INCLUDE_DATA

Mar

1

My Financial Epiphany





Mug!

Gather Little By Little wrote about his financial epiphany moment, and called us other bloggers to share as well. What a great idea! I wrote all about my debt story in three posts, but I’d love to share the exact MOMENT when I had my epiphany here, because I think these kinds of stories are fun and good inspiration, too ;)

My Financial Epiphany

My “aha” moment came in 2005 by way of the book The Automatic Millionaire by David Bach. A coworker gave me the book when I told him about my struggles with debt, and over Christmas vacation that year I read it twice.

I was 19 at the time, and honestly? I was overwhelmed when I read the book. I had lived rather mindlessly (regarding finances) up to that point, and hadn’t considered the value of my income until reading the book. David Bach is all about “the latte factor,” as he calls it. The concept behind the phrase is that if we chose to invest our daily latte money (or manicure money, fast-food-lunch money, cigarette money, what have you) in our futures rather in the temporary thing, we would be incredibly prosperous in the long run.

At first I was like, “yeah, yeah…” and thought he was making a big deal over a small thing, until I did the math. I bought coffee and a scone on my walk to work every day. I also bought a six-pack of Diet Coke and a box of Pop Tarts every week just because. And I got manicures every week, too.

So I did the calculations:

  • Coffee and Scone = $6.00/day x 5 days = $30/week x 52 weeks = $1560/year
  • Diet Coke and Pop Tarts = $7/week x 52 weeks = $364/year
  • Manicure = $35/week x 52 weeks = $1820/year!

That grand totals to $3744/year! I was appalled that I had spent that much a year on “throw-away” stuff that I enjoyed for maybe an hour, or for a week at the longest in the case of the manicures. This meant that while making only $26k/year, I was throwing away almost 15% of my income! And that’s not including the countless times I ate out a week, or the hundreds of dollars in shoes I purchased.

The clincher was that I realized that if I decided to invest that $3700/year instead, in a Roth IRA perhaps, for only 10 years, in 40 years I would have $1.27 million in savings! (Assuming an annual rate of return at 10%. Dave Ramsey assumes a 12% rate of return, Jacob assumes 8%. But at the time I only knew of David Bach. ;)) I was surprised and excited that by giving up these little things in my life, I could be a millionaire.

That was a huge eye-opener for me. At 19, I realized that there was no other time to start saving and getting out of debt than NOW. I opened up a Roth IRA with Fidelity and signed up for their Freedom Fund. (Some people argue against the Freedom Fund plan, but I like it. The fund slowly gravitates from high-risk to low-risk over 40 years. I also picked it because I can chose to leave that fund at any time if I want to without penalties.)

It took me over a year to finally get my eye on the ball and actually STICK to my budget (I started budgeting in 2005 but only at the end of 2006 did I really start to get out of debt).

So there you have it. I am now 22 and have come a long way. I am not out of debt, and my Roth IRA is far from being fully funded. BUT - I have a totally different perspective about money, and that epiphany has carried me to this place I am now.

I will be out of debt in April or May, depending on how much I can snowflake to the debt in the next couple of months. And I now see my savings far past IRAs. After eliminating my last debt, I intend to save over 30% of my income, so I will have a diversified savings portfolio and a lot of money in the bank by the time I’m 30. I hope to continue to grow my income so that within the next five years I can save 50% to 70% of my annual income and become completely “free” by the time I’m 35 and live on the investments in perpetuity. And then I can do whatever I want to with my life! I can work doing something fun, or not work at all and just be creative with my time. And just think what a joy that will be ;)
Related Posts:

Have you written about your epiphany? When was yours? How long did it take you from the moment you had the “aha” to when you finally took action?

Related Posts

  • No Related Post

Filed Under Just My Life - Stories, Etc., money and finance 

Comments

2 Responses to “My Financial Epiphany”

  1. Glblguy on March 1st, 2008 2:26 pm

    Thanks for sharing your story! I added a link to here from my article!

  2. Kathy@Brazoscowgirl on March 1st, 2008 4:31 pm

    What I enjoy most about your blog is you talk in real yearly numbers. My teen son thought it was no big deal buying a big drink at the local gas station until I told him to add it up in a year timeline.

    I think it truly hits you where you need to change.

    Thanks for sharing this.

Leave a Reply