In early October, 2007, I announced that I had retired in my forties. So I now join my wife, who stopped working to care for our child. As promised, I am writing a series on "How We Did It," of which this is segment #1. For reference, our story is a boring one because we did it by working for established companies, spending less than we earn, and prudently investing our savings. There were no business start ups, lottery winnings, or inheritances involved. However, it worked for us. Read on if you still want to find out how.
Step One - Have (Be) Good Parent Role Models
In the Millionaire Next Door, the authors note that the affluent generally answer "yes" to the following three questions:
- Were your parents very frugal?
- Are you frugal?
- Is your spouse more frugal than you are?
My wife and I can answer yes to #1 and #2. (Only one of us can answer yes to #3:-) When I was born, my dad was a graduate student. My father-in-law was a lieutenant in the Air Force when my wife was born. Even with their incomes, our parents lived within their means and saved money. In addition, our parents didn't use debt, except for home mortgages and car loans. Finally, both my father and father-in-law believed in the stock market and invested in it.
Many of those values were passed on to us. Some examples during our childhood include:
Saving for retirement. My dad had me open my first IRA when I was 18, into which I put part of my summer earnings, just enough to put my income into the 0 tax bracket. As a result, I got a double bonus - a head start on retirement savings and a 100% tax refund.
Minimizing unnecessary expenses. My parents valued savings more than having "bling." For example, I was encouraged to save money by foregoing a car during high school and college. I borrowed the family car when I needed one. While a car would have been cool, I'm sure it would have been a big black hole into which money was thrown.
Saving to pay for something important. I had an intern job in engineering every summer of college and 95% of my earnings were put into college or retirement savings. I also worked during college in the cafeteria and managed a student run business. My wife also worked summers and during school and used the saving to cover part of college costs.
Our parents were far from wealthy when we were children. However, they gave us an excellent foundation on to which we could build wealth. We were fortunate to have them as role models. However, in addition to their values helping their children, they have also done pretty well, as both our parents are now comfortably retired.
Finally, if your parents were not good personal finance role models, don't worry too much about the past. One cannot change the past, but one can surely create the future. While having a good role model is the best beginning, it's possible to overcome a rocky start in personal finances. For some timeless personal finance principles to use, see: Is There Anything Really NEW In Personal Finance? And, remember, as you go forward, that your kids are likely to imitate your personal finance values:-)
Next Friday: The Value Of Higher Education
Here's the series:
- Our Childhood Preparation
- The Value Of Higher Education
- Making The Most Of My Job
- Lifestyle and Spending Choices
- Setting Goals, Developing Plans and Tracking Process
- Staying The Course
- How Luck Played A Role
- My Personal Finance Mind Tricks
- The Professionals We Used
- When Preparation Met Opportunity
This is not finanical or family advice. Please consults a professional advisor.Copyright © 2007 Achievement Catalyst, LLC