My turn to ask the questions!
| It's my day to host the Question of the Day! My question isn't as fun as Amanda's, but hopefully it can be as insightful as FMF's... If you had to pinpoint the one financial decision (good or bad) that put you on the path to where you are now, what would it be? If you could do it over, would you change your decision? I really think the decision to start putting money in my 401(k) my first day of work out of college was the best decision I made. Not only did I become accustomed to living without the money, but seeing the money grow really encouraged me to take an active approach to managing my finances. I would most definitely make the same decision again, and I would encourage other 20-somethings just starting out to do the same. |
posted by savvy at 8/10/2006 07:18:00 AM
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post a commentI would say there were 3 Major events in my life that set my path.
1. Being poor as a child, I knew this wasn't for me. Makes me work harder.
2. Marriage too young to the wrong guy, stripped me of all I had acquired young. Makes me more of a procrastinator.
3. I read Robert Allen's book "Nothing Down". Made me finance my first investment on credit, flip it and made a profit. This has put me on the property track that has increased my net worth on a steady basis.
I'm just happy I have a net worth unlike after the divorce.
Would I do again?
1. Growing up Poor - Certainly I am frugal because of this and my cabinets are alway full.
2. Marriage/Divorce to the wrong person - Of Course - I truly made out with having 3 wonderful kids. Plus I learned money is a tool and I can make it through anything. This is priceless.
3. Robert Allen's Book - Heck yes, I am having a ball and have learned tons from him and others along the way.
I had the same experience as savvy saver with my 401(k) but the most critical decison I made was to start my own business. When I left corporate life I gave up six figure pay, options, company vehicle, and great benefits. Then I sank all my savings into my business. Talk about crazy at age 38 with 5 kids to feed at the time!
My net worth took a big hit but I wouldn't change anything. The quality of life is much better without the wild hours, travel, and long commutes. Now I get to spend time with my family and really know my children. You can't buy that time back no matter how big your retirement accounts get.
I figure my finances will recover over time as my business grows.
For where we are right now, I would say the best decision/thing I did was read Mary Hunt's Debt-Proof Living and incorporate her Freedom Account idea. Between that and our strong desire to be debt-free we are in a much better place than we were 9 months ago. I truly believe if we didn't make that change when we did, we would be in a very bad place right now.
I concur with d's point #1. Growing up with nothing makes it a lot easier to live off of nothing, even when my 1 person-household income today is much more than my parents' income when they were supporting 9 people. No way would I ever change that. Being poor made me fight harder. Makes it easier to rationalize having a larger emergency fund than advised because I certainly would not want experience it for the second time.
I concur with d's point #1. Growing up with nothing makes it a lot easier to live off of nothing, even when my 1 person-household income today is much more than my parents' income when they were supporting 9 people. No way would I ever change that. Being poor made me fight harder. Makes it easier to rationalize having a larger emergency fund than advised because I certainly would not want experience it for the second time.
"Spend less than you earn."
It's the one lesson that has served me extremely well. I earn a decent salary, but without spending less than I earn, it would all be spent. This is the key that makes the rest of my finances work.
And no, I wouldn't change it. ;-)
I think the turning point for us financially was deciding to put money in our 401(k). Doing so allowed us to have a source for our downpayment for our house (not necessarily recommending this strategy).
One other turning point for us happened when we got our debit card and quit charging stuff on credit cards.
Fortunately for us, both of our examples are positive.
Just one thing? Too hard. Easier to give a small list.
First, my Dad taught me a lot about personal finance, and lived out the principles of making good financial decisions and having a long-term decent lifestyle, rather than making poor financial decisions and having a great short-term lifestyle. Lots of pithy little comments like “Just because you have the money in the bank doesn’t mean you can afford it.” I also saw what happens when you get your mortgage paid off early. Thanks Dad. I promise to do the same for my children.
Second, in the final year of High School, our math teacher took two days about of our Relations and Functions course to teach us a little about the mathematics of interest. There we learned how compound interest can be one of your best friends or one of your worst enemies. I like to surround myself with friends.
Third, during my first year working, someone encouraged me to read “The Wealthy Barber.” It’s sort of a legend here in Canada. It is the fictional tale of a barber who saves 10% of his income and makes use of dollar cost averaging. I’ve recommended this book to a few people, and even gave a $20 tip to a barber on the condition she use the tip to buy the book (I have no idea if she did or not. Never saw her before and never saw her after).
