A long-term plan is a sensible approach. The plan doesn’t have to be anything huge. It can be a one-page or less. It doesn’t even have to be a written plan. It can be a mental commitment to saving and investing in a certain way that you can state in a few sentences.
And it can and should be reviewed at least once a year. But you should have some kind of a plan. And it doesn’t matter that you’re starting with nothing or little more than nothing. What’s important is to start as early as possible and to have the discipline to survive and invest through bad times and good.
The great investor Sir John Templeton began with nothing, but he and his wife made a commitment to save and invest large amounts of their income no matter what. For more on this see the book “Investing The Templeton Way” by Lauren C. Templeton and Scott Phillips.
A Radical Investing Approach
Templeton and his wife began with almost nothing. Templeton borrowed money to begin his money management business. The Templetons actually, at one time early in their marriage, committed to investing 50 percent of their income. But there is no need to be that radical. In most cases, committing to ten percent at the beginning of a plan would be a good start. Then as you begin to make more and can afford it, adjust the investment percentage upwards.
Some sixty years after beginning their investment plan, the Templetons were billionaires. So make a commitment and a plan. Be sure to include any other family members who would be significant players in achieving wealth. Husbands and wives—pulling in the opposite directions—often ruin any chance for financial independence.
When my wife and I were married we had less than $5,000 in assets. That is the same perilous position of tens of millions of Americans today. We had a used car. It was on its last legs and it was draining our cash. We didn’t need it and got rid of it. The latter is a case of how playing defense helps you play better offense. With no more car insurance and other maintenance costs, we had more money for everything, including getting serious about our investments.
Thank God that our marriage was strong enough that we could agree and successfully execute a financial independence strategy. This agreement was critical. We both spend money in a sensible manner. We both had to save or invest to achieve anything. We both had to make the money. We both had to agree on a money strategy. We both would prosper or fail together. We both ultimately won.
Clunker Vaya Con Dios
Our plan was to get rid of our car. I was delighted to actually get $100 for the sale of the clunker. We put the money we were no longer spending on the car into investments every month, which was a big payoff.
We also signed up for our retirement plans at work. Our employers were willing to match our contributions to a certain extent and we took full advantage. (An aside: We both had a good 401(k) retirement plans at our jobs. But I knew people who didn’t contribute one cent. In most cases, that is ridiculous. The employer was offering to put money in your retirement account if you did, yet several people I knew wouldn’t contribute. That’s silly unless you’re sure you’ll be dead by age 40).
And we tried to save enough cash for a down payment on an apartment in a nicer neighborhood. It took a little while, but we did it over 18 months.
We Finally Become Owners
It was seminal event in both of our lives. We would own the apartment. It was the first time we owned and not rented our housing. That meant our apartment represented another kind of saving. It was an asset that we could sell our apartment someday or possibly borrow against it. It was also an asset that the government would partly subsidize through tax breaks. We had never received these breaks on our housing prior to that because we had always rented.
The nicer neighborhood had better shopping, less crime. We would be able to live comfortably without a car. That would be a huge saving; freeing up much more money for savings, investments and also fun things such as taking trips, which sometimes included renting a car. Suddenly pleasure and investing fit into our budget.
Before we started our new plan, we had been renting an apartment, owned next to nothing and lived paycheck to paycheck. That’s even though we were both gainfully employed. The previous sentences describe how millions of people live through most or even all of their lives.
That’s even though many of them, at least at some point in their lives, earned good incomes and could have had a much better lifestyle with better financial management.
What happened to these people? And why are so many people in a financial mess, with little in the way of assets, constantly worrying about paying their bills each month.
How People with Good Incomes Go Broke.
Unfortunately, in the United States and in some other developed nations, the cultural emphasis is on consumption. That means very little of the average person’s income, no matter how healthy, finds its way into investments that will make them independent. People are, in effect, making a bad bet. They are betting that they will always make great or at least decent money and won’t ever happen to worry about putting money aside for a rainy day or for a time when they won’t have high paying jobs. Yet that’s something that happens to many of us. These people take big risks.
To you, the person struggling for a better financial life so he or she can provide for others, I say: I want you to have what we have today.
My wife and I now have financial independence as well as a fair amount of control over how much we work or don’t work.
Leaving the Rat Race and the Ratty E-Train
I quit my full-time job a number of years ago when I was 58. I did it for a number of reasons but possibly the most important was this: I could afford to do it even though I had never made big money.
I have never been tempted to take on full-time work since the happy day I left a small publishing company that was coming apart and where my respected boss had just been shamefully fired. My new boss wanted me to stay. I would have nothing of it. I had enough of the seedy subways and office politics.
I gave three weeks’ notice and left my full-time job. However, I did agree to do some freelance work from home for the company, which was later sold and later welched on my freelance contract. Thank God it wasn’t 20 or 25 years before. Then it would have been a difficult to leave a job I had started to dislike but now it didn’t matter. My wife and I had plenty of dinero.
What a great feeling! My wife later quit her full-time mechanic job at Delta Airlines, which she had initially enjoyed but eventually came to hate. She now happily devotes herself to playwrighting efforts. Regardless of whether either of us ever earn another cent, we’ll be fine.
How did we get to financial independence?
Early in our marriage, we made the commitment to saving enough to put a down payment on an apartment and putting money into a good mutual fund at an initial rate of $100 a month. Later, as we both earned more, as we entered the prime earning years of our work lives, we invested more and more.
An Average that Works for You
We agreed to invest a set amount of funds every month in good times and bad. This is a strategy that is called dollar-cost averaging. This consistent buying strategy reduces investment risk over the long term. When the fund’s share price is going down, you are getting more shares at a bargain price. When share prices rise, your balance is rising. You are rewarded in good times for your patience during bad times. Again, it is a strategy that tends to work very well over long periods of 20 years or more. The strategy worked for us. More in the next chapter.
