I am not afraid to highlight my failures because I see them as (sometimes costly) learning experiences. We all fall somewhere on the spectrum of safety and risk. I?m a risk taker (about an 8/10), but also try to deploy the right tactics with the resources I have available.
I?ve been there. I have screwed up from a financial perspective (and many other ways) and knew it was going to be costly. The first time it happened, I thought it was going to be devastating. But as I came to realize, the more screw ups you have, the sharper your perspective becomes.?Whether you had a healthy financial situation or your finances are a little rocky, sometimes things can go sideways. This is what happened to us.
My First Financial Failure: Overconfidence
The first blow to our savings came when I was 21 and tried to make it big in the stock market. You see, I had started taking classes in finance towards my MBA when I was 19, so I thought I knew how to trade and had the education to back it up. WRONG!
I was trading emotionally and not logically. That little lesson cost me $6,000 in one day. That?s a lot of cash when you?re talking about losing 20% of your net worth in about 5 hours. That day, I learned a thing or two about overconfidence.
My Second Financial Failure: Missed the Fine Print
My wife and I are hyper aware of our budget, income, investments, and other aspects of our financial life. We look at your accounts daily. But somehow we missed a very important detail and ended up owing an extra $25,000. As a young couple, this was not a small amount. We felt sick to our stomachs.
Just like your enemies become your best teachers, my early failures became a gift.
As I?ve mentioned, I?ve screwed up before, but this one was a doozey. Here?s what happened. I signed a franchise agreement that had me paying down a zero interest loan for what I thought was two years, not three. I know, I know. Math. However, my wife and I both believe that we were misled when this was explained to us. But the three year commitment was clearly written out, I just didn?t see it. The outcome: instead of taking distributions from my business and putting an extra $25,000 into my savings account, I had to send that money to the lender.
Side note: I am a firm believer that just about everything in life is negotiable, so I saw this situation as no different. By explaining this scenario to the lender and offering to pay the remaining balance a year early, we negotiated a savings of about $1,400!
Make Your Failures Part of Your Comeback Story
The takeaway for me was simple: we all have setbacks, trip-ups, and unexpected situations that hurt our bank accounts. How you recover from these ?resiliency lessons? will determine your trajectory, not only for your finances but the quality of your entire life.
When I fail, it’s simply my First Attempt In Learning. If I quit, it’s because I have Qualities Under Important Transformation. We are now better equipped for what life throws at us.
How We Recovered
At first, my ego took a hit. Turns out maybe I wasn?t as smart as I thought I was. But I picked myself up, reminded myself of my goals, and continued building my savings. You can bet I will never make those mistakes again. It took about 4 months to get the $6,000 back in savings account. And I wasn’t able to take that $25,000 as a distribution from my business. But guess what? There’s power in taking responsibility. I didn?t blame someone else or skip out on my payments. We took responsibility for what happened and started saving again.
If the sales pitch sounds too good to be true, it probably is.
Read the fine print. There?s a reason they use the smallest font. That?s where they hide the ?gotchas.? Read. It. All.
Know the difference between smart risk and dumb risk. Emotional investing is dumb risk. And by the way, no fancy degree will protect you from making emotional decisions (just read the news any day of the week). It?s something you?ve got to watch out for constantly. Human nature is a powerful thing.
Your Best Financial Weapon
Saving, or the lack of spending, is my (and your) best weapon. Our frugality can be misinterpreted sometimes. I?ve been called cheap many times but I?ve learned to be perfectly okay with it. Rather than becoming defensive when the word is snarkily beamed my way, I ignore it. Pretty much every single person who has called me cheap has either not worked hard for their money (their parents made it rain for them as kids) or they don?t have a single real asset to their name because they spend indiscriminately. That?s no way to build long term wealth.
Just like your enemies become your best teachers, my early failures became a gift. My wife and I decided to trade some short term pleasures for genuine long term satisfaction.
There?s really no shortcut. Saving takes sacrifice and discipline. Even if you’re making $200k a year or received an inheritance in the seven figures, you need to have the discipline not splurge it on frivolous luxuries.?Spending money is not hard to do. Every year fortunes are lost by people who had huge financial windfalls. Just Google Mike Tyson, Tori Spelling or any number of professional athletes.
If you happen to be like me and not quite at that income level yet, learn to reject stuff (things) and embrace what really matters (people and experiences). Even as my income grows in future years, I have a feeling that I’ll never be a fan of accumulating stuff.