Fourth, an executive with my corporation once said to me, “When it comes to stocks, are you a net buyer or a net seller?” At this point in my life I’m a buyer. So my whole attitude about dips in the stock market has changed. Glad they happen! Great chance to buy great stocks at reasonable prices.
Finally, I would say a proper attitude towards debt. Debt can be a useful tool, but it shouldn’t finance a lifestyle. I have used debt to buy a couple things I needed (a house and a reliable vehicle) but I never use debt to finance lifestyle (vacations, toys, etc). And I try to pay debt off on an accelerated schedule. When I use my credit card, I immediately debt out of my financial tracking software so that I can pay off the whole credit card bill at the end of each month. I’ve had a credit card for 20 years and in interest charges and annual fees I’ve paid a total of $4. The bank tells me a good customer like me deserves a gold card, but I’ll stick with the no-fee vanilla card. I’m not an idiot who puts image above financial common sense.
I have to agree with Savvy Saver and say that the best decision I have made so far was to start funding my 401(k) immediately in my first job and consistently at 8% or higher. It's really encouraging when you're first starting out to see that money accumulate and grow, and after 2 years, it's the biggest asset I have! I feel really secure knowing that I am taking advantage of the power of time and compounding interest and that because of this foresight I will most likely have a lovely retirement.
Amanda
Young and Broke
First, when I got my first credit card years ago, I had too much of the mantality of "I'll have the money with my next paycheck, so I'll get it now". Bad bad bad, and it took me a while to shake that mantality.
Second, my decision to start using MS Money (though now I use Quicken) was a great decision. For once, I know where all of my money is going, and I am much better at budgeting (though not quite perfect). It allowed me closely examine my spending over the course of a full year and easily cut out some expenses without needing to change my lifestyle at all.
I'm going to get sappy here. Watch out, cover the kids eyes! Here it is: Meeting my Fiancee. Man, it's like she's paying me to write this stuff.
No, she's not wealthy, far from it. I spent most of my twenties trying to impress the wrong people in all the wrong ways (buying expensive clothes, drinks, car, etc). My whole perspective was changed when I met my Fiancee. That set me on the path to thinking about the future and making good decisions for both of us.
The financial decision that turned me around was the realization that it was costing me more to live and go to work than I was making at that job. I had to make some changes. I cut back on living expenses and began searching for a new job. That's what put me on my current path, and I wouldn't change that decision.
Two decisions that feed into each other.
1. Buying our house when we did. We bought 10 years ago before housing prices soared. We would be getting atleast 3 times if we sold. However a new bigger house would cost a lot more.
2. Because of being frugal and living within our means, I can be stay/work at home mom
Probably my worst decision was not to educate myself while I was still in school. (My parents made decent salaries but didn't handle money well.) My lack of understanding finances led to myriad troubles: credit card screw-ups, overspending, sticking my head in the sand when trouble emerged.
The best decision has been to stop sticking my head in the sand and force myself to live frugally and pay off debts--to put myself in control of my money, instead of the other way around. I'm still learning, but I'm in a much better place. Funny how the stress over money slips off when you handle it.
as a youngster, my parents offered to match the amount my siblings and I put into mutual funds (they helped us select). I was the only one who consistently took them up on their offer. I think it made me the saver I am today.
I would say the most financially sound choice I made was building a house at 23. Home ownership has taught me a lot to say the least.
The one financial decision that helped us get to where we are now was buying our house 2.5 years ago. It's forced us to budget, save, and decide what's important in life. It also allowed us to purchase investment property.
I feel more secure because in our absolute worse case scenario, we can sell the SF home, buy the Louisiana home outright, and still have money left over to start over in a new city.
I think one of the best decisions I made was to buy a 1 bedroom 1.5 bath condo in 1997. I got a 15 year mortgage and paid it off early in 2005. I made a conscious decision to live beneath my means so I would have extra money. The second thing was to fund my 401(k) beginning in 1992.
Putting money aside: either in a 401K or in our house. I regret not having done it earlier. Yes, we save money, but knowing where to put it has been a number of hits and more misses, except for our 401K and our little house.
Purchasing a house tightened the belt. Yet, a year later, I doesn't feel any different. Au contraire, I am happier.
