For the past several months I’ve become a very frugal man. In October of 2011 I paid off all of my debt and went about drastically cutting expenses. I do without many luxuries that are almost considered necessities in today’s society. Far from feeling deprived (I actually feel liberated) I started thinking about why I decided to forgo the things that for most of my life were always present. To understand this we need to consider a little history.
Most of my life my handling of money could be described as that of a spendthrift. I wasted money, lived paycheck to paycheck and had no savings of any kind just two short years ago. Money had one purpose in my life and that was to be spent. And spend I did. I bought gadgets, cars, boats, big screen tv, surround sound and who knows what else. The wake up moment, well besides that of being divorced and flat broke, was when I read the book, Your Money or Your Life. In the book is an exercise that requires you to determine the best you can the amount of money you have earned over your lifetime. Up until recently I had always had a modest salary and for twenty years worth of work I estimated I had earned about 500,000. The next part of the exercise is to determine how much of that amount you have saved or invested. You know what I had to show for twenty years of work and a half a million in earnings? NOTHING! Yep, that’s right, big goose egg. This is embarrassing to admit, but it’s the truth and it’s part of The Stoic Investor’s story.
Unlike those of you who may have always been wise money managers and began saving and investing early in life, I woke up to the ignorance of my ways later in life. As a result I determined that I needed to make up for lost time. Although I’m pursuing the path to financial independence I also realized that I needed to save a great deal of my current earnings to make up for lost time. Today I’m lucky in many ways, one is earning a salary just over six figures and this has allowed me to save a large sum of money in a short amount of time. I need to continue this high savings rate and live a frugal life for a bit longer so that I can accumulate enough funds to offset the disadvantage I caused myself from missing out on two decades of compounding. I still have years to go before retirement and I believe if I save aggressively enough the amount I put back now will get me to where I would have been had I been smart enough to manage my money better to begin with.
Some lessons are learned the hard way. I’m thankful for second chances and the means to make good on past mistakes.