You can do it even faster with the education available to you today!
Looking back, it was a slow crawl to get to about a $1M net worth in 20 years.
If only I knew then what I know now.
In the year 2000, my wife and I essentially had about $25k in liquid assets: Retirement accounts, savings accounts, our household checking account, etc.
Of course, we also had a mortgage. But we were good with our credit cards…most of the time 🙂
We started with a NEGATIVE net worth of $100,000.
In 2006, I got serious about money. We paid off our last consumer debt – a 5-figure car loan.
I was done with debt and have never looked back.
We started saving more because, well – when you don’t have any debt you can either spend more or save more. Saving more was a priority, so we increased the amount going into our 401(k)s and saved about 6-months worth of expenses in the bank.
As it typically goes with investing, we rode the market up and down. Most of the first couple years the market kept going up.
Then the Great Recession hit in 2008. I was committed to stick to our plan – even when our investments dropped 45% in one year!
My $100 a month *experiment* in its 7th year:
Coincidentally, I opened my first Roth IRA the same month the market hit bottom – March 6, 2009. My Roth was an *experiment* because I wanted to see what $100 a month would do over a very long period of time.
In the first year, my 100% investment in stocks (no bonds, I wanted to be as risky as possible in my experiment account) grew from:
2018: $8,247 (not good)
to now: December 23, 2019: $11,720
Over time, 84 deposits of $100 each has turned $8,400 into $11,720.
Can you imagine what our other accounts are like?
Remember, this is an account where I only invest $100 a month. Everything gets re-invested so it grows more and more value.
This is a very small portion of our net worth. However, it proves the point that you need to get started and invest consistently over time.
Note: Past performance is no guarantee of future returns. In fact, you can see how I deposited $1,200 in 2018 but the account only grew by $227. That’s because the market took a dump in December 2018 and my account value dropped a ton.
But I’m not investing for the short-term.
Which is the point of this whole article.
How we started “not being average” and started being rich
We started out like the average American couple: Married, mortgage, two cars and a newborn.
We took average vacations: Not too frugal and not too lavish.
We paid off our credit cards (most of the time) and put a little money into our retirement accounts – at least enough to get the match.
…because that’s what everyone else does.
In 2003 I began learning about how money really works – and it didn’t take long before I realized we were living the average American lifestyle.
To be honest, it wouldn’t take much for us to become abnormal.
I started following Dave Ramsey’s principles and became hooked on budgeting, living on less than we made, and killing off our debt.
A lot can be learned just by listening to his radio show.
Those were the building blocks of my informal education on personal finances. You can certainly follow in my footsteps and find even more free financial literacy lessons in all kinds of ways today.
Staying invested when the market is good and bad
This year, the market has hit all-time highs over a dozen times. In fact – at the time of this writing – the DOW is hitting another record of 28,551 – more than four times the DJI was just 12 years ago!
The market has gone up precipitously, but it can only be temporary.
Which brings me to my next point:
The next big market drop is going to be MUCH scarier than the last!
Net Worth Time-line:
Our net worth in the year 2000, including the value and mortgage of our house, was a negative $86k.
After drawing the line in the sand on debt, our net worth was $139k – almost a 180 degree turnaround by 2006!
The Great Recession hit, but we stayed the course. Our net worth still grew to $175k by the end of the decade (2010).
We were determined to continue investing in our retirement accounts, opened a tax-advantage account for our daughter’s college, and even paid off the house early.
Currently, we estimate our net worth (including the value of our property) to be close to a million dollars.
Let me ask you this: Do you think we will be more scared of the next market drop even though it’s unlikely to be less severe than the last?
You bet your bottom dollar we will be! There’s much more at stake!
Losing 50% of $200k probably won’t seem as scary as losing 25% of a $1M!
The Comfort of Living a Debt-Free Lifestyle
We are prepared for the next drop. We don’t owe anybody AN-Y-THING!
No car loans, no mortgage, and we have money saved for our daughter’s college. I don’t even have a credit card. I’m completely free of any obligations to anyone.
…and that’s what I want for you!
No matter how bad the market gets, we have our house and transportation taken care of.
I want you to seriously consider paying off all your debt.
Do it now while the market is good. And do it when the market isn’t good – because it won’t matter how much is in your brokerage account when you still have to make the car payment.
I’ve been completely debt free for over 4 years now, and consumer debt free since 2007. Replacing an air conditioning unit in the hottest week of the summer isn’t an emergency when you are debt free and have 5-figures of cash set aside for “unplanned expenses”. It’s not fun, but it’s also not devastating!
You can do this faster!
Until recent years, the traditional advice was:
- Have emergency savings
- Pay off all consumer debt
- Invest 15% of income into retirement
- Save for your kid’s college
- Retire at age 59 1/2
But there’s a new movement taking hold of young people today.
It’s called “The FIRE Movement”, which stands for “Financial Independence Retire Early”.
I grew up in a time when we only focused on the FI part of FIRE.
Retiring early wasn’t talked about, although it wasn’t a new concept. Lots of people stopped working before Social Security kicked in.
Today, the movement is introducing people of all ages to the concept of saving as much money as you can today so you can quit the day job before 59 1/2.
Personally, I won’t stop working until I can no longer physically serve my clients. However, I’m sure you can see the attractiveness of having an “F-you” fund and being able to re-create yourself because money will no longer be an obstacle.
People are turning 12 years of working, saving, and investing into an early retirement. Blogs like EarlyRetirementExtreme.com and MrMoneyMustache.com shocked people into this “new” idea and are credited with starting the movement.
We can’t ignore one of the first books to talk about retiring early: Your Money or Your Life by Joe Dominguez and Vicki Robin from 1992.
Now there are hundreds of FIRE blogs and podcasts educating and encouraging people to take control of their finances, and the result is they are taking control of their lives.
Can you imagine being completely debt free and able to retire in a dozen years? These young adults are doing it, so certainly you can too!
Simple ways to get started
If you don’t do something today then you won’t have the advantage of making time work for you.
Compound growth over time is a powerful force. Knowledge is the key to unlocking that potential:
Book by by Joe Dominguez and Vicki Robin:
“Your Money or Your Life”, which was revised by Vicki Robin in 2018
Stock series by JL Collins: https://jlcollinsnh.com/stock-series
Blog post by Mr. Money Mustache: The Shockingly Simple Math Behind Early Retirement
Podcast by Choose FI: https://choosefi.com
Audiobook: Playing with FIRE by Scott Rickens
Conferences and communities:
FinCon: Not necessarily a FIRE conference, but FinCon is THE place where those who create content around the topic of money meet once a year. FinConExpo.com, which will be in Long Beach, CA September 30 – October 3, 2020.
Financial Freedom Summit: A 3-day event in St. Louis, May 1-3, 2020
Local meetups: Find a local group https://apps.choosefi.com/local-groups
Facebook group: Once again, Choose FI has something for you: https://www.facebook.com/groups/ChooseFI
How will you start to work towards financial independence?
Will you be reading about FIRE or listening to personal finance podcasts?
How will you begin your 20 year journey to complete financial freedom and possible early retirement?