As our net worth and Incomes have grown, it takes larger and larger amounts of money to get my attention. Our latest Net Worth report showed a $35,000 jump and I would be really pissed only getting a few thousand dollar raise each year (sounds terrible, but true). A few years ago a $10,000 jump and a few grand would have been a WELCOME adjustment. I have to consistently remind myself how far we have already come (even though we have a looooong way to go).
Quarterly and yearly expectations can be starkly different depending on where you are in the financial independence journey. Sure, it is really fun to see the big jumps, but I want to give some love to the habits that made those jumps possible. I also don’t want to turn people off the idea of FIRE because they cannot relate to what we are doing today. The good news, the first step to the FIRE journey is free and it doesn’t matter how much you have in the bank today:
Build Solid Money Habits
Solid (sustainable) habits will trump a mad dash, but it seems everyone wants to start with the latter.
Financial Habits Either Build or Destroy Wealth
A common complaint or argument against the financial independence movement is we make a ton of sacrifices to pile up enough money quickly. While I think some people push too hard and don’t enjoy the journey, that is definitely not us. We spend a good chunk of cash every year that falls into the “frivolous” bucket. I don’t ever feel like we are making a sacrifice to do this and I think a lot of that has to do with the habits we built along the way.
Spend on what matters to us, don’t on what doesn’t.
If you can work that into your day to day money habits and stick to it, it won’t feel like deprivation. It becomes second nature to start saving big portions of your pay increases, avoid debt and stack up enough small money wins to make an impact.
Some examples of how quickly solid financial habits can compound:
Financial Habit Progression: 401K
I was looking through an old post on my 401k contributions and looking at the progress we made. The numbers were far smaller but every bit as important.
- I was saving well under $500 a quarter for the first 1.75 years of my working career (2012)
- By the end of 2016, I was saving about $2,000 a quarter in my 401k.
- By the end of 2018, my 401k was maxed at $18,500
Similar story for the Roth IRAs:
- 2014 contributed $2,730
- 2016 contributed $4,675
- 2018 maxed out at $5,500
Now for some debt reduction
- Graduation (2011) – over $85,000 in Student Loan Debt
- Q1 2016 – $37,000
- Q1 2017 – $17,375
- Q2 2018 – GONE 🙂 🙂 🙂
It is hard to pin down how much we saved each year due to the market fluctuations and our constantly changing salaries but overall we went from saving ~6% of our money (no kids) to over 35% of our money today (2 kids).
Increasing our income was a SIGNIFICANTLY important factor, but not blowing that extra income is owed to the money-saving habits we built over the years.
Focus on the habits
Habits, especially early on, are far more important than the numbers and they deserve the focus.
You can’t make $10,000 Net Worth jumps without first making $100 ones. We wouldn’t have been able to max out 401ks without building the habit of banking our raises or increasing our withholding by 1% a quarter. We wouldn’t have been able to max out Roth IRAs in 2018 without building the habit of banking windfalls and not blowing the money when I sold my ESPP shares.
I don’t feel like we are doing anything spectacular. Honestly, it feels like we should be doing a lot more. Our habits have taken the sting out of saving (Not easy all the time, more on that later)
The second part of successful money habits is…Time
You have to trust the habits will pay off eventually
If you don’t trust the habits, you will quit. This is one of the hardest lessons I still battle with even though I have seen the results. of sticking with it.
We are starting to pile up some cash for investment properties. My first move was to increase the contribution to our cash fund by $50 a paycheck.
$50 a paycheck feels like a drop in the ocean. It almost feels comical to put $50 in an account that is even labeled as “real estate fund” and expect something to happen.
I would laugh at myself 5 years ago, but I know, if we keep doing it, and increase it slowly over time we will accumulate enough to make it a reality. That first tiny step keeps so many people down and out. You have to trust the process and be patient.
Keeping Financial Habits in Check
This shit is not always easy.
It might look easy if you skip through our quarterly net worth updates and see numbers going up.
It takes some will power to keep flexing those spending muscles.
We aren’t even *that* frugal and I still have to fight the urge to go buy a bunch of cool shit. Most recently I am getting the itch to look at cabins, which means a boat, which means a dock, and a slew of other money costing things that frankly sound amazing. If our kids were a bit older and able to enjoy it, we might be walking through one right now (in time 🙂 ).
Increasing your spending with your income is natural.
You earn it, you deserve it, you spend it.
Finding a way to break that cycle by focusing on what you value and what is “enough” it the best wealth building tip I have.
Financial Habits with the biggest impact
A few of the habits we have built over the years that have made the biggest difference in our net worth
- Avoiding Debt
- Not taking on any new debt while paying down our higher interest debt at an accelerated pace
- This really comes down to not spending more than we make AND not using debt to finance things we can afford
- Automatically Saving Salary Increases
- When either of us got a raise, we would calculate how much more we would make per paycheck and automatically contribute some (or all) of that money to our savings.
- Start Small and Build
- Look at my $50 real estate fund example above, you can’t be afraid to start small and build from there. If you can stick with it and trust the process great things will happen.