In my last blog, I indicated an upcoming article on my recent trip to the Great Smokey Mountains. I have decided to belay this article for now as I have other stuff on my mind.
I am six years into my retirement from the corporate world and three years into full retirement. By full retirement, I mean I do not have a job. I was able to leave the corporate world at age 54. Many people have asked me how I did this and then long for the day when reporting to a daily job is history. Retiring early is not for everyone, but for me, it was a dream many years in the making.
During my early 20s, I distinctly remember telling my friends and family; I want to retire at 40 and buy a Porsche 944. This plan never happened, but it did start nudging my thinking in the direction of having 2 phases to my career.
The first phase of my career was necessarily focused on earning money. This is certainly not a revolutionary concept as most young adults start with the objective of earning their keep. Despite all the hustle and bustle of starting a new career and family, I had an objective in my mind to limit debt and save money. The idea of limiting debt and saving money is hardly breakthrough stuff; however, saying these things and doing them are two different things. One essential item that helped my family was and is, my wife and I are aligned in our spending habits. There are thousands of books on personal finance, but for me, it was as simple as limiting debt and saving money.
This blog entry is not an article on selecting a spouse, but I do think the idea of financial compatibility is often overlooked during the courting process. If your prospective mate comes into the marriage with a mountain of debt and unconstrained spending habits, these items will not likely improve after the wedding. Money problems are always near the top of any list of reasons for divorce. If you are planning to get married, spend time discussing financial goals.
With my wonderful wife and I aligned on our financial habits, we began our multi-year strategy of limiting debt and saving money. At this point, I would like to say I did some complex Monte Carlo type analysis that gave the amount to save and when I would retire, but I did not. I simply avoided debt and saved as much as I could. Of course, I made plenty of mistakes; I just tried to learn from each error. Here is a list of a few of my mistakes.
- Financed a new car at the dealership
- Took out a loan against my 401k
- Sold our first house with an assumable loan
- For a while, I held too much company stock in my 401k
Despite these setbacks, I never relented from the idea of limiting debt and saving money. I also benefitted from no college debt. Back in my college days, taking out a loan for school was not something I remotely considered. I probably did not know it was something I could do. I know times have changed, and education costs have soared. I know if I had started my career with a mountain of student loan debt, I would still be working today.
Regarding my management of debt, the most impactful action was always paying off credit cards. I have always paid off credit card balances every month. I do not think I have ever paid any credit card interest, except for that time I forgot to make a payment 😊. This plan resulted in saving thousands of dollars over many years. I believe paying off credit card balances each month is the most important financial move a young person can make.
I did have some debt over the years, mostly mortgages and car loans. By the time I was 40, I had developed a plan for paying cash for cars. In my 50s, I learned the value of buying reliable, slightly used vehicles. Automobiles are a horrible but necessary investment. It is a worthy goal to minimize expenses in this area.
Paying off a mortgage is a bit different. Historically there have been some tax advantages to maintaining a mortgage, but today these advantages are limited. Most young people simply do not have the capital to buy a house, so a mortgage is essential. One thing that helped me was learning as much as possible about the mortgage process before purchasing our first house. If you can pay off your home mortgage without excess financial risk, I recommend doing so. The financial peace that comes with owning your home free and clear is precious.
My idea for saving was basic. When we were first married, my wife was working as a teacher. We saved her entire salary and lived off of what I made. This helped jump-start our lifetime of saving and prepared us for starting a family. The crucial other saving technique I used was, each time I received a raise, I tried to live on the old amount and save the increase. During my career, I received bonuses at the end of the year. While it was tempting to spend these bonuses on some frivolous material items, most of the time, I saved the entire amount.
I just realized this topic is going to take several blog entries. I will write more about preparing for early retirement in my next article. Remember, spend less than you earn and avoid debt.
Make the most of this day!