Jim, a reader of our Facebook page, shared some of his personal finance journey in Facebook comments a while back, and readers commented that they'd like to hear his story. We reached out and asked him if he would elaborate so we could share his story with the Get Rich Slowly website readers. This is part 1.
Some reader stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income.
First, let me be clear, I never went hungry in the extreme “poverty” sense. But I did have a few mustard-and-sugar sandwiches in my life because that is what we could afford between paychecks. My parents had always given my sister and me “just enough.” If we wanted more, we needed to save our meager allowance because they were living paycheck to paycheck and couldn't afford more. To this day, I believe it's what helped me get to where I am today. I realized at an early age that it was all on me. I knew going in I was never entitled and that has been very helpful in this journey.
There were two lessons I vividly remember growing up concerning money. First, around 8 years old, I remember saving weeks and weeks for a large Lego set because Dad told me, even at that age, if I wanted something, I'd better save for it. He may even have had a deal with me that he would pay half and, knowing him, he would count it as one of my birthday presents because that is how he is. Anyway, it seemed like I must have saved $50-plus for this set of Legos back in the '70s. Well, I clearly remember playing with it years later and thinking, “Boy, I worked hard to save that and for what?” The joy was gone, apparently. This was a very important lesson that I carried into my adult life (thankfully).
Second, I will never forget sitting at the bank drive-thru with my latest paycheck in hand when I was 16. It was a measly $76 for two weeks' work (part time at a bowling alley). Even then, my parents made me use this money to pay my bills and reminded me to “use it wisely because that is all there is.” I remember waiting in line, looking at those numbers. I thought, “How am I going to live off of this in two years?” It was then that I truly realized that life is going to be difficult because it's all on me. After all, my dad constantly would remind me “you better have a plan when you are 18.”
Over the next few years, I would need car payments, insurance/fuel and upkeep, a new transmission, a new windshield, college tuition. (My parents would help pay but kept a running tally of the debt I owed. I never had a student loan.) Some of the emergency purchases were my fault, like when I was driving a little too fast and hit the curb, destroying my wheel and tire. I was definitely a little foolish, immature and slow to learn about how to live responsibly. It seemed like every few weeks, something would break or I would do something stupid and would need to dip further into debt.
Now I was 20 and about $7,000 in debt and making a little over $3 an hour in the late '80s. My life was spiraling out of control, it seemed. I was in college, but I had no idea what I was going for, where I wanted to be when I finished. I just knew this was the next step after high school. Deep down it was a frustrating pattern and I wasn't smart enough to get out of it on my own.
Financial counseling at 20?
Sometime during this confusion, I saw a pamphlet about free financial counseling. I don't know what it was that caught my attention, but I believe things happen for a reason. The counselor changed my life and I know that, because of him, I have changed a few people's lives too. Hopefully, out of this story it could change yours.
Honestly, I don't remember most of what he said. But the one thing I do remember has stuck with me for the last 23 years. He said the secret to changing your life financially is to track every penny for two months and live within your means, which I diligently did.
I vividly remember the small notebook that I kept on top of my dresser so that each day I would be reminded of my task at hand. Each day, I marked each and every single expense down to the penny. (That was the secret — “to the penny.”) So I wrote it down.
- Day 1: .25 for a soda; 1.67, hamburger and soda; 4.50 for bowling; 6.99, CD.
- Day 2: .25 for a soda, 2.23 for a meal, 7.50 for gas, etc.
Then I added it all up. I was shocked how much I spent on eating out and sodas and realized a lot about myself.
That was the goal of the exercise — shock value. I quickly realized everything you spend goes into an abyss. If you take an ATM withdrawal for $40, how many times do you say “Where did all that money go?” and then head back and withdraw again or, worse yet, go to the nearest bank (out of network) and pay the $2 fee? Oh, by the way, don't forget to write that fee on the piece of paper. This was the beginning of what some would call my “cheapness.” It seems now, no matter the size of purchase, I am thinking about that notebook (not that that's a bad thing). It was the beginning of a behavior change, which is absolutely necessary if you're going to change your life. I always questioned myself: “Will this purchase or decision get me to my goal?”
After a while, I would take my notebook and forecast my expenses — one month out, two months out, six months out. It was actually fun. It was like I was my own comptroller controlling the company's finances. I would write it all down in the notebook: income/expenses, strategic goals, and the positions I wanted to be promoted to within the company. I'd think to myself, “If I spend only X on food this month, I could put the difference against the credit card and this pay raise (all of it) would go to paying off this old car loan.” I wouldn't reward myself just because I had been sacrificing and I “deserved” it. I hadn't reached my goal yet. Any found money or new money would go directly against debt. As you can imagine, there were lots of numbers, plusses and minuses, percent signs for interest rates, and mental notes in that notebook.
