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Financial Independence is Born in the Crucible of Financial Failure

Recently I’ve read a lot about personal finance blogger’s journeys to their current financial path. This has taken the form of researching the about pages of various Personal Finance bloggers for the blogroll, the question we asked about computers, and a separate question on rockstarfinance about other’s current place on their financial independence journey. Each person’s story and influences has been unique. Some like Steve from Think Save and Retire recently retired.   Others like Enough Time To  indicate they are closer to the start of their savings path. A common theme however struck me. Most of us had some story to tell of some poor decision and often times an associated hardship that was a wake up call. The financial failure that got them moving down the road to Financial independence and Value based spending. (Around here I’m not so much a fan of the word frugal as it implies to some deprivation. I don’t believe you need to be deprived to save, simply make decisions to maximize your value.)

Early Financial Failure

In terms of what led me to focus so much about finances and growing my income, I can trace this back to my childhood. While my parents made ok money both were horrible when it came to managing it. As a teenager I was aware of situations where money was paycheck to paycheck. As I went to college my parents wanted to help me out financially, but they could not even get a loan to cover it. I’m not complaining as in reality I had it very well. I was able to get a loan for school with a cosigner, I had parents that loved me and kept me safe/well fed. And yet still being aware of their financial position influenced me to never want to live that way. I swore I would raise my income level to the heavens to stop that from occurring. Having never been exposed to frugality that was just never even considered at that point in my life. Now mind you I’m not the person that wastes money on small knick-knacks, but I do have a tooth for big shiny expensive things. As such I wasn’t living beyond my means at this stage in life, but I also wasn’t saving 50% of my income.

A lot of other bloggers have written about their biggest financial mistake. This is usually the post where they talk about the mistake that led to that turn around. In my case I referenced my mistake as buying a new Corvette in 2007.  The car has been a huge amount of fun, and actually made out ahead of the real estate investment I was considering at the time. However, it wasn’t a binary situation. As someone pointed out even had I invested it in the stock market in 2007 it would be worth a lot more then the car at this point. I didn’t pay in hardship from this decision, but it did make money a little tighter in the 2008 crash when I’d reduced my emergency fund and work suddenly cut my pay by 10%. I didn’t feel the pain from the decision, but I saw a massive potential had I been laid off instead. This is what led to me becoming more frugal with my money. The realization that I needed to control spending with income increases as a concerted effort.

The Success Born Out of Financial Failure

Fast forward nearly a decade where I met my wife, got married, saved a ton of money, more then doubled my salary, and am now at the most basic level financially independent. By most measures I have now succeeded. But I owe those successes to those two prior failures as the habits and drive I now exhibit is tied to those former financial failures. If I hadn’t bought a Corvette right before a downturn would I now be driving a Ferrari and working until I’m 90? Had I been born with parents who either hid their financial failures or only experienced financial success would I have been driven so hard to increase my pay or would I still be a basic website developer as I was when my career started? The answer to both is likely. I learned from my financial failures and even failures unrelated to finance to become the person I am today.

Don’t Fear Financial Failure

I didn’t spend the last half a post telling you about my experience with failure to rehash my origin story. The point here is that failure if evaluated and used to adjust your life going forward is a force for good. I wouldn’t go so far as to say you need to force yourself to fail to learn, but I would say when starting a new endeavor you shouldn’t let your fear of failure, financial or otherwise, stop you. Too often we stay within our comfort zone for fear of starting a new project for fear of failure. Usually the cost of failure is not even all that significant, i.e. at it’s basic we’re most concerned about what others think of our failure rather then any real consequences. But let me ask you a question, do you think if I went back and asked any of the folks who knew me in 2008 would any of even remember my financial failure? Or would all of them simply think of me as a financially wise individual who just may be the millionaire next door? I’ll give you a hint, I’ve actually had friends refer to me by the latter part of the sentence even though I practice stealth wealth. It’s hard to hide the fact that you’re​ the guy brown bagging it in an upper level job. So next time you consider starting something new but are afraid to start for fear of failure, just get to it already. If you fail at very least you’ll likely learn something new.