As for the 401K: when Einstein was asked what is one of the most amazin g things he witnessed, his answer (according to the financial folk tales): compound interest
For me, the main early financial decision was to move back home after college and save up for a down payment on a condo. (I did pay rent.) I managed to buy the condo - and get student loans and the car loan paid off - by the time I was 25. I've been a saver - and a devoted fan of paying cash for cars - ever since.
Also, I'm thankful that I "came of age" in the days before credit cards were easily handed out to college students. I was relatively disciplined as a kid, but I'm not sure I would have resisted the lure of "free money" if it had been available.
Taking a job in NYC because it paid really, really well, even though I wasn't excited about the job and feared I would hate NYC...
...which I did, so the moving costs racked up on credit cards as I left NYC after two months haunted me for about 4 years.
Shortly after college I moved into a somewhat expensive apartment, despite having a lot of student loan and CC debt.
After a few months I realized that, despite a reasonable salary, I was not making much headway on debt.
So I moved into a much cheaper place and started plowing money into my debt. Once the debt was paid off, I started plowing money into savings.
And that has made all the difference.
1. Having intelligent, frugal parents who taught by example.
2. Marrying a women who was more frugal than I, who also had parents like mine.
3. Taking a personal finance and investment class shortly after getting married in 1980.
Easy. Deciding to stop renting (after 15 yrs!) and buy a condo. That was back in '97 before any inkling of the real estate boom. As an IT consultant I deliberately bought below my means by 50-75K, figuring that there would be some occasional downtime and I'd have to pay my mortgage out of savings.
Nine years and 9/11 and a housing boom later, I was certainly right about the downtime (strike "occasional" and replace by "significant"), though I've foregone $150-250K of pure profit (in my neighborhood) by buying the lower-priced property.
Unfortunately, my left hand keeps fighting with my right hand, and I can't answer the question as to whether I'd make the same decision given the same circumstances. Guess that means I'm doomed to toil forever!
A number of things:
1) Growing up poor and in a single-mom household. And I mean ghetto poor - like no heat, no hot water, drug dealers and drunks everywhere. It made me want to prove something, to get the h*ll out of there, to be "somebody". It also made me strong and resiliant (though it sometimes has the opposite effect on most people). On the other hand, growing up disadvantaged meant it took me a lot longer to figure out certain success issues, like how to handle my PF issues.
2) College. At one point I thought I did not need to finish college - that all this liberal arts and history and biology was useless to a street-smart kid like me. Wrong! Finishing college was a big factor in my future success.
3) Marriage. For as much as my mom was an extraordinary person, she was not the best at handling money, and my early 20's are marked by much fiscal irresponsibility. My wife is frugal, budgets, and hates debt with a passion. She has taught me more about PF than any book. And her parents and family are a PF model for living below your means.
4) Buying a home 10 yrs ago, and then buying investment property.
For me it was buying my first house when I was 21 (5 years ago). I had to move back in with my folks and work two jobs to save up the down payment. It turns out that after I purchased I found out that I could have put nothing down but ignorance was a good thing in this case as it made me save. I am now buying my fourth property today--keeping the others as rentals. It is great letting my tenants build my equity. My goal/retirement plan is to contine buying a property to hold at least every other year to build a solid passive income stream for later...so far so good.
As others have said, growing up without a silver spoon in my mouth was a big plus as well.
Wow. Flexo makes a really good point. I first woke up to the reality of spending more to keep a job than the job was paying me when I started reading Millionaire Next Door. Since then, it's been a factor in my career decisions.
The 401k investment was a plus, and, like JLP, I used the Rollover IRA money from that to buy my very first home (years and years later). This first purchase has led to investment property purchases and so on, slowing building my networth while others pay my mortgages (and then some).
Finally, which I haven't seen mentioned yet, is that I majored in Finance in college. I fell into it because I happened to find it interesting at the time, but it led me down a path very early on and gave me the basics to understand more complicated things. Anyone can understand this stuff, but it takes time. And being able to have a professor tell it all to me was easier than figuring it later on my own. I try to let the rest of my family (mostly artists) benefit from that knowledge as well.
