How did this happen?
I am reviewing my finances, and the number on the screen bamboozles me. I’m not complaining, but I don’t really understand how it all happened so fast. The numbers are all there, the graphs show a steady increase of my net worth all the way to the current mind-boggling number. My net worth just hit $580,000.
I’m not sharing my story because of a misguided attempt to say, “If I can do it, anyone can!” but rather because I’m so far out of the norm that I want to take a second to sift through what made this possible. Though luck and privilege play a large part (most likely the largest part), I hope that at least some pieces might be replicable or helpful to others. In addition, I recognize that a global pandemic ravaging the livelihoods of so many makes talking about money feel even more awkward. My intention is to keep conversations about money going to challenge taboos that ultimately do more harm than good.
The most straightforward answer to the question, “How did you do that?” is that I have a high salary and low expenses. The difference saved and invested quickly grew to half a million dollars. This happened in a few short years. I’ve written before about saving up $200,000 by the age of 25, and also recorded when I hit $300,000 at age 26. In the last year I’ve nearly doubled my net worth, and it’s going to take some digging to figure out how this was possible.
Note that each milestone of $100k gets closer and closer together in time. Compound interest, higher salary, and favorable market conditions propelled my net worth significantly.
A Tech Salary
I won’t waste anyone’s time, saving this much money wasn’t due to a lucky stock bet or a well-padded trust fund. The main reason I was able to save so much was because I make a high salary.
At first, I worked starting from the age of 14 as a golf coach, and saved all of my income over the years from summer jobs and working part-time. I saved thousands this way from part-time work with a job every summer for 7 years.
Once I made it to University, I decided I would dedicate myself in school and choose a high-paying profession to save up a cushion and then eventually shift to work on pursuits that can’t promise steady income. I switched majors multiple times, but eventually finished a degree in Mechanical Engineering. After graduating, I shifted into software engineering, where the average base salary is $107,985 per year.
My very first job out of college as a Systems Engineer offered $65,000 and from there, job hopping increased my salary exponentially. I have worked full-time for the last 5 years, and each negotiation helped get me to the top 1-2% of earners in my age group.
In addition to base salary, I received sign-on bonuses for two job offers and received yearly bonuses when I met my performance goals.
Earning money isn’t everything, and many people may not choose the high salary route to financial independence. A slower approach to saving might be worth a lower stress or more fulfilling job. Ultimately, I’m happy with the path I took. It did take a lot of sacrifice; in college I spent most of my time studying in the engineering building, missing football games and parties with friends. I was also doggedly determined when it came to building out my resume, job hunting, and delivering results in my career. I front-loaded a lot of work and grit in order to be able to reach financial independence faster.
Now, I thank that past-self for all that hard work.
If tech salaries are so high, why aren’t more young tech workers retiring early and dropping out of the workforce in droves? A high salary isn’t going to be enough if it’s spent before it can be saved. If you met me, I doubt you’d figure I’m different than any other late-twenty-something on the street, yet over the years I’ve gotten better at living simply and frugally. In my early twenties, I shared all housing costs with multiple roommates. In my late twenties, I buy second-hand and turn to DIY projects to keep costs low. I bought my first car with cash. I cook at home rather than going out to eat at restaurants. All told, I spend less than $1,700 a month, or $20,000 a year.
Small sacrifices I made early on meant that I could save aggressively now and be able to splurge on conveniences when I’m older. I’m so grateful for what I do have. Stepping off of the hedonic treadmill– the endless pursuit of more— was the best thing I ever did to save money.
Invest the Rest
I read everything I could about investing, which led to me maxing out tax-advantaged retirement accounts, a Health Savings Account (HSA), and collecting the 6% match from my employer on my 401(k). I contributed to a Roth IRA while I could, but now do a backdoor Roth conversion.
As far as my portfolio goes, I choose passive investments like mutual funds or ETFs that track an index rather than stock trading or picking individual stocks. Studies have shown that over the long term, passive investing beats out active investing. I currently hold stocks in an aggressive allocation: 66% U.S. stocks, 15% international stocks, 12% bonds, 5% cash, and 2% real estate. As I get older I will rebalance more of my portfolio into bonds, but I’m happy to ride the waves of the market in my early years.
I have about a year’s worth of savings in my Emergency Fund, more than my usual 6-month cushion, but healthy to prepare for some big life changes (to be announced on the blog soon!)
Through Personal Capital, I can count up some income that came from my investments. My main brokerage account returned a total of $10,600 over 4 years. My Roth IRA brought in $2,200. My 401(k)s don’t report the numbers, but they likely had similar returns over the years.
This is the idea behind financial independence: that eventually your investments work hard so you don’t have to. As your balance grows, the interest, dividends, and total income ends up making enough to live on.