How to Start Small and Save Big
You don?t have to institute crazy austerity measures. Actually, studies show that going cold turkey on all spending will reduce your chances of sticking your plan. Start with one small step. One simple way to do this for me was cutting back on eating out. A decent meal for two is at least $25. I’d much rather use this $25 toward something else that would give me more than an hour in a restaurant.
“Failure is only the opportunity to begin again, only this time more wisely.” ~Henry Ford
My wife and I have embraced this simple concept. Healthier home-cooked food means more savings and more time together. We enjoy the process of cooking a meal and have fun being creative in the kitchen. Compare that to the hassle of driving to the restaurant, waiting to be seated, deciding what to eat, ordering, waiting again, getting our food, waiting for the check, and then driving back home.
Cooking at home also lets us avoid the often processed food that restaurants serve ?fresh?. We are more aware of what?s going into our bodies since we are the ones shopping for and cooking the ingredients. For us, the benefits of eating at home clearly outweigh the pluses of eating out. And if you?re missing the social aspect, invite your friends over for a potluck. We need to bring back the idea of home gatherings.
Get on Your Way ? And Don?t Sweat the Small Stuff
So get going on your financial journey. Everyone will have setbacks. These setbacks can be gifts. You can’t control what people say or do. But you can control how you react. Take your best shot at life. We only get one.
Michael has packed a lot of experience in his 25 years of life. He started his first little business when he was 12 years old, has been awarded a Merrill Lynch Young Entrepreneur Award as a young teen, was an Enactus National Presenter for 2 years while attending Winthrop University, and has been a Finance Officer in the South Carolina Army National Guard for 8 years.?He is passionate about helping others reach their financial dreams.
A Growing Shift in the Way Americans Think About Money and Life
When Kristin Hanes decided to move into her boyfriend?s car to pay off her debt, she said she felt a lot of negative emotions. ?I often felt ashamed and scared, not wanting to tell people I lived in a car and camped in the mountains.? But she didn’t let that dissuade her.?And when she later lost her job at a radio station and was unable to find employment, she moved into her boyfriend?s sailboat and began writing about experiences. Today her blog, The Wayward Home, which chronicles her lifestyle change, is a huge success and allows her to live anywhere. Though her initial goal was debtless financial freedom, the continuation of her lifestyle change resulted in much more. Complete Financial Independence (aka FI).
Escaping the Hamster Wheel
It may be an uncomfortable truth, but Americans are becoming increasingly aware that the days of working for a company for 40 years and retiring with a fat pension, or 401K, and a gin and tonic on the porch of your paid-for house are long gone. Dreams of retiring in debtless financial freedom seem further away. Millennials in particular are woke to this and many are taking matters into their own hands. There’s a growing movement of people who are seeking to completely disrupt the status quo and do things differently. They gather online to share their ideas, successes, and failures. Their goal? Complete financial independence.
More and more people are seeking creative ways to escape the hamster wheel. They are learning that they can do with less and not notice. And they are discovering an unexpected freedom in living more authentically. Add to this the DIY spirit of the internet and the gig economy, and you have a complete disruption of the lifeplan?story taught by the Traditionalists – the generation on the way out. Put simply, the idea of settling down, working for 40+ years, buying a bunch of stuff that sits in storage, then dying, doesn?t sit well with today?s generation. And they are actively seeking a different way to live.
Okay, by a show of hands, who loves working a stressful, hateful job for 30-40 years, to pay off a massive mortgage, only to die of a heart-attack?at your desk or be laid off without a pension??Anyone? Anyone? – Millennial Revolution
FI/FIRE stands for Financially Independent/Financially Independent Retire Early and is a movement of people who are focused on spending as little as possible, and hence needing as little as possible, while investing wisely so that they can quit working as soon as possible.
Remember this ? money is not for showing off or spending on consumer shit, it is for making you more money to buy freedom and happiness. – The Escape Artist
Who are these Trailblazers?
FI/FIRE enthusiasts come in all colors. Some are working high paying jobs, investing carefully, and have set an actual timeline for retirement. Others are more interested in working less, living more, and learning how to live below the material expectations of our consumerist culture. Highly focused spreadsheet geeks share how they are maximizing their retirement accounts. Families share how they cut their cable bills by negotiating. FI groups and blogs have a wealth of information on ways to maximize dollars.? ?