Bankruptcy. The worst decision I ever had to make, but it took a bankruptcy to make me really take a look at money and finances. I was uneducated about money. I grew up in a household where living check to check was the norm. It was a given that there would be no money at the end of the month, and payday was a celebration. Bills were paid, and money was spent until there was no more. During certain times of the month, if the phone rang, we did not answer. That was normal in my household. There was no budget. There was no accountability.
I love to read about all of your financial choices, and successes. It motivates me to do better. It's an education for me. One that I missed, even with a college degree.
Quo
1. Growing up with frugal parents (Mom born in Great Depression, Dad from formerly wealthy family but ended up a refugee etc.).
2. Gettting a good education including an undergrad degree in economics.
3. Just ignoring common "wisdom" and being contrarian :)
I sold my house. I live in Boston and I sold it the beginning of the rise in prices (1998). I did it to pay off debts and have been debt-free ever since, but I have regretted it ever since as I gave up a home I loved.
Great question! And some great answers.
No real turning point jumps out at me, so I guess I'll have to go with deciding, after I got my first job out of college, not to upgrade my lifestyle when my income went up. Sticking with the same old used furniture, only buying as much new clothing as necessary for my job, not buying a car since I really didn't need one. Although my expenses went up some, I tried to view my extra income as extra savings, not extra spending money.
Best thing I ever did was to read "your money or your life" and read get the concept of financial freedom. Once I realized that every dollar spent or borrowed causes me to:
a)work more to pay for it or
b)reduces $ available for more important things that I want or need
c)makes it harder to walk away from a bad job or situation I dislike
It made it very easy to determine whether the latest gadget is really worth spending money on.
Bad decisions - not starting an IRA until I was 26. And wiping out my savings when I quit my job a few years ago -- I should have had some non-retirement permanent savings started - I'd like to buy a house someday, but it doesn't seem like that will ever happen.
Good decisions - being aggressive on my 401K when I was working.
One bad financial decision I made that I would change is my use of credit cards while in college. I should have done more research on financial aid, and or find additional jobs. I would have been better off today.
The decision that we made that put us in the place that we are now was to live a lifestyle of which we couldn't afford, when we should have been eating Ramen noodles and frolicking in the park, where it is free. It was fun for a while, but was a huge mistake that we are paying for every day now.
I guess there could be various points in time for me, but the most recent was buying my house in 1998. My net worth then was only a few thousand. Since then I have done great with work (even adding in the 15 months spent without a job), but even so my home has dwarfed that, with the equity now in the range of $350K. I can't imagine how I would feel if I didn't own this house today.
For us the pinpoint was the purchase of our first home in 2003 that we bought extremely cheap. We fixed it up, stopped paying rent, invested in our 401k and 403b, paid down our debt, and are saving for our first child.
College...If I had choosen to go to my other choice, I think I would be in debt. I don't think I would change it although I do wonder what it would've been like.
If I had to pinpoint the one financial decision that put me on the path to where I am now, it would be obtaining my CPA.
If I could do it over, I would definately make the same decision.
Hard to choose...was it the day I got the business off the ground by selling to my first client? That's certainly the bigger impact on my future, although it's not doing much for my day-to-day finances in the present.
No, more likely the decision that had the most to do with my financial situation _today_ wasn't mine but my mother's. She decided I had to got to college. Or be kicked out of the family. And because of my reaction to that decision (I went to college), I spent my 20s...the entire internet boom, when the majority of my friends were getting rich, crushed by an overwhelming burden of debt and hounded night and day by student loan collection agencies. The worst years of that nightmare are about to roll off the back of my credit report, but it'll be another 5 years at least before I can rebuild my credit.
I've made good ones and bad ones. One of the good ones was putting a large amount of money I received from family into the hands of a trustworthy financial advisor. Sure, I paid some loads, but it's done pretty well, where my own personal investing during that period was nothing to envy. Getting married, while not a bad decision, happened at the beginning of a period that was very tough for us, between lost of unemployment, some serious health issues, and bills, and a step-son who's had a pretty chaotic life.
I would say it's the decision to invest in a mutual fund in high school. I can't remember exactly when, but I educated myself on everything financial.
The decision to go to college changed my life.
By the time I graduated high school in the early 1970s, I had saved up $4,000 (probably about $20,000 in today's dollars).
I graduated several years later with student loan debt and a minimum wage job. Today I still have student loan debt and a job earning my state minimum wage.
Going to college was the worst decision I have ever made.