Most people overestimate what they can do in one year and underestimate what they can do in ten years.” ― Bill Gates
I realized how true this is when Alan and I recently started digging into the history of our money.
I’ve never shared specifics on our finances and don’t plan to start (though I reserve the right to change my mind). But I will give you a little glimpse into our money past. And then I’ll give you an idea of where we are and where we’re headed.
We got married almost 21 years ago. There isn’t really much to say about our money at that point except that we had very little. We were in debt up to our eyeballs and continued to add on student loans (grad school), car payments, and serial mortgages for years to come.
I’ll start when I finished grad school 19 years ago.
- The balance on our student loans was just over $61,000 combined. (I gotta admit when I researched those numbers I was shocked. I didn’t remember it being that high).
- As soon as I graduated, we bought a house with a mortgage of about $91,000.
- We owned one vehicle (approximately $10,000 in value) and leased another.
- We had very little in savings – I would guesstimate we had around $4000 at the most.
So 19 years ago, we had a net worth of around -$138,000.
In the next couple of years, it got worse. Within 3 months of buying that first house, we relocated to an area with higher housing costs. Instead of renting for a while, we purchased a townhouse in our new location. After about a year in the townhouse, we decided townhome living wasn’t for us, so we sold it and bought another house – with an even larger mortgage (and PMI to boot).
So 17 years ago – after buying the 3rd house and financing a minivan for our growing family – we hit an all-time bottom of almost -$190,000 net worth.
It was at almost precisely this time that I quit my job to become a stay-at-home parent. And baby #2 was on the way. Wow.
The house we bought was in need of windows (a couple of them were literally falling apart), and siding too. We scraped up the money to replace what needed to be replaced but had next to nothing left in savings.
The thing is, we knew we were taking on more debt. But we didn’t realize the house needed that much work. And once we started living with the cost of repairs and the new, higher mortgage, we panicked.
As if that wasn’t stressful enough, it was right around this time that we were sued for ‘damages and loss of services’ from a minor traffic accident (think 5mph – no kidding!) that occurred almost two years earlier.
All kinds of doomsday scenarios were floating around in our heads. What if the judgment exceeded our liability limits on our auto insurance? How were we ever going to be able to afford to pay for the judgment awarded in the lawsuit? Worst case we figured with a net worth of -$190,000 and a lawsuit judgment against us, bankruptcy could be a very real possibility. Luckily, the case was settled two days before the court date for an amount that was below our liability limits.
Hitting bottom woke us up.
We got super frugal. My go-to book at the time was The Complete Tightwad Gazette (I even washed ziplock bags and made my own baby wipes!). I read every personal finance book on saving and debt that was on our library’s shelves.
We learned some mad DIY skills and put them to good use.
We scrimped and saved as much as we could. We made it through the house repairs and built up savings. Priority #1 was to build the emergency fund to cover 6 months of expenses because if Alan had lost his job, we would have been in deep financial trouble.
3 years later, we had built up our savings and paid off $30,000 in student loan debt (just for reference, we lived on one mid-5-figure, middle-class salary). Within a couple more years, we had eliminated all student loan debt.
Now, you would think, with all that momentum we would have kept up the excellent work. Well, we kinda did. For a while anyway. But with the student loan debt gone and Alan having more job security, we felt free.
Free to finance a vehicle…oh, and perhaps a camper too! There’s that evil lifestyle creep.
We developed a bad habit of perpetual car loans. We’d finance a vehicle, pay it off within a year or so, and then proceed to finance another (and another, and another). There was always a logical reason for the “new” car. The debt/payoff cycle lasted for years.
Side note: We did do a few key things early on that helped us out. Back when Alan started his first real salaried position, he insisted we contribute to his 401k the amount his employer would match. Believe it or not, I was resistant at first. But, I caved. And am I ever glad I did. Even though we only contributed the amount the company would match for many years, that gave us a good head start toward retirement. We also maintained a nice-sized emergency fund and never carried a balance on our credit cards. All of these were wins that have compounded with time.
The possibility of Financial Independence
In 2008, we lost about 50% of what we had in our 401k (though it wasn’t a large balance to begin with). But we kept contributing and didn’t look at our balance. Why we had the fortitude to weather the storm and not worry about it is beyond me. I guess we knew we had time and it wasn’t a vast sum of money anyway. Maybe it’s because retirement seemed so far off that it didn’t even matter. Either way, we left things as is when the market tanked.
When the market started to rebound in 2009, we noticed our 401k going up faster than ever. We were definitely checking our balance more than before.
Then Alan ran some numbers and started mentioning trying to retire at 55.
I discovered personal finance blogs and read Your Money or Your Life.
With that 401k balance growing and the realization that an earlier retirement was a possibility, we had more and more discussions about the possibilities.
At this point, I’d like to say that the rest is history, we turned everything around, and went on to pay off all of our debt, save 80% of our income and retire at 40. But that would be a lie.
We did start down a better financial path, though it has been a slow meandering path we continue on to this day.
Our savings (and income) continued to increase over the years, and we will have enough to retire (quite a bit earlier than 55, if we so choose). But we still buy a car every few years (with cash). We take vacations – and sometimes they’re expensive. And we have a mortgage we don’t intend to pay off any time soon.
We could go back and look at all the mistakes we made over the years and berate ourselves for not doing better. Because if we hadn’t made those mistakes, we just might be financially independent by now.
If only we had kept driving the paid off cars and invested that money instead of buying new ones. If only we had maxed out the 401k sooner. If only we hustled to make more money. If only we’d paid off the mortgage. But it does no good to dwell on the “if only’s”.
We choose to move forward with the lessons learned.
What we’re realizing as we gain more financial security and inch closer and closer to financial independence is we don’t really want to “retire” at all. But we do want the freedom to choose our work. We want the freedom to spend time with our kids (wherever they may be), the freedom to travel, and the freedom to give back.
Really, if we examine that a little closer – even though we haven’t reached the oft-recommended 25x expenses or 4% rule and aren’t “officially” financially independent – we’ve created enough options to feel pretty free and live a life we love right now. So whether we decide to do “leanFIRE,” “fatFIRE,” or something in between, we don’t know yet. What we do know is we want to create and live a life we love today, FI or not.
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