In the winter we wore sweaters around the house instead of jacking up the thermostat. We used bikes to get around town whenever possible and tried to use public transportation for our commutes. All of these little things added up and we were well on our way to saving for our goal! – Freedom With Bruno
FIRE and ALICE: Why it Matters (and why it doesn’t)
Meanwhile, there is another acronym popping up in the news – ALICE. This United Way acronym stands for Asset Limited, Income Constrained, Employed. According to the United Way ALICE project, 43% of American households, though employed, can?t cover a basic monthly budget for housing, food, transportation, child care, health care and a monthly smartphone bill. When we truly break down all of the expenses required in our country simply to retain a job that pays less than $20 per hour, it?s not impossible to understand how this can happen.?
It really doesn?t matter that the unemployment rate is low if employment doesn?t cover basic life expenses.
For the ALICE group, the old system doesn?t fit anymore, either. College grads are shocked to find out that their degree isn?t worth the student loan they owe. Middle-aged, experienced professionals who find themselves priced out of the market are working 2-3 part time jobs to make ends meet and be able to cover their health insurance. The ?American lifestyle? has become too expensive, too confusing, and too demanding. People who are struggling to find financial balance and get out from under consumer debt are looking at creative changes they can make in their life to simplify everything, just as Kristen Hanes did when she moved into her car. This, too, is reflected in social media groups such as Living in a Van where people from all economic levels share ideas on how to live rent, mortgage, or location free.
Same Approach, Different Purpose
So we are seeing an interesting parallel across the board. Whether you are a 25 year old engineer, living in a box truck in the Google parking lot and trying to estimate when you can retire, or a 65 year old retiree, living in an RV and supplementing your Social Security with seasonal jobs across the country, your lifestyle adjustments have similarities, though your purpose is different. Lifestyle shifts are helping people realize they no longer need what they used to believe were necessities. And today, more than one type of person is looking for change for more than one reason.
This cross section between millennials focusing on financial independence and those merely trying to keep their head above water is unearthing a plethora of ideas that anyone can implement to help achieve personal financial goals. The?minimalism, sustainable living, and zero-waste movements are increasingly being interwoven into lifestyles in different ways by people from all walks of life who are searching for less stress, less waste, more time, and more freedom.
C?Mon, Isn?t Frugal Living a Wealthy Privilege?
But there is a difference in mindset between a person who chooses to elect a particular lifestyle choice (FIRE), and a person who feels forced to adopt a lifestyle change (ALICE). And that difference can make or break a person’s success. While there are plenty of reasons why clearing the clutter and materialistic focus out of your life can bring you both personal and financial freedom, adopting a more frugal lifestyle is best done out of choice than necessity. For many, it has become a fun game: ?how little can I get by on? ?But if you already feel deprived, the idea of having to go with even less isn?t inviting.
It doesn?t matter how much money you make if you spend it all. This is why we always hear about bankrupt NBA players and musicians. – Retire by 40
For example, if you’ve been struggling already and someone tells you that you now have to get down to $2 per meal, it may not sound like a fun game. Yet the $2 meal topic was so hot in one Facebook FIRE group that within one hour of the initial post, 138 responses popped up addressing this question: ??One of the hardest things to get on board with is $2 per person per meal. What is the community doing and how can we get better??
Of course, the realities of layoffs, healthcare emergencies and student loan bankruptcies are front and center for many.? But there are things that can be controlled and others that cannot be. So we might as well focus on what we can control. Spending is one of those things. People who are focused on the idea of financial independence experience excitement rather than deprivation when they discover ways to slice their overhead. And they are sharing their discoveries.?
Money Stories: How to Unlock Your Joy
Those who elect to adopt a more frugal lifestyle and make it fun have a better chance of making it work than those who do so grudgingly.?For those in ALICE, the $2 meal may feel more like a mandate than a choice, and this lays at the crux of the issue. The actual activity of shopping for, cooking, and eating the $2 per meal is generally the same.
Your mindset is one of the most powerful forces behind your decision-making process. – Think Save Retire
1. The Money Stories We Adopt Are Powerful
Part of this enigma lies in the stories we tell ourselves. Our ideas about money and possessions are integrated with our self-perceived value. It may feel pretty cool living in a van, eating a can of tuna, while socking away tens of thousands a year in 401(k)s, IRAs and other investment vehicles.