Because it was on paper and I was consciously thinking about it, I soon found I became more focused, and my bosses at work noticed it too. After starting out in the warehouse, they gave me a few raises and promoted me around the company. I found a lot of inspiration as well, and I felt more responsible, and people saw me as more mature. Soon I believed that I was starting to get on the right path. It was hard to ignore the naysayers. A few called me “brown-noser.” Even more would call me “cheap” and look down on me or mock me. Still, I stuck to my new goals that were in my notebook. In my mind, I knew where I wanted to be someday.
It became a game to me. As I paid off each obligation, I put that money toward the next most expensive debt — and so on and so on. I never rewarded myself for paying off another debt; I just felt more and more relief from the burden of debt. The reward was the success of achieving a small goal. And it was all being tracked in that notebook. I could look at my notebook and see my hard work in action.
The other part of the game — a challenge I gave myself — was to reach a milestone each month. At the end of each month, I had a set balance, for example, $100 for my checking account. Whatever my balance was above that amount, I would allocate half of the difference to savings and the other half to the debt at hand. Putting monies in a savings account was my reward because, at the time, 9 percent was the going rate for a regular savings account. (It's hard to believe compared with today's rates of .04 percent, if you are lucky.) Also, convincing people back then that my way was the path to success, when interest rates on savings accounts were 4 or 5 or 9 percent, was a whole lot easier than it would be today.
I also educated myself on the difference between interest paid monthly, quarterly or annually because it makes a big difference when you are trying to make your money work for you. I would advise you to do this as well. I would scour the difference between bank accounts and CD rates to ensure the bank was providing me the most to help me in this journey. Today, I am not sure the effort would pay off as well, but the effort would be worth it to prove the commitment to the end goal: financial independence
Night after night, I would sit down with my notebook and I would do the math and forecast my monthly interest payment in my savings account so that I knew I would have $236 at the end of the month, way before I received my monthly statement. And you better believe, I would never pay a penalty fee to the bank. I would watch my money like a hawk.
Granted, it was hard and boring. I bought nothing except the basic necessities. I remember opting for water instead of the much-loved soda. Definitely no more music, and new clothes were non-existent. No more regretting a purchase like I did my Lego set when I was 8. I dropped out of college because I didn't know where I was going with it anyways. I questioned all purchases and asked myself how I would feel three days from now — would I still be happy with this purchase? I still bowled, but instead of practicing 10 games, I cut it to two. I cut out bowling leagues, which was hard, but I found I loved saving money more because I had a vision. It was not easy and I sacrificed. Some would consider it boring and definitely being cheap. But somehow I knew what I was headed for…no guarantees, but I believed.
For three years, I diligently tracked where all money went. It was no longer difficult and became part of my life. I have read that if you want to break a habit, it will take three weeks typically. I definitely broke the habit of foolish spending. I stopped buying “stupid” stuff and slowly started building my net worth.
Finally, it happened. I paid off my Dad (lowest interest rate) last and I felt relieved. “I have a clean slate,” I remember thinking. “I can go anywhere from here.”
After I was out of debt,I didn't stop saving. I remember buying a 19-inch TV (in cash) after my first month of being debt free, because I “deserved” it. Sarcasm intended. But I remember promising myself I will never pay a penalty fee, interest payment on a credit card (I pay in full each month) or have a negative net worth again.
I stuck with the notebook concept even after being debt free. The difference this time was that all of the money I had allocated toward debt was being put to savings. And that's when it became fun. I still lived like I was in debt, but it didn't hurt. It was natural. My sole savings account turned into two, then that morphed into a high-yielding CD. And slowly, my hundreds of dollars turned into thousands. I stuck to my game plan and was diligent about it.
Bragging led me to mutual funds
A couple of years later, I fortunately met a guy who introduced me to mutual funds. And that is when my life changed again. I was on the golf course with him and started bragging about my saving accounts and CDs, and he basically said I was wasting my time and that I should get into mutual funds. I said I didn't know anything about them, and told him I don't have time to invest in stocks. He rebutted, “You don't need to know about stocks; the manager does it for you, and it is like a bank you can't drive to.” That caught my interest because I knew about banks.