Use Past Hardships as a Motivational Tool

So we’ve established no one remembers your financial failures but you. We’ve also established that they are great lessons on what not to do, but that isn’t the end of the benefits of financial hardships. Sometimes you endure hardship not associated with failure but simply due to life’s choices. For example I attended a university with a reputation for weeding people out. The first statement they made when you walked in the door was look to your left, and your right, only 1 of you 3 will be here to graduate. It was true and then some, to the point that US News reported my University had the least happy students in the country that year (ouch). Even 15 years later it is no exaggeration that I never worked as hard for as long as I did there. As such when the going gets tough at work or in life I look back and remind myself how good I have it now. I remind myself that the difficulty is for a week or maybe a month and then it will pass. It makes that next phase that much more bearable and keeps me driven to succeed realizing I’ve been through far worse. I use this example not to stray from the topic but to start you down the path of the concept of hardship as a baseline which you can compare to to make the present easier.

So for example if you went through the pain of debt or a massive bill like a new car you had to make due with less money to survive. Simply put if you made X dollars then that expenditure made your available funds X- the expenditure until it was paid for. If you were able to dig out of that financial failure, then now that you’re​ not paying for that expenditure your income is at least X. As such saving that expenditure or maybe slightly less should be easy, as you lived on that income level before when you were forced too. That hardship conditioned you to a level of spending below your normal, just like my schooling hardship conditioned me to a prolonged deeper level of work way above the normal. You and I can use that conditioning from that hardship to bring ourselves forward.

No debt? Well perhaps you remember eating Ramen in College and staying in because you had no money? Use that. Note: One more side story I promise. In college I discovered the local meat packing plant sold deer that were unclaimed by hunters for the cost of the packaging. So instead of Ramen I ate venison plus a cheap vegetable every day. It was about the same price. I still like venison, but every day I’m thankful that I can afford some variety in my diet. The difference between a crock pot meal and going to a five star restaurant just doesn’t seem as perceptible as the difference between stroganoff and deer sausage for the 30th day in the row. I’ll leave you with that interesting thought.
Have you used past Financial Failure or Hardships as either a motivator or lesson on how to improve your life going forward?

22 Comments

  1. Leo T. Ly
    Leo T. Ly April 19, 2017

    My past is a huge motivator for me to work hard and get to where I am today. I have to earn most of the items that I own as I came from a low income family with very little spare money for discretionary spending. Seeing how hard it was for my parent to earn their keeps, it motivated me to manage my own finance responsibly and take every opportunity to increase my wealth.

    I think that you have hit the nail on the head about the wake up moment that most people need to experience before they start to manage their finance responsibly. I can attest to that.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      I’m glad to hear you managed to capitalize on your childhood experiences. The important thing at this stage in life is to have learned from it.

  2. I was actually thinking about a very similar topic recently. The people that are most successful in any given area seem to be the people that have failed and have been able to learn from that failure. The go to example is always Michael Jordan being cut from his high school basketball team. If we can develop a growth mindset and learn from our mistakes, then there is a lot more to be gained from failure than from success!

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      Great example with Michael Jordan. Every failure is an opportunity to revise our approach.

  3. Jim @ Route To Retire
    Jim @ Route To Retire April 19, 2017

    That’s funny about the venison – I live off the Ramen in college, but for some reason never really got sick of it.

    Good observation that most personal financial bloggers on the path to FI have been through some type of financial “fun” before. I’m no exception. I incurred around $30k in credit card debt right around my college years… but boy, was I fun to be around. Go out to dinner with some friends – I’d grab the tab. Go to the bar with a group of people – I got this!

    Then about 15 years ago, I “woke up” and realized how in debt I was. That’s when the turnaround happened for me. My wife always jokes that she missed out on all the fun times (although she’s actually very excited that we’ll be FI soon).

    I’ve used that as a motivator to not incur any personal debt that can’t be paid off every month. I actually hate having our mortgage, although that’ll be paid off in a few years.
    The only debt I’m Ok with is for buying income-producing assets like our rental properties.

    — Jim

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      I can actually say with a straight face I’ve only had Ramen a few times in my life and most of the time it’s been the actual Japanese restaurant version you find in Asia.

