For most of the working years of my life, I believe I have made reasonably good decisions with money. But this was all put to the test four years ago when I found myself out of a job for 3 months. I thought my emergency fund was fairly large, but it was scary just how fast it depleted.
It helped that I was debt-free. After all, I had lived with my parents into my middle-late 20s, and used about half of every paycheck to knock all of $30k of student loans out. I had also saved enough money to move out and buy things like a couch, washer, and dryer. But I guess perhaps I did not take to heart enough the very real possibility of being laid off or fired, and I never would have expected my actual situation: having to choose between fake passion and unrealistic expectations, or willingly moving on to a different company. By the time month 3 of unemployment was up, I had barely enough for another month, and that would not have covered the fee for breaking my lease if I had moved back in with my parents at that point.
As I’ve shared before, I got another job just in time, and this was not something I could have worked out for myself. It was pretty amazing. It was also amazing that my family had been looking for ways to help me out, but there’s an inherent risk to renting your own apartment, as it’s expensive, and you really need to have a lot saved up to stay solvent. This is something I call Risk Surface, and I’ll probably be writing about it in the future.
And it’s crazy how hard and scary those months were. I can only imagine what many people are going through with this pandemic.
So what happened? I had no student loan debt, no car debt, no consumer debt, I had 3-4 months of savings, and I still nearly got wiped out!
Well, reaching what I call Escape Velocity is hard. Escape Velocity is when you are either earning so much money that your savings can easily outstrip your risk or that your Risk Surface is so low that very little prevents you from setting aside large portions of your income. But many variables go into this: very low debt, higher earnings-to-spendings ratio, decreased general exposure to expensive risks, and earnings potential.
Very few people just naturally reach Escape Velocity. Certainly for me, it took a lot of strategy and implementation. And I guess I had never really thought of it this way until a few weeks ago, but that’s kind of what this blog is about. When you put a lot of strategy into your finances, it can actually become a reality that you look up one day and find that your 401k has grown from $10k, to $20k, to $50k, in stupid short periods of time. And nobody ever has complete control over their life, so wealth-building can always be interrupted or even derailed, but I’m very much a positivist as concerns the ability of strategy to drastically increase your chances.
For example, once I got a job after those grueling 3 months, I immediately started saving as much as I could. I was terrified I’d be out of a job shortly thereafter, and it didn’t help that within the first week of being hired, a whole branch of my new company was laid off. I had a lot of impostor syndrome at the time, too, so I was on pins and needles. Finally, I had rebuilt my emergency fund to much higher than before, up to $10k, then spent a little less than $5k for a better car, and it was only then that I started to relax. That was about the time I discovered the Financial Independence community and started bumping my 401k contributions up. But as time went on, my employ-ability increased, too, and I still had automotive knowledge to potentially soften the blow of any necessary car repairs. This decreased my Risk Surface for unexpected repairs eating into my ability to save. Paying $1,000 per month in rent was still a risky situation, but then this opportunity opened up to rent a room in a friend’s house. I actually said no at first because I was scared to leave my comfy apartment, but I managed to pep-talk my way into taking a big life risk, because I knew that if I wanted to get serious about building wealth, living in strict comfort was a sorry way to fail. Today I would argue my living situation is much better than it was in the apartment, anyway.
And the rest is history. Some of that is blessing, some of that is luck. Some of that is being in a high-paying industry. But as I’ve said before, you can outspend even the highest of paychecks, so I’m proud of what I’ve accomplished with what’s been given to me. It absolutely does not make me invincible, but strategy makes a huge difference, and I’m a huge advocate for being strategic about your life.
But…it’s not easy to reach. It’s horrible that we’re allowed to take out so much in student loans before we’re even 25, and it’s almost the luck of the draw where you land before you “wake up”. I almost went to a school in Seattle that would have cost $50k per year for an out-of-state student. Holy crap! Not getting accepted there was one of the best things that has ever happened to me. My first school was also costing about $10k/year after scholarships and grants, but I left after 3 semesters, after which I transferred to a community college. Owing around $30k when I finished my Bachelor’s degree made things a whole lot easier. Student loans are one of the biggest obstacles to Escape Velocity. And everyone’s situation there is so different. Some people are like, “Oh, la-de-da, students loans aren’t a big deal!” Yes they are, dammit! You pay those things off as soon as you can! Doing so eliminates one of the biggest categories of risk in your life. But it’s also pretty crushing for some people. True me, if I had gone to that school in Seattle, my life would probably be very different right now. I shudder just thinking about it….
I don’t really know where I’m going with this. I’m probably not saying anything particularly new. I guess just getting the philosophy and strategy right is really what enables saving large sums of money, more-so than simply saving a particular quantity or percentage of money ‘because’. I didn’t really have the goals or strategy before those grueling 3 months, so the savings I did was more “brute-force”. I just did it because I thought I was supposed to. But other things in my life sort of sabotaged just how much I was able to save and how capable I was of surviving without a job. For example, you don’t necessarily need to save very much if you don’t need very much in the first place. The more you need, the more you have to save to remain solvent! This gets ignored frequently, so it’s no wonder people who spend $60k per year are horrified at having to save $60k to survive one year without a job! Those three months were kind of traumatizing to me, and I know people who have survived longer and handled it way better than I did, but you bet I was motivated to change something after all that. But it’s not like I earn so much money that savings is easy for that reason, I still had to get myself into a position to build wealth, then I had to be strategic about how I spent my money, why I spent it, and whether I was actually getting value from the things I spent it on. And this strategizing continues today, and will continue tomorrow. That’s why it always runs the risk of sounding out of touch because, for example, I no longer have student loans, and this frees up a huge portion of my earnings for wealth-building. I don’t know how to strategize about those beyond “don’t have them” or “fight them as hard as you can”, but saying that isn’t particularly useful to those who feel crushed by them.
I’ll probably be writing more about these things in the future.