I realized a couple of days ago that in a few months I will celebrate a decade in the work force. A full decade as a productive, income earning individual 🙂 Yippie. I thought it would be interesting to do a review of my finances and see how far (or not so far) I’ve gotten in my finances. Here follows a decade in finances and financial terms.
Setting an example of my finances
I often listen to Tim Ferriss’ podcast: he invites the highest performers around and deconstructs their behaviors bit by bit and offers that knowledge on a plate to everyone who is willing to learn.
But who said you can only learn from top performers? I’ve learned so much over the past years through reading the blogs of personal finance top performers. But I have learned easily as much from the many small blogs of folks on their way out of debt.
I believe there is a lesson in every one of us. Here is my lesson.
Before starting my story, I must say that writing this post was a bit overwhelming. Not because of the disclosure in my finances, but more because I spent an hour or two reviewing a number of metrics and plotting what had happened. In the process I learned so much about myself and my finances. And I’ve taken new measures to improve my outcome. I thought I was spending enough time reviewing my finances periodically, but digging deeper I realized that my reviews were failing to deliver the deep insights that stimulate me into adopting better financial habits.
Coming of age
I grew up in a large family of 5 kids. My dad brought home an income, my mother was a homemaker. We were certainly not poor, but let’s say that we knew the value of money. My dad made sacrifices to provide everything his kids needed. He would always put our experiences and learning as a top priority. I remember when I was 12 I told him I did not want to go on an optional school trip. The reality was I really wanted to go, but I definitely did not want him to strain his budget further for the purpose of my enjoyment.
But we received all the opportunities kids should receive.
I worked a part-time job during most of university, which allowed me to pay for all of my expenses and paid the extra’s. University is almost free here in Belgium. A full year tuition will set you back about 1 000 euros, add another 1 000 euros for books and that’s it. I’ve personally never heard of anyone taking loans to finish school here. This is one of the things that make me feel happy when I pay taxes.
I got out of university with a great education and the opportunity to “make it on my own” (I’m not sure if the term “on my own” applies, because without the support and care of my parents I would not have made it so far).
Fresh out of school: ballin’!
I started out in a decent job in 2007 paying 35 000 euros/38 500 USD per year (gross) and a company car. Trust me, I know this looks ridiculous to our U.S. readers, but this was really a great starting salary. A year later the markets crashed and the employment market slowed down. But I was lucky and was already in.
I felt like a millionaire, moved out of my parents and spent the money each weekend on dinners and drinks. I lived by the mantra “work hard, play hard”. My hard work did not remain unnoticed and I started to move ahead in my career. 18 months later I already received some significant salary increases. But I still did not have that much in the bank.
Following Brian Tracy
Something had to be corrected! So I went to the bookstore and found one with a promising title: “Million Dollar Habits” by Brian Tracy. The title seemed to promise everything I needed. I read the entire book in a couple of days and soon started implementing David’s advice:
- I worked even harder (if you follow Brian Tracy to the letter, you will be a model employee… not sure if that is always a good thing)
- I paid myself first: a couple of 100 euros every month, because if you save a 100 euros per month during 40 years at 10% interest rate, you’ll be a millionaire. Sounded good to me. I even decided to go all-in on Brian’s advice and systematically set aside 20% of my net income in savings and investments.
- I set up a written budget and tracked my finances
My salary kept growing and by end of 2010 my salary had bumped up to 65 000 euros/ 70 000 USD (gross).
Taste of the good life
I got promoted and moved to Paris. I made a really nice income, housing was paid for and I bumped up my savings a bit and maintained a savings rate of 20%. Somehow, I was convinced a 20% savings rate was an amazing feat. I had plenty of cash and traveled extensively during those years. I went on 7 international holidays during those couple of years (often hitting multiple countries during one trip), bought myself a nice watch and indulged in a lot of small luxuries. I was trying to keep up with the Jones’s in a city where so much revolves about appearances.
By mid 2012 I had a net worth of 50 000 euros / 55 000 USD. Up until that moment I thought I was really good at handling my money, but you do not need to be a rocket scientist to know that 50k euros was a flimsy net worth given my circumstances. I was making too much money to have so little. What had gone wrong?
Hitting the wall
Obviously my wealth building system was not working! I was working hard, making a good salary. How could I be this poor?
Sure, Brian promised I would be a millionaire by 65. But waiting until 65 to be financially free sucks big time! Seriously! Something had to change.
Discovering early retirement
A couple of google searches later I was reading about building wealth, getting rich slowly and retiring early. This is where it clicked. I finally understood how the deck was stacked and how the numbers can work for you or against you. I cut down my lifestyle, increased my savings up 40% of my income after taxes.
Throughout 2013 I maintained very aggressive savings. That year my daughter was born. I had a higher savings rate in the first year my daughter was born (with all the expenses it incurs),than when I was a bachelor. This shows how much attitude and determination are the main factors when it comes to saving and building wealth.
The busy years
In 2014 we purchased our home and we got hit by the taxes property purchases (It was approx. 34 000 euros / 36 000 USD for us). But I still managed to squeeze out an average savings rate of 9% that year.
In 2015 and 2016 I pursued my Executive MBA at one of the top schools in Europe and this definitely had an impact on savings. Not only was the fee hefty (52 000 euros) , but the program required monthly travel adding another 400 euros /month in expenses. All-in all the program cost me 58 000 euros/ 63 000 USD over the course of 15 months. I chose to borrow 40 000€ to finance school. In hindsight, I think I could have probably cash flowed it if I had waited 2 years, but I was eager to start. Wouldn’t do so now, but this just shows that personal finance is all about living, making mistakes and learning.
Reaching financial maturity?
Although expensive, I still consider it a great career move. I graduated in July 2016 with honors and managed to transition into a new career a couple of months later.
I will earn less in 2017 than I did in 2016, but the long-term perspectives in my career as management consultant are much better than those I had previously. I will do a blog post about the ROI of an MBA when I am one year out.
But now I’m quite happy about the direction I am heading. My savings rate should be strong in 2017. And as I clean up my student loans my net savings rate (or investment rate) will pick up very fast too.
What does the future hold in store?
After these eventful couple of years, I’m looking forward to a 2017 that is a bit calmer and where I can focus again on my finances and building wealth.
My financial goals for 2017 are:
–> reaching a net worth of 130 k euros / 140 k USD
–> saving 50% of my net income
–> reimbursing the outstanding principal of my student loans ( I will have paid of the loans in 2 years instead of the agreed 4 years).
If I reach those goals that would make 2017 the year in which I add the biggest chunk of net worth so far. Seems like things are starting to click and the numbers are working in my favor.
Long term I’m still aiming for 1,5 M euros by 2029. Still have to come up with a sound plan to achieve that :-).
What have I learned so far?
- Financial education is paramount: I chose to be oblivious to my finances and ignorant about money matters. Once I fixed that, things sped up fast.
- Attitude and behavior are more important than math. Sometimes the best financial decisions are not the “mathematically” soundest
- Aim to live on 50% of your salary. Not quite there yet, but getting close.
- Always be getting better. If you reached a certain threshold, aim for a bit better next time.
- Track everything: finances, health, relationships. What gets measured, gets managed.
- Its better to be wealthy, than to look wealthy.
- Most people are broke, don’t be like most people.
- Set goals and pursue them aggressively: you’ll be amazed how easy things come when you start working hard towards them.
What about you?
So what does your financial journey look like so far? Are you happy with where you are? What are your major mile stones to come? Join in the comment section below.