      I hear you on the mortgage. The best I can say is we tolerate our mortgage and car payment in favor of leverage. It’s a constant psychological versus logical battle to not just pay it all off.

  4. I just read “The Power of Broke”, by Daymond John. Essentially, if you have nothing, there is nowhere to go but up!

    I’m excited for the future… there are many different paths a person can take. I just bought a second property in an effort to rent out my first property. It will be a very interesting summer…

    Thanks for sharing FTF

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      I haven’t read that one, but it certainly rings true. I look forward to hearing more about your new rental property.

  5. SMM
    SMM April 19, 2017

    I invested in this one solar panel company in China many years ago. Many people I know did and we all thought the company would make it BIG. Of course it didn’t and I changed my strategy from high risk penny stocks to more established S&P 500 level companies (one end of the spectrum to the other). Because I was so mortified about what happened. Since then, and until recently I have been diversifying into more small cap funds since I am still young, but still NO to penny stocks!

    • fulltimefinance@fulltimefinance.com
      [email protected] April 19, 2017

      That’s a very good lesson. I do a bit of a small cap tilt myself, but that’s a far cry from penny stocks. Glad to hear it happened earlier before you had large amounts to lose.

  6. Troy @ Market History
    Troy @ Market History April 20, 2017

    When I was really young my family was pretty poor. Not gonna get into more details, but to this day that is what really drives me to achieve financial success.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 20, 2017

      I’m reminded of a saying, “When life gives you lemons, make lemonade” Thanks for the comment.

  7. Mrs. Groovy
    Mrs. Groovy April 20, 2017

    I lived from hand to mouth for so long before Mr. Groovy and I met. I remember going into the bodega down the street from an apartment I lived in and asking if I could buy something on credit. The counter guy said “No, but I’ll loan you five bucks”. Tough times.
    But they make me appreciate much more the life I have today.

    • fulltimefinance@fulltimefinance.com
      [email protected] April 22, 2017

      Very true, in addition to drive it can also be used to ensure you have gratitude. Thanks for the great add Mrs. Groovy.

  8. Mustard Seed Money
    Mustard Seed Money April 20, 2017

    I think I am enjoying the fruits of my hardships now. I lived like a pauper in my 20s and didn’t get to travel or do some of the fun things that my friends did. However, now I am reaping the rewards and able to do just about anything that I want without worrying too much. Definitely a nice feeling not having to worry about money now 🙂

    • fulltimefinance@fulltimefinance.com
      [email protected] April 22, 2017

      So very true, hard work has a great reward in the end. Usually the delayed gratification is far supeior to instant.

  9. Mel
    Mel April 21, 2017

    I think the only good thing that comes out of student debt is that it forces some of us (especially me) to reevaluate our relationship with money and really learn how to use it better. I sort of just floated along until I went to grad school and took on nearly $30,000 in debt. Climbing out of that hole taught me everything that’s gotten me to where I am now and it led me to this awesome personal finance community too!

    • fulltimefinance@fulltimefinance.com
      [email protected] April 22, 2017

      We can’t underestimate the value of the experiences we learn digging our way out of debt. Thanks for stopping by.

  10. Great article and great message. There is so much you can learn from failure. When I first started investing I purchased Blackberry stock, at the time it was a big hit. All the companies were providing them to their employees because they were deemed more secure. Fast forward a couple of years and you could imagine how that investment turned out when Apple hit the scene. Now, I am much more diligent in my research before making an investment.

    Looking forward to reading more of your posts!

    • fulltimefinance@fulltimefinance.com
      [email protected] April 22, 2017

      Ouch. I remember when blackberry was all he rage. I haven’t seen one in years so I imagine the stock is in bad shape. Thanks for the comment.

  11. Dividend Diplomats
    Dividend Diplomats April 23, 2017

    You can read all you want about the right thing to do in finances. But sometimes, the best message and the best way to learn your lesson is to touch the stove and learn that the burner is hot. You will never forget that lesson and it will share your life for the better. Your analogy about the corvette is SPOT ON in my opinion.

    Thanks for the read today!

    Bert

    • fulltimefinance@fulltimefinance.com
      [email protected] April 24, 2017

      Thanks Bert. So very true, sometimes it has to smack you in the head for you to get it.

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