One of the most interesting things that occurs with Money360 is the sharing that goes on with the site and with the email newsletter (some readers receive the articles from the site in email form). People share articles to others on social media or by forwarding an email, and sometimes those people will share it, and so on, and eventually an article makes it into the hands of someone who feels the need to tell me how wrong I am about the relatively simple math of frugality and financial success.
Usually, the response I’ll get (via email or social media) boils down to one core idea: “Sure, what you talk about might work for someone who is rich, but it doesn’t work for most Americans.” I hear that again and again and again and again.
So, let’s start with some reality from my own financial journey.
When Sarah and I started our financial turnaround, we lived in a tiny two bedroom apartment that was about 600 square feet. Our combined salary was about the average American household income, but we held somewhere in the high five figures in student loan debt, over $10,000 in credit card debt, and two car loans. We also had a baby that we were raising in that tiny little apartment.
I don’t think you could make a good case that we were in the top half of Americans in terms of our financial state. We were about average in terms of salary, but boy did we have a lot of debt.
Over the next year and a half, we paid off all of that debt. I wrote about that journey in the early days of Money360; I started the site well into that debt repayment process and I started the site to share the things we were learning along the way.
We then bought a house and had two more children and I had a career change. Within four more years, we paid off that house, too. We were completely debt free and owning our own home within five and a half years of starting our financial journey.
We didn’t do this with exorbitant wealth. We had exactly two years where our combined income bubbled over $100,000 a year during that entire process, and during both of those years I practically killed myself with work to get there.
So, how did we do it, then?
We did it with self-control and frugality. We recognized that every dollar we were spending needed to be bringing some real lasting value into our life. A lot of the things that we were spending money on – and that most Americans spend money on – bring short bursts of joy and then fade quickly into being forgotten entirely. They might be really tempting short-term pleasures, but they’re just short-term pleasures.
This is still mostly true for us: unless we’re pretty sure that something is going to be providing a ton of positive value for us for the dollar and it won’t be something we forget in a day or two, we’re going to try as hard as we can to spend minimal money on it – ideally, none. Yes, we have to buy food, but most meals are just forgettable fuel for the body, so we go for cheap healthy meals – think rice and beans and eggs and simple stir frys and oatmeal and lots of vegetables and things like that – that are nothing more than healthy fuel for the body. Yes, we buy things for entertainment, but we’re extremely careful about getting the most bang for our dollar in terms of long-term value and we often borrow things from the library, go to community events, go on hikes, and do other such things that have zero or very minimal cost. Yes, we buy household supplies, but when we do, we buy store brand and usually in bulk.
The hard truth is this: spending money does not lead to more happiness. I’ll repeat that: spending money does not lead to more happiness. Yes, you have to cover some basic expenses, but those expenses, once you peel back the unnecessary layers, are pretty cheap. The rest? It’s unnecessary, and spending that money does not lead to more happiness.
But what about splurges? What about fun? If you’re thinking like that, you’re not getting the message. Spending money does not lead to more happiness. Happiness comes from the things that you’re doing, and that rarely requires you to spend money. There are tons and tons of fun things to do that don’t involve shelling out money. Spending money might give you access to more, but it comes with a cost that we no longer wanted to pay.
Yes, we do spend money freely on entertainment and hobbies, and we do plan a nice family vacation each summer. We budget and plan for those things, though. There’s a reasonable cap on that spending and when we hit that cap, that’s the end of it until the next month.
We did it by keeping our eyes on our goals. So, we started living well beneath our income level. Why? We had other goals.
The biggest one was that we wanted to be completely, 100% free of debt. We did not want big monthly debt payments to be steering our lives for the next thirty years. We didn’t want to be making big monthly rent payments, either. We didn’t want the stress of it. We didn’t want our choices to be restricted by it. We didn’t want our children’s choices to be restricted by it, either. So, our goal was to be debt free and to own our home free and clear.
After that, we had a number of dreams – a home in the country, financial independence, international travel – but those were secondary to our big goal of complete debt freedom. Almost everything we did had that central goal in mind. (Now, our main goal is financial independence – a state where we can live off of our savings without having to work.)
Achieving this goal became the center of our focus in many areas of our life. It was certainly our financial center, and our professional goals often lined up with this as well. To a somewhat lesser extent, it shaped our social, spiritual, and intellectual lives, too.
We achieved that first big goal in about five and a half years, all told. We’re now working on the independence goal.
We did it with a plan built around consistent and logical financial choices. Our plan for being free from debt was very logical and clear and it told us what we should be doing at every step.
First, we built up a cash emergency fund equal to about a month’s worth of living expenses. This was to help us ensure that emergencies that life sometimes deals out didn’t interfere with our plans. If our emergency fund was low, refilling it was always the number one priority.
Second, we started paying off our debts, starting with the one with the highest interest rate. We made minimum payments on all of our debts, then we made the biggest extra payment we could on our highest interest debt. Rinse and repeat, month after month. We had a lot of fun tracking that progress and watching our debts melt away.
When we bought a home, that mortgage went into the debt pile at the bottom of the list because the interest rate was pretty low. We rather quickly reached a point where we were making triple (or even bigger) house payments. Within four and a half years of getting that mortgage, it was fully paid off.
Now, we’re saving for financial independence. We’re fully funding our Roth IRAs each year. Sarah is stocking up in her work 403(b) plan. We have a healthy amount of money in a taxable investment account because we usually save more than we can stow away in retirement accounts. We also have well-funded 529 plans for our children.
It all comes back to the plan. We’re never unclear on what our immediate financial tasks are. It’s never in doubt what we should be doing with our money and, in fact, we automate a lot of it, with contributions going automatically into the accounts where we want them.
We did it together. All along the way, Sarah and I did it together. We have been on the same page with every one of our financial goals. We’ve been on the same page with every step on the path. If anything, Sarah is more frugal than I am and more adamant about our goals than I am and more celebratory and joyful about our efforts than I am, believe it or not.
Our accounts have both of our names on them. Our possessions have both of our names on them. We’ve both made tons of choices over the last several years to help bring us to this point. Our choices aren’t just about what would make us happy right at this moment, but what would bring the most lasting joy and pleasure to our family over time, while avoiding any addition of stress.
The thing is, we do all of this without being “rich.” We’re not rich in the least. We earn a little bit more than the average American household, but not astoundingly so, and we’re still well within being able to contribute to Roth IRAs and the like. We have three children at home with all of the expenses that entails. We’re not high income couple with no children – we’re about as “normal” as an American family gets.
You don’t have to be “rich” to find financial success, period. You just have to have priorities in your choices. If you prioritize spending your money on name brands without having even considered the store brands, if you prioritize constant “treats” for yourself that are forgotten within a day, if you prioritize eating out regularly (yep, even if it’s fast food), if you engage in regular “retail therapy,” then it is your choices that are keeping you from financial success, period.
Financial success doesn’t just work for “other people.” Financial success works for most Americans (not all, but most) provided they make the choice to try to make it work.