Money story: Our financial 180
This guest post from Joel is part of the “money stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all stages of financial maturity. Today, Joel shares how he and his wife made a “financial 180”, going from extreme spenders to extreme savers.
Hi, I'm Joel!
Last November, I quit my job as a software engineer to retire early at the ripe old age of thirty-three. I had reached financial independence — that point where you've saved enough money that you never need a job again.
Life's been pretty great since then. I work on fun stuff — like writing and music — on my own schedule. I take care of the household chores and cook dinner for my wife (who still works…for now). I have plenty of time left in my days to spend goofing off with family and friends.
You might think that if I managed to retire at such a young age that must mean that I had this money thing figured out all along. Nothing could be further from the truth. In fact, just a few years ago, I was stuck in a job I hated with no way out. I wanted to escape.
This is the story of how my wife and I made a financial 180, going from zeroes to heroes in just a few short years.
An Expensive Past
In 2007, I graduated college with a degree in computer engineering, took a job with a fortune 500 company, and bought a brand new house. For the first time in my life, I felt like an adult. With a big paycheck coming in every two weeks, I could have anything I wanted. As luck would have it, I wanted a lot — and I had expensive tastes!
I decided my first purchase would be a $3500 high-def television. I added a PlayStation 3 and assorted accessories to the shopping cart, and raced back to my new house to get everything set up.
That night, as I sat on the floor in that empty house, watching The Simpsons, my girlfriend (now wife) convinced me that something was fundamentally wrong.
“Joel,” she said.
I glanced over to her. She looked beautiful in the glow of the giant television. “Yes my darling?” I said.
“We have no furniture,” she said. She was right. But we had an awesome TV!
In all of the excitement of my spending spree, I somehow forgot furniture. No problem. I reached for the credit card, and $10,000 later, our house was filled with furniture: fancy leather sofas, king-sized beds, the works. It felt great! For the previous five years, I'd been a broke college kid. Now, I was a respectable grown-up.
As the years passed, my spending habit worsened. By 2012, we were spending six figures a year on… Stuff.
- Two brand-new cars at $25,000 a pop? That's normal, right?
- A $40,000 wedding and a fancy Bahamian honeymoon? Sure, that was expensive but we could “afford” it.
- $13,000 in restaurant spending during a single year? We liked to think of ourselves as food connoisseurs.
Why shouldn’t I treat myself? I was putting a full 6% into my 401(k) every year to get my employer match. That was more than most Americans. I was being smart! So, I continued my adventures in spending.
A Crash Course in Life
Before I knew it, our life was full: food and water delivery services, monthly massages at the spa, fancy dry cleaning bills, season tickets to various entertainment venues, expensive martial arts hobbies. You name it, we had it.
But as our life — and bank statements — filled up, we weren’t getting any happier. It was actually the opposite. We were more stressed than ever before! We just couldn’t figure out the problem.
In 2013, I decided changing employers would shake things up and give me a much-needed morale boost, so I jumped to another big firm in the area. The pay bump and new faces helped a bit, but within a few months, I was unhappy once more. What was wrong? I had spent thousands of dollars on toys the previous year. Why weren't Amazon purchases fixing my problem?
What I needed was a way out of the life we had built for ourselves.
You'd think a high tech job would be interesting, but over the years I realized it’s all the same: Write yet another version of an already existing widget for a program that's behind schedule and over budget. Changing jobs didn't help. New code, new cubicle, same prison sentence. The fluorescent lights taunted me as I stared at the blue skies outside. I couldn't go out and enjoy it; I was always too far behind on my tasks. I tried coming to work earlier, staying later, working through lunch.
I was trapped.
It was around this time that a friend pointed me to a blog called Mr. Money Mustache. He thought it might help give me some perspective on money, so I glanced over a few articles. “What an interesting website,” I remember thinking at the time, unaware that my life was about to change in a very big way.
