Looking back on the years, the following is how I managed to save money/invest. I originally meant for this to be a list, but it turned into a story.
My journey was a combination of good/bad choices, good luck and good timing. Some of which was out of my control, some not.
I was in debt after leaving college at the end of 2005. This is probably not a surprise to many people, but I managed to miss the large tuition increases that began in the early 2000s. Freshman starting when I was a senior paid significantly more than me. The amount of debt was relatively low (25k) considering I earned both a masters (Computer Science) and bachelors (Applied Math) degree.
I began working as a Software Engineer in January 2006. The job market during 2005-2006 was much stronger than it is today and that field was(is) growing rapidly. Having a desirable degree made it easy for me to find a job that pays well. This wasn’t the case at first, I actually had to continue with a Masters after getting my Bachelors because not many people in the software industry had heard of my degree (Applied Mathematical Sciences, what a mouthful).
Once I began working, my paycheck was larger than any I had received. Since I had spent the previous 5 years as a poor college student, I was well equipped to not spend money. Initially, I set 10% of my paycheck aside in my company sponsored 401k. I didn’t max it, but I had some debt to pay off. Two months into my career disaster struck.
Well more of a mini disaster. The car that served me well throughout college was wrecked beyond repair in an ice storm in February 2006. Fortunately, while I was waiting for a tow truck, a city truck drove by and sanded where I crashed. The damage to the car was substantial and the cost to repair it was much higher than it was worth. At the time, I was still building my emergency fund (from 0) and did not have any cash set aside for this type of emergency.
I ended up buying a car that was cheapish. I spent about 14k after all costs associated with the purchase. For the most part, I was pretty content to making the payments on both my car and student debt, while saving any extra money I had. That was until I met one of my friends.
It was at the end of 2006 that I met a good friend who was very knowledgeable about personal finance. He was a follower of Dave Ramsey, a financial guru, I had never heard off. I was pretty oblivious to all of the financial ideas. My goal was to spend less than I earned, but I didn’t really have any negative feelings about having debt. That changed after meeting him. After building my emergency fund, I began to aggressively pay off both my student and car loans. From the end of 2006, it took me about 2 years to pay off both loans.
All the while, my paycheck grew and I got a promotion. Each time my paycheck increased, I raised my 401k contribution. It was more money I never had, so I never missed it. My spending stays pretty level from year to year, so this approach worked well for me.
Here I was, three years into my career debt free and with a high savings rate. Stepping back a bit, my investing career started at the top of the market in 2007. I didn’t invest a lot, but I got caught up in the market euphoria at the time. Housing is never going down! Hindsight is always 20/20 and if I had started two years earlier, the result might have ended the same, but I would have been able to pat myself on the back for picking a stock that went up. Keep in mind I wasn’t investing.
Now I had several goals in mind:
- Buy a house
- Become a millionaire!
That was really about it. I had never thought of financial freedom in the sense that I would stop working and live off investments. I just figured I would work till I was old, which I am okay with because I enjoy Software Engineering, well more the puzzle aspect of it (which is why my other hobbies fitness/nutrition/investing seem to be puzzles). As far as I was concerned, I was financially free. I had a good job and more money than I needed.
This bring us to the end of 2008 and through 2009. I was debt free, contributing to my 401k, saving for a house and starting to invest. Having zero financial background, I surfed the internet for ways to pick stocks, talking to friends and even my Grampa! I ended up getting into a news letter service where, for a fee, they would do the research and tell you when to buy/sell. It took me a few years, but in the end I realized that the only people who make money with these services are the guys collecting the fees. I took a beating throughout this time frame in the market, and gave up for the most part. I had a portfolio and would buy based on the recommendations of the service, but I started to put less and less money into investments.
In 2009, I decided I wanted a new car. I had gotten into bike riding and wanted a car that would make it easy for me to take my bike to the various places. After searching for six months, I found it and ended up spending 27k on my second vehicle. I’m a low mileage driver and my previous car was in great condition, so I was able to get about 6k for it and then I pitched in 3k. For a total loan value of about 19k. After a few months of paying my loan, my aversion to debt and hatred of monthly payments caused me to raid my house fund and pay the car off.
At the start of 2010, I was back to square zero with the house fund, tired of “investing” and debt free (again). I maxed my contributions to my 401k, where I was actually making money and decided to focus after tax money back into the house fund. I still purchased stocks here and there, but put very little new money in. After the beating I had taken in the market, my house fund would be in a “high” yield savings account. I didn’t want to risk it, which is a good thing to do. I try to keep money I may need in the next 3-5 years as cash.
Jumping to the middle of 2012. I can’t remember exactly what snapped, but I remember being tired of my poor performance in my own investing. By that time, I had made a few good “picks”, but still didn’t find consistent performance. I had reached a point with my house fund where I could lower the contributions and have enough for the down payment by the time that I reached mid 2013.
At this point, I began to read several blogs, revisit my life goals and decided I didn’t want to work forever. My Grampa was also dying at this time, needless to say, my conversations with him were foremost on my mind. We spoke at length on how he invested and why. He loved the safety of dividends from both stocks and municipal bonds. He loved the tax free interest of munis. He had never made much money, but his investment strategy(40k+ per year), a modest pension and social security/medicare enabled him to do everything he wanted.
At that point I changed my strategy to dividend growth investing. I want to be able to have a secure retirement income stream. Social Security won’t be what it is today and I have no pension. I believe dividend growth investing will get me to that point.
Well, I have been somewhat vague on other aspects of my spending. I had originally intended this to be a list instead of a story, but I will discuss more about what exactly I did to achieve the savings rate I do in the near future.
Thank you for reading.