The road to financial independence

Early in The Millionaire Next Door, Danko and Stanley single out the Scottish. When my wife, Emily, read it, she said, “That explains everything about you!”

When I read it, I thought it explained everything about my two grandfathers–one was rich, one was poor, both were Scottish, and both spent their money pretty much the same way.

I’ve been reading a lot of these kinds of books because I’m not going to let what happened to us back in May ever happen again.But I blame Emily. She’s the one who started bringing me these kinds of books.

So what am I doing? I can’t list everything, but I can definitely give enough examples to highlight this Scot’s mindset.

Pick up that quarter. You know that adage that if a lawyer drops a quarter, it costs him more money to bend down and pick it up than to leave it be? Forget that. A lawyer standing in a parking lot isn’t billing time. I always pick up that quarter. I’m not a vulture–if I see someone drop a coin or three, I pick them up and hand them to the person. But if it’s on the ground and there’s no sign of the rightful owner, it goes in my pocket, whether it’s 75 cents or a penny.

Be scrappy. When I was out of work, I walked around picking up aluminum cans. At 45 cents a pound with a 10-pound minimum (a pound is roughly 35 cans), it was a slow way to make money. But if you’re out walking for exercise anyway, pick ’em up. I pick up cans when I spot them in parking lots, and I save the cans the local hoodlums throw in my yard. The last time we took cans in, we got more than $8. That pays for dinner for a night or two, if you cook. I only gather cans when someone’s not paying me to do something else, but during those times, why not?

Pay down your debt. Once Em and I got on our feet financially and it was clear we wouldn’t have to live off our savings anymore, we paid off our cars. We’d been making extra payments anyway. By paying off her 5-year loan in 3 years and mine in 2, we probably saved $3,000 in interest charges. That 3 grand is going to come in handy.

And that’s Biblical: Romans 13:8 says, “Owe no man anything, except love.” Does that mean my home mortgage and my car loans are sin? Yep. At least we’ve got two sins out of our lives.

If you can’t pay it all off, make extra payments. Even tiny extra payments help. Do a Google search for a financial calculator. Plug in your home mortgage. Many will figure the effects of extra payments for you. On my mortgage, just $10 a month pays off my house a full month sooner. A lousy ten bucks a month eliminates a single $1,000 mortgage payment. I can come up with 10 bucks. About 18 months ago I quit buying a doughnut and coffee at work, taking a thermos and a couple of packets of oatmeal every morning so I’d quit spending $1 a day on those things. The total savings per month was almost 20 bucks. Packing my lunch saved another couple of bucks a day. You get the idea.

Initially I was doing it for hobby money, until I realized how much more I would save by eliminating debt first. Once that $1,000 mortgage payment and $300 car payment are no longer over my head, I can buy a lot more $10 train cars. Even if the price doubles by then, which it probably won’t.

Keep an eye out for business opportunities. My brother in law has the right idea. He and his wife bought the laundromat in the town they live in. They have to fix something once a week, but compared to their regular jobs, it’s easy money. Within a few years it will have paid for itself and the money will just be there.

He’s looking to start another business too. Ethanol costs about $1.84 a gallon and the price is steady. That’s 70 cents less than a gallon of gasoline sells for in their town. So a lot of farmers use ethanol. Many would anyway, because they’d rather support corn farmers than middle eastern oil tycoons. So he’s looking to buy an ethanol station.

Emily and I moonlight selling stuff online. She loves shopping at thrift stores and yard sales. I spotted a copy of How to Make a Fortune With Other People’s Junk and bought it (with a coupon, of course). We’re not following it exactly, but it put us on the right track. We’re small time but we’re profitable, and now she’s getting paid to do one of her favorite things.

The goal isn’t the high life. This might be the most important thing. The reason most wealthy people stay wealthy is because their goal isn’t a swanky $500,000 home in a ritzy suburb with two new foreign luxury cars in the driveway all the time.

Don’t get me wrong: I may not drive a Honda Civic all my life. But I could see myself driving a Toyota Camry or a Honda Accord whether my net worth was $160,000 or $16 million. A BMW or Mercedes (or a Lincoln or Cadillac, for that matter) does nothing to improve quality of life.

The goal is something completely different: not to be anyone’s slave.

A year ago, whenever my phone rang after hours, I had to answer it. If I failed to answer the phone more than maybe once a year, I was afraid I’d be fired. So I picked up the phone and did whatever the person on the other end asked, whether it was reasonable or not, whether it made sense or not. Sometimes that meant I had to cancel plans. But it meant extra money, and I thought it proved how indispensible I was.

And it was all over one Thursday afternoon. There were cutbacks at work, and my position was eliminated. So I got in a car that belonged to Honda and drove to a house owned by the bank, where I sat down (at least the couch was owned by me) to figure out how much money was in the bank and how many months that money would last while I looked for another job.

Freedom is being able to say yes when the phone rings because it’s the right thing to do, not because it’s what you have to do in order to support your lifestyle. Freedom is when it doesn’t matter if your job evaporates because you boss’ boss’ boss screwed up and lost a horrific amount of money because the main reason you’re working for him is because it’s more interesting than sitting around at home watching daytime TV.

Most people don’t have a job. Their job has them. And the main reason is because their lifestyle has them.

In a way I’m glad I learned this at age 30. I’m also very glad that Emily understands it, and that when I can’t explain something peculiar about the way I spend or (more often) don’t spend, she trusts me. This doesn’t work very well when only one person is on board.

And as long as both of us can hold down a job for about five years–a reasonable expectation, since both of us have done it before–we’ll get there.

