It’s been a long time since I wrote about the general state of my financial affairs. A few readers have written to express concern that I’ve lost my way. I haven’t. If anything, I’m more devoted to this stuff than ever.
But as I wrote earlier this year, I’ve entered a different stage of money management. During the first two stages of personal finance (debt elimination and establishing a foundation), things happened quickly. They did not seem quick at the time, but they were.
Now I’m in the third stage of personal finance. Progress is steady, but there’s not a lot of scenery. Have no fear: I’m still on the road to financial freedom.
Starting with quick wins
When I started paying down debt, I achieved a lot of quick wins. I’d pay off one debt, and then nix another a few months later. Back then, time seemed to drag — no question — but in retrospect, my progress was constantly visible. Even if I wasn’t writing the final check for my computer loan in a particular month, I could see that my debt snowball had reduced the balance by a significant amount.
When I made frugal changes to my life, I could see the results immediately. Cut my television bill? Fifty bucks a month in my pocket! Cancel the magazine subscriptions? More money for me! And as I gradually weaned myself from bookstores and comic shops, my positive cash flow grew faster than I imagined possible.
By giving up certain things I had thought were necessities, I was able to find more money to throw at my debt, which just accelerated the entire process. As I say, progress seemed slow when I started, but I was actually reaching new landmarks all of the time.
The third stage of personal finance
Today I’m in a different place. I no longer reach significant milestones every month. It’s more difficult to find new ways to be frugal. That doesn’t mean I’m not making smart choices, that I’m not making progress. I am! It just means that the landmarks are spaced farther apart. Here are some of the things I’ve done (or continue to do):
- I’ve eliminated my debt.
- I’ve amassed a $20,000 emergency fund.
- I’m maxing out my retirement plans. (And I’ve begun to invest outside them.)
- Kris and I have accelerated our mortgage payments.
- I was able to purchase a used Mini Cooper with cash.
- This year I will earn more than I’ve ever earned in my life.
- And still, Kris and I continue our frugal ways.
All of these things are fantastic. I’m ecstatic to have turned my financial life around. Earlier this evening, Kris said, “You’re not even the same man you were five years ago. You’re like the new and improved J.D. I like it.”
She’s right.
I feel like I’ve reached a sort of financial nirvana. I’m not financially independent — but that doesn’t matter. I’ll get there. Meanwhile, I no longer experience the guilt of overspending. Though I do make the occasional financial mistake, I’m no longer in danger of overdrafting my bank account. I don’t incur late fees. I have enough money to indulge myself.
This feels good. This is what it’s like in the third stage of personal finance.
The road ahead
My journey isn’t over. My financial engine is humming smoothly. I’m ripping down the highway of life on the road to financial independence. There aren’t many landmarks to share right now, but I know there are many ahead.
More than that, there are new paths to explore. I’m eager to discover (and to share) tips for those who have mastered the basics of personal finance. How does one buy municipal bonds? Is real estate a practical investment for the average joe? What’s the best way for me to use my money to help others? What can we do to optimize our financial systems? How can we boost our incomes while remaining frugal? How can we keep our psychological weaknesses in check?
And at the end of it all, there’s financial independence. Will I ever reach this goal? If you had asked me five years ago, I would have said “never”. Now, though, I’m more optimistic. It may not happen this year. And it may not happen next. But I think I’ll get there before traditional retirement age.
It’s not my goal to gloat or to brag or to have you write, “Great work!” My goal is to show what can be done through hard work and perseverance. It’s true that we’re all different and that we all start from different places. But I sincerely believe that given enough time, nearly everyone can get rich slowly.
I am doing it, and so can you. I’ll be here to help you find the way.
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I just want to say congrats and thanks for the hope you’ve given me. I hope someday, slowly but surely, to arrive at that feeling you’ve so wonderfully described you’re at now, and maybe even eventually not to have a worry about money at all. aaah
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JD,
Great post. I am currently in a similar situation as you are. I finished paying off my student loans just earlier this year and my wife and I are completely debt free (apart from mortgage). My wife is 33 and I am 31.
The process of paying off the debt was indeed a lot of fun. I personally enjoyes seeing the monthly overviews and seeing the shift in interest and principle payments. Also the goal is clear: zero, which makes winning easy. You know when you’ve made it.
