The market giveth and the marketh taketh away. Lately the market has been doing a lot more taking away than it has giving.
That’s just how the investing game works! Market prices can vary significantly in any given year, and investors often get way too focused on the price.
“OMG my stocks are down for the year! I’m going to sell and put my money under a mattress!”
Umm… I hope not! Prices for things change all the time and people don’t freak out. Just visit your local grocery store for some great examples — Milk prices can vary every week, either up or down. The same goes for eggs, meat, and almost all produce. We live in a market based economy and this is just how things work — including our investments.
It’s unfortunate though, when a new investment heads south. Investors feel the sting of not being able to predict the future. That certainly happened to us this year.
We initiated a new investment late this year in Discover Financial Services (Symbol: DFS) and the shares are down 16% since we purchased. Yikes!
Oh well! We’ll just keep investing even more at the new lower prices! If other great investing ideas materialize, we’ll certainly be adding to our portfolio.
But Mr. Tako, Where does all this extra cash for investing come from?
Mainly from our overwhelmingly huge cash pile, and our dividend cash flow engine. There’s also Mrs. Tako’s income, and the ridiculously small amount of money this blog earns. All together, we’ve got plenty of cash to keep investing when the markets are down!
We got into this cash-happy situation because we spend far less than we earn, and we’re still doing it today.
Some people believe this is done by pinching pennies, and self deprivation. It really isn’t. We lead a very full life — filled with plenty of great food, friends, hobbies, consumer purchases, and even travel.
The real reason why we reached financial independence is lifestyle choices.
So today, I’m going to spell them out… The 5 Things That Mattered The Most.
1. Learning To Be Handy
From regular arrival of contractor and service trucks to my neighborhood every morning, it’s clear that most people aren’t handy. They either lack the skills, the tools, or the time to DIY their life.
They simply hire someone to do the work for them. Why? Often they assume their time is worth more because they work at a fancy office job. This can sometimes be a faulty time value of money calculation.
It can absolutely be worth your time to DIY a home repair. I realized this, and it was a lifestyle decision I made. I wasn’t born a handy person. It’s something I learned how to do.
One day, after dealing with a string of over-priced crappy contractors, I simply decided to become a handy and “self sufficient” person. It’s a skill I’ve been developing for years, and I’ve saved us countless thousands of dollars over the last decade.
The downside? I probably missed out on a bunch of really good TV shows while I was DIY’ing a home repair. That, and I’m probably about 10 pounds lighter from all the extra calories burned.
2. We Started Cooking More At Home
This is a lifestyle choice I harp on all the time. People need to cook more at home to save money. By this, I mean healthy meals filled with vegetables, NOT microwaving a frozen burrito and calling it dinner.
By my math, we’ve saved ourselves somewhere between $2,000 to $5,000 per year cooking at home. This might not sound like a lot, but over the span of 10 years it really has become something significant.
We weren’t always this way of course. We used to eat out a lot…. and by “a lot” I mean three to four times a week. (That might not sound like a lot to some people, but it was for us.) Those meals-out probably amounted to $100 a week.
One day we simply came to our senses and decided to make a lifestyle change. We decided to cook the vast majority of our meals at home.
Our bank account has been flush ever since.
3. We Gave Up On Perfection
Everyone wants to live a nice life. They like nice new things, and have this vision in their head about what a good life looks like. The problem is that things get old. They wear-out and break. Fashion changes. Technology improves.
A “nice life” usually doesn’t include a whole bunch of unfashionable clothes, worn-out appliances, an ugly house, or a smart phone that’s out-of-date. Old stuff just isn’t cool.
You can chase that good life, but it’s going to cost you. A lot.
For the Tako family, we simply gave up on all that “perfection”. We embraced the old, imperfect, and out-of-style. This is entirely a lifestyle choice, but one that saves us gobs of money.
Rather than chasing what’s fashionable, we simply buy most of our “new” clothes from the thrift store. It’s not “cool”, but we simply don’t care anymore. Rather than buying a nice new car, we’re happy to keep repairing our older cars.
I’m perfectly happy living with older technology too — like my 6-year-old smartphone phone. Sure, it won’t turn any heads like a brand-new iPhone will, but I’m extremely happy to have that extra $1,000 in my bank account.
4. We Bought A Home We Could Afford
Here’s a lifestyle choice that I’ve written about before, but it hardly gets any notice — We bought a house we could afford.
For most people, the phrase “Buying a house you can afford” means the house payments consume less than half the monthly cash flow from your job(s). This is very much a conventional view.
I have an entirely different point-of-view on the subject. A home you can afford is one you can buy outright. With cash.
Even buying a nice big home, we chose to always keep our assets greater than our liabilities.
This viewpoint is certainly not going to make me any friends with the legions of the house-poor, but it’s what we did. And it made a huge difference. Rather than buying a house immediately, we saved-up enough cash to buy our first home.
At the time, interest rates were extremely low — so we actually did take out a low interest mortgage, but this is a loan we know we can pay off at any time. I could write a check today and pay it off.
Most people simply can’t do this. Their liabilities (usually in the form of a mortgage, student loans, and consumer debt) greatly exceed their assets.
5. Controlling Our Hobbies
Do you have expensive hobbies? I don’t. Nearly all of my hobbies are free OR they earn me money.
Controlling your hobbies is a lifestyle choice that I think most people ignore. They choose a hobby because they enjoy it, not because they’re taking into account the financial impact of that leisure time activity.
Take this blog for example — I consider it a hobby that pays for itself. Other than some initial seed money, I haven’t put any money into this blog. Most months it manages to pay for itself and cover the hosting fees.
I also like to build stuff, and frequently post pictures of my projects on this blog. Usually in the monthly expense reports. I’ve made a number of furniture pieces, a bathroom stool, replacement shelf brackets for our kitchen, board games, picture frames, and most recently a bluetooth speaker.
This certainly is a harder way to go about entertaining myself, (with sometimes less than stellar results) but the financial impact to me is minimal.
That’s it. Those are the lifestyle choices that I believe had the greatest impact on our financial outcome. Individually they might not seem like a lot, but they allowed the Tako family to keep a high savings rate for a very long time. Even with two kids.
Yes, it is possible to reach financial independence with two kids.
The idea that someone has to deprive themselves by eating rice and beans while living in a freezing cold home to reach Financial Independence, is just not true. It’s mostly about major lifestyle choices, NOT pinching pennies.
Sure, our spending isn’t as low as it could be. We could spend less. But I believe good food and a warm house are relatively small expenses compared to The Big Stuff. Get The Big Stuff right, and the rest of Financial Independence comes almost naturally.
I suppose we could have pushed our savings rate a percentage point or two higher by trying harder to save more (aka pinching pennies). We might even have reached FI a few months earlier… but would we have enjoyed the journey?
[Image Credit: Flickr]