So I went to the library (this was before the Internet) and picked up some easy-to-read books about mutual funds that discussed what they were and how to pick them, and the rest was history. After reading a few books and realizing they all basically said the same thing, I took out the most recent Kiplinger's Personal Finance magazines. I was determined to look at the top-rated funds over the last three, five and 10 years. I learned if you pick the performer for one year, you are only chasing past performance because most of the profit has already been realized! In other words, only the existing shareholders are extremely happy enjoying that great return. What would happen if I had gotten in at the top? Not much room for growth. So I figured I'd be safer looking long term because that is what I investing for — not three years from now, but 30.
I remember clearly seeing two funds repeated in both categories (five- and 10-year). They weren't No. 1, but second and fourth, so not bad. I was OK with that. I also liked the fact that I could open an account with only $25 a month with a monthly allotment from one my accounts. So I called and they mailed me their prospectus, which was required before signing up. It was as easy as that.
If I was to teach somebody today what I learned over the years, I would say that you would want to choose a fund whose management fees are relatively low (below 1.3 percent), stay away from funds that take 12b-1 (advertising) fees and load funds, and ensure that the manager was at the helm during the period of nice, positive returns. For example, if you are looking at a fund that made 17 percent on average for five years, make sure the manager hasn't been there for only six months to a year because he or she would be riding their predecessor's coattails.
Another thing to consider that made me feel better about my investment choices: look at the percent performance return when times were “bad.” Looking at 2000 and 2008 would be great examples. It's great to get 20 percent annually, but it stinks when you lose 27 percent. But when comparing funds, if one lost 9 percent and another lost 3 percent during the same period, I would lean toward the 3 percent if everything else was the same.
With this new opportunity presented to me, the timing was perfect: I started in the mid '90s during the recession. I didn't realize it at the time, but I had been given a gift.
Were mutual funds really that good?
I remember looking at my fund “value” week after week and it was either going down or just flat line. It was so bad, I remember talking to my mentor and venting to him, “I don't know why I am even in mutual funds. I am just wasting money.” I was used to my savings accounts and CDs and each month they were worth more because of the interest paid on the accounts. I definitely experienced the joy of compounding interest. But we were in a mild recession in the mid '90. I didn't know any better. I wasn't experienced. My mentor stared at me and smiled, “You disappoint me. I thought you were better than that, at least smarter. What about your goal?” he joked. I never quite got it until one day (and I will never ever forget that moment) shortly after our discussion, I was looking at my value and remember being shocked. I went from being close to $1,000 in the red (down) to positive $400. I didn't expect that. It only took a couple of days for the turnaround. For whatever reason, I never expected it to be so volatile. But it was then when I believed in the dollar-cost-averaging method. I was purchasing all of these shares ($25 at the time didn't buy much, but it meant a lot to someone who only made $1,200 a month) at a discounted price. It started to make sense and I began to look for other funds into which I could diversify. Now I was dollar-cost-averaging into three or four funds with no effort on my part. It was all happening electronically, so it was very easy.
I continued to live within my means. I no longer relied on the notebook, started to buy clothes, go out to eat, and started to bowl again, all while paying my bills in full. Now my money was making money and I could pay off my credit card in full. Any car loan, I would pay off early as part of my game from old. When I got a furniture loan, I took advantage of the zero percent for 12 months, but made absolutely sure not to be late making the lump-sum payment because they backdate all of the previous interest.
Bragging led me to help my dad
When the tech bubble was building, I finally felt financially independent as my money was making money and I earned more in a day than I made in a month at my job. And now I could share what I'd learned. I actually helped my dad get into the “preparing for retirement” reality. We were at a restaurant, and he was bragging about all of his CDs. He was in his mid-50s at the time, and I told him how I had made $12,000 that day. He was a little shocked — similar to the reaction I had with my friend on the golf course. The tables were turned. We got together soon after and talked about mutual funds. He became more devoted to saving/investing than I ever was. It was one of the few things we could bond over at the time. (Now we have that and my 7-year-old son's incredible golf talent with my dad on the bag during junior tournaments.) We would bounce ideas off each other and call each other when the market made big moves up or down. We'd compare losses and gains and relate to each other. I am grateful for this opportunity. The way stocks sky-rocketed during that three-year period, I started to think I could retire at 40. I envisioned an endless money train, fast-tracking me to wealth. I didn't know any better of what was to come. There was frenzy in the air, and it was all smoke and mirrors.