Question and Answer
I asked folks what they would want to know about someone’s journey to saving a large sum at a young age. Aside from the nitty gritty numbers, here were some questions thrown out by the community:
“What were the things you did and didn’t spend on?”
There are a few notable absences in my spending that help me save quickly: I don’t have kids, I have no mortgage, and I’ve never had any major debts. I recognize that these factors would have decreased the amount I would have been able to save early on, as student debt can take out a big chunk of early earning and kids can take out a massive chunk too.
As for what I did spend on, I lived internationally, backpacked through Europe, bought a fun sports car, and ate really well. While I carefully monitored my spending, I didn’t stress about what I was paying for when it aligned with my values. (In the case of my sport’s car, my value was fun. I sold the car a few years later for a profit!)
“I want to know behind the scenes. What caused ‘couple turmoil’?”
In terms of money, I was fortunate that my friends were similarly frugal when growing up (high school and college), so there wasn’t much pressure to ‘keep up with the Joneses’. We got creative with activities, and splurged on just a couple big ticket items a year like a ski pass or concert ticket.
When it came to dating, I only seriously dated one person in the last ten years and he was similarly frugal. We kept our finances split and talked about big purchases together. Although he didn’t really “get” FIRE, he didn’t have to. I believe that having separate finances helped with our monetary harmony.
I have noticed that many early retirees have spouses who continue to work, usually by design, because they love to work. The nice thing is that when you have options, you can choose to work on what matters to you. One spouse loves work? They can work. One spouse prefers to dabble in hobbies, interests, or other creative pursuits? If you have the finances to support it, great!
“What has been the greatest challenge along the way?”
The greatest challenge is yet to come:
What first comes to mind is the hours spent studying for exams, working in the machine lab, and pages and pages of thermodynamics homework. My current high salary didn’t just fall into my lap, I put in a lot of time and energy into succeeding in school, interviewing at companies, and negotiating my pay. Those were some big challenges.
However, I anticipate that the greatest challenges are actually ahead of me, rather than behind me. It’s one thing to carefully save, something I’ve always done even as a kid. However, it will be a greater challenge to design my life and choose the things I actually want to do instead of what I think I should do.
Saving was engrained in me, so spending and taking risks will be the big hurdles. I should say are the big hurdles, because being intentional about your life is a choice whether you are financially independent or not.
The greatest challenge financially:
When it comes to the greatest challenge financially? As they say, “The first $100k is the hardest”
When saving $20 here or there feels like a major accomplishment, it can be discouraging to see large numbers people have saved splashed across media articles. Indeed, each $20 saved is an accomplishment, and a step towards saving that first $100k. Even though I saved $100k at a relatively young age, it took the most time.
Indeed, once I passed $100k in savings, suddenly everything seemed to pick up pace. Part of this has to do with riding along a bull market. It’s important to recognize that the market is cyclical and I won’t always be able to count on compounding market returns.
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“What’s one piece of advice you’d give?”
There are 3 you’s: past, present, and future. Be grateful to all of them. Be grateful for past you for everything you’ve done and all the hard work you’ve put in. If present-you is feeling discouraged, take a second to think back to a good decision you made yesterday. Did you pay a bill, go for a run, cook yourself something delicious? Thank you younger me!
Next, think of how to do future-you a favor. Think of her or him like a best friend. When you’re feeling discouraged, burnt-out, or unproductive, think of future-you. Knock out some 8-minute abs, write a journal entry, transfer $20 to your savings account. Future-you will thank you!
Little past-me didn’t do everything right, but I am very grateful for her persistence at getting me where I am today. And every day I think about future-me and how I hope she’s happy, fulfilled, and living her best life. Every choice I make today, I make with her in mind.
I Am Financially Independent
The rule of thumb for determining if you are financially independent is to take your yearly spending and multiply by 25.
$20,000 * 25 = $500,000
This is the simple math breakdown, but really, the calculation only works if you include your future yearly spending. I am not sure what that will be, so it’s just a tad too early to quit my job and live completely off my investments, even if I wanted to.
Right now, I don’t want to stop working. My goal has always been to save up at least $1.2M in order to be able to account for the unknowns of life before I quit. But even if I don’t up and quit my job right away, I feel like it’s really time to start dreaming. I’m interested in moving abroad if the opportunity arises, even if that would mean taking a pay cut. I hope that my next role has a greater societal impact, so I’m on the lookout for jobs where I can make a bigger difference with my skillset.
That’s the whole point of financial independence, to figure out what your life would look like if money wasn’t a limiting factor. For some, financial restraints are true and valid concerns that keep dreams tempered. However, most people have the ability to dream far before they reach financial independence. What would you do, if money wasn’t a factor?