Previously, I wrote about the early phases of my thoughts around personal finance. Now I’d like to share with you how my thinking on each of areas has changed and evolved over time and provide some insight as to what drove those changes.
The second phase of my thinking around personal finance began when I moved to a new State and started a new post-doc.
This post-doc was in a completely different field than my graduate work. I picked the field because I felt that it would be employable. I picked my mentor because she was a huge name in her field and I felt she would be able to supply the necessary connections and “brand name” to help me get off the training position merry-go-round and land a real job.
I was also finally making an salary that wasn’t a joke. It wasn’t great, only about $40,000 per year. But it was enough to live comfortably on, upgrade my lifestyle to something becoming an adult, and still start saving about 25-30% of my take home pay.
During my time as a post-doc, I got my feet wet with dividend growth investing and then proceeded to jump all the way in. I stopped adding to my retirement accounts so that I could hit financial independence and maybe even retirement earlier in my life rather than later.
Even though I was working in an entirely new State at a completely different institution, I still didn’t like my job very much. The work was fine, intellectually stimulating, and relatively enjoyable. The coworkers, however, weren’t. To put things simply, I worked with a bunch of massive toolbags. But aggressive management of my career paid off. After a couple of years as a post-doc I got an interview with my current employer which became a full job offer. And off I moved to another State.
My starting salary at the new job was about $125,000 a year (this year should be around $133,000). More than three times my post-doc salary. Of course, I’m living in a place with a much higher cost of living too, but one moves where the jobs are especially when they pay substantially more. Having a specialized degree also served to limit my choices to only a few areas in the country.
Despite making substantially more, I’ve kept my relatively unassuming post-doc lifestyle. I still drive an antediluvian car (the same car I had in grad school). I still rent a one bedroom apartment. I didn’t splurge on a bunch of fancy new electronics. I try to save money wherever possible. You get the idea.
Having had several years to road test the concepts that I embraced early on in my personal finance education, I’ve discovered that several of them were wanting, if not entirely wrong.
On Extremely Early Retirement
Extremely early retirement is more hyperbolic marketing than it is a feasible lifestyle. The central tenant of the extremely early retirement philosophy is that if you drastically cut your expenses down you can retire at a very young age. How far down do you have to cut? Preferably to something approximating poverty. If you aren’t eating cheap food, living in a tiny home, and riding a bike, you’re spending too much money. But that’s okay, right? Because in a few years, you’ll get to retire….. and live the rest of your life with less luxury than the average welfare recipient. But at least you’re not working a soul crushing day job anymore.
I have never been a minimalist. I have been a grad student, which is kind of an exercise in forced minimalism and I can assure you that it was not a fun, enjoyable, or liberating experience. Not the kind of lifestyle that I’d like to perpetuate for the rest of my life. I no longer have an interest in escaping the world via minimalist austerity (news flash: joining a monastery is faster than all this saving and investing nonsense and achieves similar results).
Having worked at a number of awful jobs, I understand the allure of escape. But I no longer consider escape via minimalism to be the best answer. I’m much more attracted to the idea of taking charge of my career and directing it to the places that I want it to go. These days I want my life to be focused on progress, not retreat.
I will go so far as to say that the whole extremely early retirement shtick is a crock. As evidence, I offer up the fact that not a single major early retirement promoter is actually retired. Blogging, entrepreneurship, real estate management, corporate jobs, and manual labor are not retirement, they’re work. Perhaps the so called “retirees” enjoy their current jobs more than they did their previous ones, but just enjoying your work doesn’t make you retired. If that were the case, I’d have to call myself retired too, but alas I have a strict policy against dumping loads of bovine fecal matter upon my readers.
If you’re going to work anyway, stop obsessing over retirement and start figuring out how to move the needle on your career from soul sucking hell hole towards fun rewarding existence.
On Financial Independence
I’ve largely dismissed the idea of extremely early retirement as being untenable for someone who desires more out of life than just walks in the park and bike rides to the library. However, I haven’t lost any of my fervor for achieving financial independence though the aggressive cultivation of passive income streams.
Passive income is power. I can’t speak more highly of turning my savings into passive income. Watching my dividend income grow to ever increasing highs has really been motivational for me. It’s not just about preparing for retirement. It’s about achieving the kind of security and control that can only be reached when you no longer have to work to support yourself.
