Three Phases of My Personal Finance Journey
Around the time I was graduating high school, my mentor gave me his worn copy of George S. Clason’s classic The Richest Man in Babylon. Through a series of prudent advice for saving and investing, portrayed in a fictional fable and passed on as ancient wisdom, Clason’s words changed my life.
Having studied accountancy and business in high school, I knew a fair amount about reading balance sheets and the practical work of an accountant from a summer spent monotonously tracking invoices and matching debit and credit accounts. But I knew nothing about personal finance. For some reason, we don’t teach financial literacy in schools, and without really knowing it, I entered a journey that would show me all I could possibly want to know.
Out of the many precious lessons in The Richest Man in Babylon, the one that most resonated with me was the mystical character Arkad’s First Rule for a Lean Purse: “a part of all you earn is yours to keep”. It might sound like trivial advice since every dollar you earn is yours and everything you spend on yourself amounts to paying yourself first. The moral of the story ran much deeper than that.
Pay yourself first
Before any other expense, straight out of take-home earnings, you ought to pay a share into your savings — your purse. If I recall the fable correctly, the suggestion was at least one-tenth. As I obsessively adopted the advice, I upped the share to one-third and transferred exactly that amount to my newly opened investment account.
When family members gave me money as birthday gifts, I deducted a third for myself. When I received grants and took up student loans for college, I took out a third. If I found spare coins on the street, I would take them back home and transfer a third of their value to my investment account. I admit that I might have gone a little bit overboard with this Rule, but I was determined to be Arkad’s finest disciple — for reasons that I hadn’t figured out yet.
Clason’s book wasn’t the only profound change on my journey into personal finance. About the same time, I started to record and measure every single dollar that went through Me Inc. I meticulously recorded every expense I made and every income I received into a massive Excel sheet — until this day, I can tell you exactly how much I spent on food, on travels, on clothes or Spotify subscriptions for the last eight years. Yes, crazy.
The reason I did so was simple and is a feeling many of us recognize: thinking back on my latest paycheck, I could not account for even half of it. I had no idea what I had spent my money on — absolutely none! Maybe this was some kind of protestant ethic bubbling up, but the shame of not knowing made me nauseous. That sense of powerlessness. How could I have been so reckless and so irresponsible?
What to do with the money?
Having carved out a small piece of my income for myself, I quickly ran into the problem of what to do with it. I didn’t know anything about investing or financial markets. I didn’t know about goals or strategies or diversification and index-funds.
I read everything I came across on what was going on in the markets — spending more time on dictionaries and Investopedia to understand what I was reading in the first place. I religiously read numerous personal finance blogs. I learned to think about shares as tiny slices of successful businesses. Without knowing about him, I vaguely followed Peter Lynch’s classic investment advice and often picked companies that benefited from Megatrends. I learned how to make fundamental analysis from the anonymous Swedish blogger Lundaluppen and I bought my first shares in June 2010; over the next few years I regularly invested my purse’s funds into cheap and well-diversified index funds.
Before long and without knowing about it, I had adopted the Get Rich Slowly-mindset. Frugality became a virtue, investing prudently a duty. Retiring early and living off dividends an obvious goal.
Fast-forward several years, college almost finished and Arkad’s advice second nature, something changed. The plan I had accidently made, was made with a particular career path in mind: get an education, work during summers and breaks, graduate and get a job in your industry, work your way up and keep investing Arkad’s cut in cheap, well-diversified index funds. Retire comfortably a few decades in advance.
Changing my goals; adopting my strategies
I had set myself up for financial independence at 45 when I gradually realized that wasn’t something I wanted — not that the much-desired goal didn’t sound appealing anymore, but I wasn’t willing to make the necessary trade-offs. My goals had changed.
At the time, I had a profound interest in an academic career — one of relatively low pay, long hours, endless but thrilling and exciting work that make people keep researching what they love way past normal retirement age — often even on their deathbeds. The quest for academic knowledge is a professional calling beyond a regular job.
My professional dreams were totally out of touch with my personal finance. So, I thought long and hard about my goals and made the decision to pursue an academic career. And I changed my financial goals and practices accordingly!
Through the power of compounding interest, a frugal lifestyle and a devotion to paying myself first (not to mention a booming stock market), my portfolio topped out at $35,500 a few months before graduating college — a sizeable amount way above most people my age.
Because of my previous discipline, my early initiation into the culture of personal finance and my devotion to Arkad’s rules, I now had the option to choose — the ability to shape my own life. And I did. I used a sizeable portion of my portfolio for furthering my education in a field I was passionate about. I cut back on the frugality I had once adopted. I ceased contributing new income to my nest egg and I re-oriented my investments to less volatile assets, reflecting my new goals and career choices.
Embarking on my current freelance journey where incomes are sporadic and uncertain, where job security is non-existent and where I am paid strictly and transparently in accordance to the value I create, this little financial cushion is invaluable.
Financial literacy doesn’t go away
An often-overlooked benefit that early exposure to Personal Finance brings is the ability to choose. There is a presumption among personal finance enthusiasts and other FIRE (Financial Independence. Retire Early) kinds of mentalities that the end goal is early retirement. Enjoy life on the beach. That’s great and for most of us that’s totally worth it.
But sometimes life changes and your values change with it. The beauty of learning the crafts that come with personal finance — financial literacy — is that those skills never go away; they’re always available when you need them.
Here’s the point: for a number of years — luckily coinciding with a bull market, or more maliciously, the “Everything Bubble” — I completely immersed myself in this space and managed my finances sensibly and prudently. That discipline and knowledge allowed me to later break my own rules — to change the goals I wanted my purse to work for, to support the new lifestyle I desired.
We can summarize my journey so far in three distinct phases. In the first one, I, like most youngsters, had zero concern for personal finance or knowledge of financial markets. In the second phase, my voracious appetite for personal finance finally arose, and I devoted myself to it entirely, adopting some abstract goals of the community that I had found.In the third phase, I realized that my goals were somebody else’s. Reaping the enormous benefits that had come with wanting to know everything there is to know about saving, investing, and personal finance, I aligned my financial decisions with my new goals.
In just a few years, I had given myself the option to pursue new dreams — and an underappreciated beauty of prudently managing my finances is that it gave me the opportunity to do so. Financial literacy and the ability to choose gives us the tools to support our dreams.
How we choose to wield those tools must reflect what we want for ourselves. That’s my journey.