My wife and I in the meantime have been saving for the long term. It isn’t very exciting, but we manage to set ourselves challenging goals every year. We commit to saving a substantial amount of money each year (currently € 30K per year, we live in Holland) and our goal is to increase this amount by at least 2% each year.
I think that for making your this level 3 GRS thing to work you need a combination of both short-term and long term goals. Short term for this year is getting the € 30K for this year secure and € 30.6K for next year. Long term you need to have a good idea of the compound interest effects of saving now and being boring (eg, holding on to it). We don’t want it now, we want it in 30-odd years.
I personally keep a number of excel charts in which I monthly follow our financial progress towards the plan we have. Making it visible in the form of bars and graphs helps me to keep motivated in continuing our saving and investing.
Hope some of this helps.
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Great progress. Thanks for sharing. Your hard work to be frugal and save money has certainly put you in good stead for the future and to achieve your goal of financial independence.
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Tay, Is it a terrible thing to buy furniture w/ a windfall instead of paying down debt? Or buying furniture on a credit card? I don’t think it necessarily is. If you will have the furniture a long time and if it gives you real pleasure than I think spending a windfall on that is a perfectly reasonable choice. Nothing to feel guilty about. On the hand, if you can barely make the min payments on credit card debt, are likely to move soon, or tire of the furniture, than perhaps it wasn’t such a good idea. Even as we try to get out of debt & save for a rainy day, we live in the here and now. So its not terrible to enjoy life and spend on the now. We just have to keep things in balance.
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Thanks for writing this article. I am in the same place with my finances. It isn’t as exciting of a place as when I was paying off debt, but I am more comfortable now. I enjoy keeping track of my net worth monthly and watching my progress that way.
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Just a thought – once debt is paid off, the catching up on savings missed can become a new set of challenges with their own victories along the way.
My husband and I are fortunate enough to not have any debt to third parties per se, but we certainly have “debt” to ourselves… we both entered the marriage with money saved from when we lived with our respective families, but a series of circumstances resulted in us earning too little/spending too much to make it through the month. Only by a small amount each month, but we were very slowly nibbling away at our savings, and even on good months we certainly weren’t adding to them.
But, now we are finally starting to bring ourselves around from this, and have gone through just breaking even to actually having a surplus this month.
So now we are starting to think of all the savings we haven’t been building up. We both have employer-matched retirement savings, but beyond that… we have 2 young children for whom we want to start college funds, a house downpayment sum we wish could be a lot bigger, plans to expand the family that we would need some savings to allow for, etc.
The plan is to look at how much money we should really have saved for each category at this point, and to hack away at our debt to ourselves just as we would with debt to someone else. We aren’t bringing interest into the equation, but imagining interest on your “debt” would parallel the interest you could have been earning on the savings if you already had them. So, we will pay more per month toward each “debt” until we hit the point where we should be anyway, at which point we level off to a regular saving and snowball the remainder to the next one. And when we meet all these goals, we will hopefully have bought a house by then, so we throw the remainder at the mortgage.
Could be a useful perspective for someone who finds the road to financial independence too monotonous and needs some milestones along the way. Just games with numbers really, but we know that for us it’s the best way to get motivated.
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To the posters that think that you should include primary resident home equity in your net worth:
A portion of the blame for the mortgage crisis is tied to this line of thinking. Though a home has a monetary value, its primary value to a person is shelter. Fundemantally money just serves as a medium to provide physical items to ourselves and our families. Occasionally we find someone that has significant equity in a home and could sell the home and afford a smaller place to live (i.e. the California scenario presented above, where a home owner sold a more expensive home in CA and purchased a smaller home and had significant remaining profit). For most of us the economics of that situation don’t work out. Meaning, we could not maintain our shelter and really get money out of our home without going back into debt (home equity loans).
Which brings me to my second point, debt really equals risk and risk equals stress. Having a paid off home is shelter with no stress. So it can’t really be included in the net worth without stress. A primary residence then is not an investment, thus it should not be included in a net worth balance sheet, until you and your family are dead. Then it becomes part of your estates balance sheet since shelter is provided by your coffin. Sorry morbid joke.
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