I remember clearly talking with my dad in May 2000 and telling him, “I have a gut feeling that this was the end of the tech bubble. I should take some profit.” But we both said, “It is due one more jump up” like it had in the past. It never happened. I was complacent with my money and hard work and sacrifice. The bubble burst and I lost all the value. But remember, you only “lose” when you sell. I was young, still not married, with no kids, no worries. I had a good job in IT then. But it stunk to think about the “value that was.” To this day, I still think, “What if I had taken that profit when I had the chance and reinvest it all over again, how much more I would have had today.” But thankfully, I stuck with dollar-cost-averaging the same funds I had invested before the tech boom and stuck to the plan. I monitored the value as it went up and down during the “lost decade” when you gained 2 percent over 10 years.
Every December, I would see the capital gains and the dividends being re-invested in my accounts. I was accumulating many shares by sticking to the game plan. I reinvested the capital gains and dividends over the years and it was all on autopilot. It was easy. Then 2008 hit and I got hammered with a 70 percent loss, as did most normal Americans who had invested in the stock market. Very few saw it coming this time. I remember talking to my dad in November 2008 after the umpteenth triple-digit loss and way too many 400+ point losses in the market, and he said he had to sell because he was losing everything. But he was 64, so I didn't blame him. It was at that moment when I considered it seriously as well.
I pulled out a notebook and weighed the options, just as I had done 15 years prior. I weighed the pros and cons of selling. Scared, I almost pulled out at the near low, but I had remembered the voice of my mentor, “You disappoint me. Stick to your goal.” I remembered that moment when in a flash the value had re-appeared and I was in the positive. Thankfully, I didn't pull out and I stayed with dollar-cost-averaging and actually threw $4,000 — most of my cash on hand — more into the “fire.”
Then it happened. It was March 2009 when that “a-ha” moment occurred and I got back to even. Because of the large number of shares I had accumulated through the good times and bad, the small increase in prices exponentially sped up my personal recovery. Without changing a beat from what I did in 1995, from that scary moment in 2008 until today, my shares have quadrupled and then some.
Reflecting on the journey and planning for the future
I can tell you, the journey seemed easier when I had only just a few bucks to my name and it was easy to go after one debt at a time. The process was simple. It was even easier that I wasn't married, had no kids, relatively healthy and had met the right people at the relative right time. But I used these resources, used the library for free books, a subscription to Kiplinger, Quicken (which has replaced my notebook and it has all of my expenses tracing back to 1994) and the Internet to track my finances, the Money Club on CNBC (no longer on TV) and the desire to retire early to guide me during my pursuit. After being burned twice in 2000 and 2008, I truly felt “Fool me once, shame on you. Fool me twice, shame on me” with these bubbles. I promised myself that I would have more foresight as to why these things happened and take more responsibility as who controls external factors of my life.
Today, I have educated myself about the Federal Reserve (and consequently have become very concerned about our future) and what makes bubbles and how perception is controlled in America. I discovered you really have to uncover a lot of layers to maintain your wealth once you have accumulated it. I am more cautious then ever. I get so frustrated when I hear the media talk about that the recovery is here and America is on its way back up and there is a lack of inflation. As someone who has tracked pennies for his entire adult life, I know food is more expensive, medical is more expensive, rent is more expensive, cars are more expensive — but there is no inflation? That is because the government adjusts the formula not to count these “essential” elements (food and energy). It doesn't seem right.
So I have learned that you have to dig a little deeper and go beyond what is preached in books and seminars. It is so true: The game is rigged for the rich, and the recovery has only worked for those in the stock market. I am living proof. I haven't had a raise in six years and fear I could lose my job every day because the business is suffering since it depends on American citizens to be generous. But if our customers don't have discretionary income, they would rather spend money on food, medical, rent and maybe a car. But if you look at the market and the media, things are roses and rainbows. So it is a challenge to sit here and be confident that everything we see and hear will hold true in my future and my child's. I fear I am in the middle. I am not rich, and I am not poor. I am not protected and have a lot to lose after all of my hard work and sacrifice.
I have made a modest income over 20 years (averaging about $33K annually). Still, with discipline, a little education and sacrifice, it can be done. At first I struggled to find money for the next bill. Now I am almost prepared for a comfortable retirement. More important, I have helped others in the last 20 years with getting out of debt and shown them that it could be done. I felt poor back then and had a mountain of debt at my feet. It felt incredible to hurdle that mountain. It feels even better knowing where I am now compared with where I was.