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?