Soon after, my wife was in a terrible car crash.
She was visiting her mom in south Florida when a sheriff's officer ran a red light with no sirens and T-boned her in an intersection. My wife's Honda was totaled, but thankfully she walked away with only minor injuries. Soon after, the insurance company sent us a check for $10,000 — the depreciated value of the $25,000 car she purchased new just a few years earlier.
Our Financial 180
That night, as we sat on the fancy leather sofa in our filled-to-the-brim-with-stuff house, my wife once again convinced me that something was fundamentally wrong.
“Joel,” she said.
“Yes my darling?” I said.
“We need to stop spending our money,” she said. As is often the case, she was right, and I knew it.
That night, we both binge-read the Mr. Money Mustache website. I became consumed by this strange concept of financial independence, the idea that somebody could save enough money to retire in ten years (or less).
I worked out the math for myself. I checked the numbers twice, looking for a mistake. But it was real. Financial independence really was a way to escape the daily grind, a way to add control and meaning back into our lives. We took the $10,000 insurance check and put it into a Vanguard index fund instead of buying a second car.
It was a new financial beginning for us.
As we began slashing our expenses, we realized that most of the luxuries we purchased to make ourselves happy were superficial. The new house and cars, the fancy furniture, it was all a sham. None of it actually brought us any long-term happiness. After a few months, the shininess fades, and you're back to square one. It’s called lifestyle inflation.
Worse, the things we sacrificed for those luxuries — control of our own schedules, free time for friends and family — really would contribute to our happiness, if only we had time for them! Once we figured this out, we worked hard to increase our saving rate as much as possible.
We turned money management into a game. Every month, we'd look for one improvement we could make to our budget. Before long, we got pretty good at saving money! The results were dramatic.
This graph shows how we slashed our spending:
And this graph shows the simultaneous rise in our savings:
By 2015 we'd cut our expenses by two thirds, allowing us to max out our 401(k)s and pay down our mortgage. In the years since, we've saved hundreds of thousands of dollars. And just after my 33rd birthday, less than five years after our financial 180, I was able to quit my job — for good!
A Team Effort
I know this story sounds like sunshine and lollipops, but turning things around was not easy. And the turnaround didn't happen overnight. It was gradual. We made a ton of mistakes along the way:
- We bought a new home worth less than half its mortgage.
- We had six-figure annual expenses and battled lifestyle inflation.
- We had sizable wedding, travel, and new car expenses.
- We had no investment knowledge whatsoever, so we made poor decisions.
The list goes on and on and on.
Despite the mistakes, my wife and I were determined to work together as a team to turn our finances around and to learn as much as possible.
We worked together on our impulse spending by creating shopping lists before stepping foot into our favorite stores (Best Buy for me, Target for the wife). If it wasn't on our list, we didn't buy it. To reduce our restaurant spending, We learned to cook each other's favorite meals instead of going out to eat every night. The key here is that we each put in the work — together. We communicated our goals. We were both invested in turning our financial situation around, and so we were fully committed to making it work. At the end of each month, we'd sit down together to scrutinize our credit card statements and cut all nonessential expenses.
Gradually, our hard work started paying off. All of the individual improvements we made added up to something enormous.
We tracked our net worth as it grew. This helped form a mission statement for my blog: to document our journey, and help as many people as possible save up their own FU money, replace fear with flexibility, and avoid all the mistakes we've made in the past!
Why did we pursue financial independence? To spend more time with family and less time at unfulfilling jobs. To pursue creative endeavors with no pressure to turn a profit. To live our lives the way we want, on our own schedules, without the need to worry about money ever again.
Want to get started on your own financial 180? The math is easy. Create a gap between what you earn and what you spend. Build a wealth snowball. If you can save half your income, your working career will only be around a decade long! I know, I know. It sounds crazy — but it's true.
Maybe it's time to make a financial 180 in your life. Ten years from now, you'll be glad you did!