5 Decisions that Added Hundreds of Thousands to Their Net Worth & Shave a Decade Off Their Working Years
The more a person dives into studying personal finance, you realize it comes down to decision points and choices. At this particular junction, did you choose A or B? When you got that first job, did you sign up for the automatic 401k withdrawals? Did you sign that BMW car loan or walk away and buy a used Honda? Did you buy a house reasonable for your income or did you over do it and go for the expensive big house?
A recent survey of Americans described that in spite of a healthy economy, most folks are not financially healthy. This is rather scary that when things are going well people do not have their personal finances in a position of strength. We strive for Money Viking strong, with controlled and low debt, emergency funds, sound investments, etc. The poll showed some shocking results:
- Only 28% of American households report being financially healthy
55% say they are “coping” financially, but not thriving
47% spend every dollar they earn and then some! (scary!)
30% have more debt than they can manage
The above examples and statistics represent the big choices. The little habits and choices add up too, but here we are focusing on a few big choices that made a huge difference for our friends Mike & Tanya, both in their early 40’s with 2 young children. One thing you may notice as you read about some of their choices is how they can work together like dominoes or a kind of “one thing leads to another scenario”. This phenomenon can happen in positive directions and negative directions.
Here are 5 “decision points” that have literally added hundreds of thousands to their net worth, and if they keep up the good habits could result in retiring in their late 40’s as compared to waiting until their 60’s. In my opinion late 40’s/ early 50’s is the FIRE sweet spot. They both like working, so they are not focused on some kind of early retreat from their jobs or careers, but they like knowing that in a few years they will have more and more options.
1. A Simple Wedding
Let’s take it back old school, back to the beginning. One of the first great financial decisions they made as a couple was to not go crazy with the wedding costs. They had a small simple and beautiful wedding. They limited it to just close family. They had a municipal wedding at a very beautiful location and then enjoyed family photos and a great dinner at a romantic spot afterwards. While some folks were spending tens of thousands on elaborate events, they chose not to. They are not against big fancy weddings, it just wasn’t what they chose. The $30,000 they saved was used as a down payment on a rental property they still own all these years later. It has hundreds of thousands in equity and spins off significant cash flow each month.
INITIAL SAVINGS OF $30,000
2. Rental Property
Part of the savings from the wedding was placed into a rental property. As we have discussed before, rental property investing is not for everyone. But if you are somewhat handy, organized, financially fit and can work with people constructively, this may be for you. Mike and Tanya lived in this property for a couple of years prior to renting it out. This allowed them to get a lower interest rate initially as an owner/occupied property. The good news now that they rent it is that the lower interest rate is still in effect. The lower interest rate has made paying down the property and building equity much accelerated. The lower interest also results in increased cash flow from the rental proceeds.
For a detailed account of what it is like to buy and fix up a rental property, see our related article about rental property from the 80’s!
ADDED $300,000 TO NET WORTH
3. Automated investing (low cost S&P 500 index, bonds, balanced)
As we all know, the last 10 years have been great for the broader stock market. Consistently and diligently saving in a low cost S&P 500 Index fund for the last 10 years has been great (until the choppy waters lately). Add a match and a person really made out and enhanced the compound interest effect.
The Dow Jones Industrial average is a composite of 30 great American company stocks, such as Apple, Exxon Mobil, Intel, Walgreens, etc. About 10 years ago in 2009 it was about 8,000. As of today the Dow registers in at about 25,470! Wow, what a rocket ride.
Mike and Tanya just kept plugging away at their 401ks all this time, year after year. They were not super savers, but they averaged around 8-10% depending on different times. This is what Warren Buffett and other financial gurus mean when they emphasize the first rule of personal finance: “PAY YOURSELF FIRST”. Think about it, you will spend all your money paying a lot of different people and institutions, but did you pay yourself? Mike and Tanya just stayed the course, dollar cost averaging over the last decade.
ADDED $200,000 TO NET WORTH THROUGH AUTOMATED CONTRIBUTIONS TO LOW COST 401K/S& 500 INDEX TYPE FUNDS BALANCED WITH BONDS.
4. Keeping Cars Longer
Mike and Tanya both drive practical used cars. They aren’t old and they run great, but they did not go out and go into $50k in debt for the latest Mercedes. They also tend to keep their cars at least 10 years. This reduces the per year cost of the car considerably and that is the name of the game.
I purchased a 2008 Honda Accord that I still drive today. Because it was a practical choice and used so long, the per year cost (excluding gas & maintenance) is now about $1,500/year. This starting to get reasonable.
5. Be choosy who you marry
I am adding a bonus idea here that dawned on me while talking with Mike and Tanya. Although they do not agree on everything and their finances are not perfect, they are very lucky to have married the right people for each other! Love and marriage are complicated things, but having completely different perspectives on finances can make things harder or at least have a neutral effect. Married couples that can enhance each other through economies of scale, increased income and compounding can do that much better in the long run. They truly are better as a team than as individuals if they come to the marriage with the mindset of adding value for each other and the greater family.
CONCLUSION, Halfway to $1 Million!
All in all, the above choices have been great for Mike and Tanya. And none of these things are rocket science or pure luck or being a genius. It is just good old fashioned habits and great decisions that have paid off over the years and will continue to do so.
The above straightforward decisions and habits have lead to a net worth for this couple well above $500,000! They are only in their early 40’s and halfway to a million!