Why didn’t I discover financial independence earlier in life?

A common lament I hear from fellow cult advocates of the financial independence (FI) movement is that they didn’t discover financial independence until later in life. I can relate, having come across it in my 40s.

We tell ourselves that if we’d come across these principles 20 years ago, we’d be financially independent and pursuing our passions like writing a family blog having the time to be better parents.

However, if I’m honest with myself, there have been many times over the last 20 years when I could have discovered the financial independence movement. Perhaps I was just not ready to hear it, or I wasn’t curious enough to dig deeper.

We have seasons in our lives when certain ideas resonate more intensely. Perhaps as we move into our 40s, the thought of providing for retirement, paying for kids’ education, and taking care of ageing parents start to weigh more heavily. This time of life probably makes us more open to hearing about solutions that can reduce money concerns.

Here are a few of the times when I failed to discover the financial independence train.

1) Summer job during college (age – about 20)

During my summers I worked in a furniture manufacturing business. I had three main responsibilities, 1) let’s just say my nickname was “sweep”, 2) programming the machine that made kitchen cabinet doors since I was good at math, and 3) dodging staples from hydraulic staple guns intentionally fired at me by colleagues. Don’t feel sorry for me – I was am really annoying.

One day the owner (my cousin, because nepotism) told me that he’d just had a meeting with a financial advisor. My cousin boss said he wished he could be my age so that he could start investing earlier. He was only 30 at the time, and I thought he was being overly dramatic. But I didn’t challenge the assertion, or ask any follow up questions. If I had, I might have learnt about the power of compound interest.

Judge a man by his questions rather than his answers

Voltaire

So you think you know about compound interest…

If a 30-yr-old started investing £120 per month every single month until retirement at 10.9% per annum (average S&P 500 return over last 50 years), they would have £0.6m at age 65. Not too shabby.

However if 20-year old invested the same £120 per month from age 20 to age 29 (ONLY 10 years), they would have a retirement pot of £1.1m at age 65. Despite investing for 25 years less?!

If only I could build a time machine.

2) Studying finance at college (age 19 – 23)

My degree is in finance. You’d think that would have equipped me to understand key concepts like the power of compound interest, or how much you need to save for retirement. However, my mindset in college was to do the minimum possible.

My course was not the most taxing (pun totally intended). So I had plenty of spare time to pursue topics of interest, like personal finance. But I suffered from a distinct lack of intellectual curiosity during my college years.

All college degrees, not just those in finance, should have a compulsory unit called ‘Discover Financial Independence’. But this in no way excuses my failure in self-development.

If you’re not sure about the power of compound interest, please have another look at the table above. £14,400 invested over a 10 year period by a 20-year-old turns into £1.1m by retirement age.

3) A conversation with accountants as an accountant (age 25)

As a trainee accountant, I once had a conversation with several colleagues about how much money you’d need to retire. Our general consensus was that you could not retire on £1 million, as an annual income of $20,000 after inflation was insufficient for the lifestyle we aspired to. At the time, interest paid on savings accounts was about 5% and inflation 3%.

Even if we could retire on £1 million, there is no way the firm’s partners were about to hand us a check for that amount. It was hard enough getting money out of them for their coffee when they dispatched us to the local Starbucks.

I still kick myself for assuming a savings account was the only investment option, and for not looking into how long it would take me to save £1 million. Not as long as you think.

Attaining millionaire status is accessible to anyone with a lot of time and a little money (£116/mth for 45 years), or little time and a lot of money (£14k/mth for 5 years). A more balanced approach would get you there in less than 25 years and for less than £1,000 per month.

The table also illustrates the penalty for being risk averse. Want the security of ‘investing’ in a savings account paying 1% in interest? You’ll need to tuck away 15 times as much to reach the same goal.

Monthly savings required to accumulate £1 million *

If you want your £1 million to have the same buying power as it does today, you need to factor in inflation. A topic for another day.

4) ‘Investing’ in a new house (age 32)

A couple of years after the best day of Mrs C’s life (our wedding day, in case you’ve forgotten), I decided that with two incomes it was time to raise our investment game.

Being a finance professional and having seen various newspaper headlines about how the property market was exploding, moving to a bigger property was clearly the way to ‘invest’ for our future. For context, this was in 2007. And you all know what happened to the property market in 2008. Of all my dumb financial mistakes, this may have been the dumbest.

To clarify, there are many good reasons to move to a bigger property. An investment strategy is generally not one of them. We were moving from a 2 bedroom apartment to a big 4 bedroom house. There were no kids on the horizon. We spent thousands in transaction costs, and our annual bills for things like property tax were much higher, not to mention all the new fittings and furnishings. Great investment…

I rightly realized that we needed to invest for our family’s future. But rather than research our investing options, I bought the media hype/conventional wisdom about going all-in on property. Property investments are complicated and worth further discussion, but as a rule of thumb, you should spend more time researching how to invest your money than you spend researching your new TV.

5) ‘The Bogleheads Guide to Investing’ (age 35)

After moving into our ‘investment’ home, we watched the property value plummet over the next couple of years. I decided to research stock market investing, and I bought the book ‘The Bogleheads Guide to Investing’. Which I then didn’t read. I finally opened the book last year when I found it in a storage box.

Whilst it doesn’t refer to the financial independence movement, it does lay out many of the principles required to get there. I am not going to tell you the potential sum of money I left in that storage box, but it makes my eyes water.

6th time lucky (age 43)

More like 106th time. There are many other examples I could give, but after several misses, it was probably inevitable that I’d eventually discover financial independence.

It came at a time when I was looking for ways to increase our family income via side hustles. That was driven by an awareness of upcoming financial commitments. Like college education for kids, helping our parents financially if required, and setting aside enough for retirement.

A friend recommended the ChooseFI podcast, which didn’t seem to have much to do with side hustles. Anyway, I valued his outlook on life and so I listened. Thank you Andy!

I don’t remember much about that particular podcast, other than the hosts mentioning the financial independence movement, and how one of them was very fired up and kept talking about ‘FIRE’ (see what I did there).

Middle-aged-me is much more curious than college-aged-me, so I started googling FIRE and financial independence and discovered there was a whole cult movement. I found answers to questions like ‘how much do I need to retire’, and ‘what’s the simplest way to invest’.

Better late than never. Because it was life changing.

Helping others discover financial independence (FI)

As a result of my delays, I’ve thought long and hard about how to help friends and family discover financial independence. The first step is figuring out whether there is any interest. If someone’s eyes glaze over (my wife, most of the time) when the topic comes up, I’ve learnt to bail. This just isn’t the right time for them. And who am I to judge, it took me over 20 years.

For those that are interested, I think there are several prongs of approach. And this is a much bigger topic on its own that requires further thought. Here is a brief introduction to FI if you want to know more.

But in summary, for more data-driven friends, I have found that illustrating how accessible financial independence can be with data has been a good starting point.

For friends that are more emotive, it has helped to start with what a financially independent life would allow them to do. For example, what if you were able to travel the world? Or be more selective when you work or have more control over what you choose to do?

The common thread in many of my missed opportunities was my own deficit of curiosity. Which incidentally is a priority for us to nurture in our kids.

Curiosity is the engine of achievement

Ken Robinson

But I have no regret about the position we would be in if I’d discovered financial independence in my early 20s. I had my chances. I missed them. Time to appreciate that it’s better late than never, and what I can control is the circumstances I now find myself in.

Okay maybe a tiny bit of regret.

*Table design inspired by Banker on FIRE – highly recommended FIRE blogger