But in the van parked next to?you, you may find someone who’s lost his job and is in transition,?eating the same can of tuna, and feeling like a failure. While the former is finding joy in how much she’s saving, the latter is perhaps ruminating about how low he’s fallen. She feels free, he feels trapped. We empathize with him. They are both presently?eating, sleeping, and showering?in a similar fashion.
2. Our Cultural Money Stories Might Just Be… Marketing
If part of your story is that successful people drive expensive cars, you will equate older, cheaper cars with unsuccessful people. So, if you happen to be behind the wheel of an older, cheaper car, you’re going to feel like a loser. Meanwhile, another camp looks at expensive cars and wonders why anyone would spend tens of thousands on a machine that will depreciate as soon as they purchase it. According to their narrative, buying an expensive car, especially if you have to finance it, is the loser move.?
I?ve always been a bit disturbed by the American consumerist mentality. We live in a disposable society. Some people will trade in a perfectly good car just because they want a new one. – 1500 Days
3. Which Money Narrative Do You Choose?
Everyone?s got their own money narrative. Mr. Money Mustache?s narrative incorporates a bit of?stoicism when he says that overcoming one?s own insatiability will lead to a good life. He makes a clear distinction between happiness and pleasure. He says that by??focusing on happiness itself, you can lead a much better life than those who focus on convenience?(and) luxury.? But to do this, you can?t follow the ?lead of the financially illiterate herd that is the TV-ad-absorbing Middle Class of the United States (and other rich countries) today.?
Happiness comes from many sources, but none of these sources involve car or purse upgrades.?MMM
Whether you are trying to escape ALICE or going for FI/FIRE, the practical application of frugality and minimalism is the same. If people who are struggling can learn to look at frugality as a lifestyle choice rather than a necessity due to perceived lack, it could be a game changer.
The Even Bigger Benefits of a Simpler Life
The benefits of simpler living go way beyond financial freedom. People from all demographics and for all different reasons are learning to shed their super-consumer lifestyle for a simpler, easier road, regardless of where their particular road is going. And many are finding solace in realizing that, by needing less, they are rewarded with more than a sense of financial freedom.?
With frugality, there?s often a double or triple benefit. It?s not just saving the money. You?re going to reap an advantage in some other way. – Mr. Frugalwoods
1. How Not Giving a F**k Brings us More Joy
So, how do we get from always thinking we need more to learning to need less? For Mr. Money Mustache, the key to this transformation is a technique called Negative Visualization. By imagining that you have less than you already do, and that your life is more difficult than it actually is, you can train yourself to be grateful for what you already have. By practicing voluntary discomfort, such as experimenting with how long we can last on a hot day without the AC, we can work on “broadening our comfort zone while eliminating our fear of discomfort.”
The other tip: learn to stop worrying about things that are out of our control, and focus instead on those that we have a direct effect on.? For example, instead of stressing out about potential health problems you may run into in the future, throw that nervous energy into taking better care of the body you are in today.
2. The Other Weight Loss:? Having Less Stuff
Those who have given themselves permission to withdraw from the ?new shiny thing? addiction of the status quo are experiencing levity across the board.?Instead of “I can’t afford it,”? they say “what can I do differently?” For example, many save thousands because they no longer consider a high-end cell phone upgrade every year a given and have opted for a used model and a budget sim.?For FIRE, these thousands may go into their retirement fund. For ALICE, these thousands could free them from the slavery of consumer debt.?
When you stop caring about whether or not you appear to be in poverty, and cleanse your brain of the notion that your value is reflected in your possessions, you find more freedom, more time, more money, and more joy.?
3. Bonus:? Creating a World that Doesn’t Suck
Our motivation in buying as little stuff as possible this year has less to do with money than it does with wanting to be environmentally responsible …?and with recognizing that we already have everything we need. – Our Next Life
And, as it turns out, needing less also helps to create a world that we would actually want to leave to our children. For another uncomfortable truth is that our addiction to products and services is hurting our planet. And we really can’t afford to ignore this fact anymore when it comes to our daily habits. It’s not someone else’s backyard, it’s ours.
So think about the stories we tell ourselves. How can we do things differently? It’s not about depriving you of what you need, it’s about learning to need less. In the long game, our personal, financial, and planetary health all depend on us changing our stories from ?he who dies with the most toys wins? to something more like:
Can anything be so elegant as to have few wants, and to serve them one?s self? -?Ralph Waldo Emerson