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8 thoughts on “The road to financial independence

  • August 16, 2005 at 8:22 am

    Hi Dave,

    Good post with many excellent posts. I’m glad things are looking up for you and your wife, that is great!

    A small observation that will allow you to save even more money (I know because I do it): I also eat oatmeal at work almost every morning and several years ago discovered that the packets of oatmeal are much more expensive, less tasty and filled with many additives compared to plain old fashioned Quaker Oats. Old Fashioned Quaker Oats (not one minute or instant or a store brand where the old fashioned oats are more like sweepings left over from Quaker) cook just fine when placed in a mug with boiling hot water poured over them, stir and let set for a couple minutes. Or, what I do now is microwave the oats for a couple minutes on high in a bowl, they come out fluffy yet with a good texture, fully cooked and ready to eat. Stir in some raisins, cinnamon, walnuts, etc for extra flavor. All told, healthy, more tasty and cheaper than packets of instant oatmeal. (I use a ratio of one part oats to two parts water. Also be careful when microwaving so they don’t boil over and out of your bowl).

    On cars, I have never bought a new car but patiently wait for the right vehicle to come along. I currently drive a Mercedes 1989 300e in excellent condition that I bought in 2001… you’d be surprised how cheap these are once they get to around 10 years old ( got mine for a little over $6,000, the key is to wait for one that is well maintained, at a good price, and then be one of the types that rather spend anywhere from $500 to $2000 a year on quality maintenance instead of a lot more on a much more expensive new car. If you (and I don’t think you are but some people reading this will be) are the type that worries about the car being bad because ii needs new breaks, a new water pump, a new oil pump, needs to have the timing belt or chain replace, etc. then a new car may be the way to go, but for saving money find a good quality older vehicle and maintain it. My previous car, a 1977 Mercedes 240D I have had since 1991 (it’s currently the emergency back-up vehicle) and it still runs great and has nearly 300,000 miles on it! 🙂

    That’s my two cents.

    – Bruce

    • August 16, 2005 at 8:29 am

      One more thing: Find an honest trusted mechanic to work on your vehicle. Saves a lot of money and if you have a used import it is way cheaper than the dealer!

  • August 16, 2005 at 9:13 pm

    You said”Pay down your debt. Once Em and I got on our feet financially and it was clear we wouldn’t have to live off our savings anymore, we paid off our cars. We’d been making extra payments anyway. By paying off her 5-year loan in 3 years and mine in 2, we probably saved $3,000 in interest charges. That 3 grand is going to come in handy.”

    I agree with this thought. BUT, pay down the high interest rate debt first. Ihat will save the most money (which will be applied to the less expencive debt.

    I don’t think that you have a sin with your mortgage payment. I do not believe that Christ taught that we should not provide for our dependents.

    Give me a mail sometime,
    John Vogt

    • August 17, 2005 at 1:33 pm

      pay down the high interest rate debt first. Ihat will save the most money

      I’ve found that the different strategies for debt elimination often conflict. A lot of it depends on your individual situation, particularly how your debts are distributed among your creditors. Paying off the highest interest debt first is certainly best when your debts are distributed fairly evenly. But if you’ve got $5K of credit debt and a $100K mortgage, odds are that – unless you have a very low mortgage interest rate and a very high credit interest rate – you’re going to save more in the long run by attacking the mortgage first, because the debt and aggregate interest loads are higher.

      Your own personality is part of the strategy you settle upon, too. If paying off your smaller debts more quickly keeps you motivated, it’s probably best to do that rather than plod along on a long-term payoff and get off track.

      • August 18, 2005 at 1:22 pm

        This seems to be one of those things where the most important thing is to find a plan you can stick to, then stick to it. Having a plan–any plan–is better than none at all, and the best plan in the world isn’t going to help if you can’t bring yourself to stick to it.

        At least that’s the conclusion I came to after Steve and I discussed (at length) the different tactics we’ve heard about.

        Some people may opt to max out their 401(k) and Roth contributions before they pay off any debt at all. That’s not the strategy I took. But the person who does that certainly is way ahead of the person who saves nothing and makes the minimum payment on everything each month.

  • August 16, 2005 at 10:27 pm

    I see one problem with this lifestyle. Most companies are moving toward pre-employment credit checks. How will you explain to the people in HR your views on their indebtedness?

    "The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments." ~Mad Magazine

  • August 17, 2005 at 10:29 am

    Exactly. We don’t carry any credit card debt–I don’t know that I’ve paid interest more than about once on a credit card since I first got one at 19–so the cars were pretty much it. The rates on the cars and on the mortgage were pretty close, but since the interest on the mortgage is tax deductible, we went for the cars. Plus, now that’s two fewer bills to remember to pay every month.

  • August 17, 2005 at 10:43 am

    Nice tip on the oatmeal, Bruce. I’ll have to do that. I may go for the store brand though–I’ve bought it before and don’t mind it all that much.

    As for the cars, I’m with you. My Honda was a year-old used vehicle. If I had it to do again, I’d have bought one that was a few years older. I bought that car for some of the wrong reasons but I still made fewer mistakes with it than I could have.

    There’s a good mechanic a couple of miles from me who specializes in Hondas, and I’ve learned how to tune my driving habits so I can pretty consistently get 38 MPG out of my Civic. Now that gas has hit $2.50 a gallon, I’m about ready to experiment with high-efficiency spark plugs in hopes of squeezing out a little more.

    I intend to put 200,000 miles on this car. That gives me lots of time to wait for what’s next. It’ll most likely be another Honda or a Toyota, mostly for fuel efficiency reasons.

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