.
Thanks for sharing your story. I’m in my mid-30s and nowhere close to FI but I do plan on achieving FI sometime in my 50s.
Joey,
I did not have any student debt after graduation. The money my parents required me to save from my various high school jobs, their generosity (we split college expenses 50/50), and taking semesters off to work all contributed to me finishing college debt-free. I agree that college expenses and any associated debt are a huge impediment. On top of this, higher education expenses have increasingly become out of control for decades. As a parent of little ones, I’m definitely watching the higher education space closely…
You’re missing, don’t have kids. Worst financial decision ever.
ABC,
You forgot about the tax benefits! 🙂
There is far more to life than financial success. But yes, I can agree that kids are expensive. 😉
…If I could turn back time…
Isn’t that the truth. I have some regrets in the way I handled money for sure.
Great stuff. Thanks for telling your story. When someone does this it’s not just some vague abstract.
Christian,
Thanks for reading. I’ll try to keep it going!
“if I could start over” is missing the single most important and by far the most common reason people reach financial independence – being born rich, or have rich grandparents who die leaving their estate. Nothing else comes close
Greg,
True! Being born rich would definitely help, but it’s not a prerequisite for reaching FI.
Got to disagree strongly on the idea of inheritance as an FI method. As Buffet says ” the easiest way to become a millionaire is to start with a billion” Being born on third base doesn’t teach you any of the lessons you need to stay rich!
Dave,
Thanks for bringing this up. I actually think you and Greg are both correct. Being born a billionaire would be helpful, of course. But a born-billionaire spending billions will most likely only head in one direction. From my perspective, this is an illustration of how reaching FI starts with sensible spending. Minimizing expenses allows more to be saved, invested, and greatly reduces one’s need to rely on higher amounts of income perpetually.