A primary benefit of financial independence is that it removes employment anxiety by acting as a form on insurance. In a few years it won’t matter if my company gets bought up and my whole department gets downsized. I’ll just calmly clean out my stuff and start looking for another job. Maybe I’ll take a three month sabbatical before I begin the job search again. Who knows? Unlike my peers who never put forth the effort to build wealth and generate passive cash flow, if I don’t land a job this month or even this year, I won’t have to start begging to move back in with mom.
Another benefit of financial independence is that it will allow me to take career risks. Later on, as I gain more experience I might like to join a contract organization or a start up (both less than stabile business models), preferably back down South. As much as I love my job, I haven’t developed much of an affection for the area where I live and work. But I won’t consider a move like that to be a viable option until I’ve reached financial independence.
One final benefit of financial independence is that when I finally do decide to retire in the true sense of the word, I’ll have more than enough resources to do and buy whatever I want, whenever I want.
On Career Development
I have been amazed at my progress after I started managing my career. I am by no means an expert at this yet, but I’ve gone from a generally unhappy grad student to a generally happy corporate employee. The psychic benefits alone from managing my career have been well worth the effort.
Just to be clear, taking charge of my career wasn’t some kind of overnight success story. I had to figure out where I wanted to take my career, plan out how to get there, and expend time and effort getting other people to help me get to where I wanted to be. You’re probably asking yourself if I had a great career mentor to help me a long. Nope. I just grabbed every opportunity that came in front of me. Many were ephemeral, some were big wins. The point is that you don’t need to be a member of some good old boys club to move up in the world. You just need to be willing to put in the effort and learn from your inevitable mistakes.
The monetary gains from career development have been just as robust. I have peers who haven’t been managing their careers and are still working as post-docs. Still pulling in the same crappy $40,000 salaries. That’s embarrassing given their education, talent, and work ethic. But that’s what happens when you go with the flow rather than charting a course.
As I look forward, I want to focus on developing an in-demand skill set, a history of strong performance reviews, and a robust resume. Once I hit financial independence, I’ll be in the enviable position to turn down any job offer that isn’t entirely to my liking.
I think that most people, especially those who don’t have families or children to support, can find engaging careers that make them happy. But it takes effort. And you’ll make mistakes along the way. I certainly did. But if you keep pressing for improvement, you’ll get there.
Frugality is a tool, much like a crowbar is. You can use a crowbar to break into vaults full of money and jewels, or you can use it to crack walnuts because you were too cheap to buy a nutcracker. In case you missed the analogy, you can either use frugality to score big gains or you can use it to shave pennies off of your expenses. One of these options is a worthwhile endeavor, the other is idiocy.
The big ticket spending items for most young people are housing, commuting, entertainment, and eating out. Don’t buy or rent way more house than you need, live as close to your place of employment as reasonable, maintain the lowest price car that you are willing to be seen in, learn to cook, and be careful about how much money you blow clubbing, boozing, partying, and vacationing. Don’t have children before you can support them. Don’t take out student loans if your degree isn’t employable. Don’t waste tens of thousands of dollars on a wedding that only lasts a few hours. Done! You’ve eliminated huge chunks of waste in your budget. Now invest the savings and start generating passive income.
If you feel the need to piss away additional time churning credit cards, clipping coupons, or darning socks, go for it. Just remember that frugality isn’t all about money. Frugality with time is just as important as frugality with money.
Vast swaths of frugality are an utter waste of time for anyone brining home more money than a grad student. Comparison shopping all over town, coupons, credit card churning, the list goes on. All you’re doing is burning hours a week in order to save a handful of dollars. You’d be better served researching investments. Or putting in some extra time at work to get a better performance review. You know, doing things that will increase your earnings and drive your life, career, and finances forward.
I’ve personally tried out more frugal tips than I care to admit in this post. I don’t want to spend my life mired in do it yourself projects and self imposed hardship. That isn’t living in my book. As things stand right now, the primary litmus test for whether I adopt a given piece of frugal advice is “How much of my time and effort will this take?” Opening the windows instead of turning on the air conditioning? No problem. Do it yourself oil changes? That’s an hour that could be better spent elsewhere. I suppose I’m passing up fives of dollars in savings every month by adopting this approach, but I’m freeing up more of my time to devote to investing, or actually enjoying my life.
So there you have it, a rather comprehensive survey of where my opinions stand at the moment. There are two more parts to this series that I would like to share with you. One focusing on the current challenges that I’m facing and one focusing on how my thoughts on investment and money management have changed and why. We’ll see what I have time to write up next week.