Welcome to this week’s Simple Inspiration. I hope you are enjoying these interviews and they provide you with some inspiration to simplify your financial life. This week I have the pleasure of interviewing Scott who loves compound interest if you can not tell from the name of his blog.
Scott’s site is called “I Love Compound Interest” and it is a collection of tips and stories from my experiences over the last 20 years of saving and investing. He and his wife have been diligent and made some good and some bad choices over the years. He shares them with the readers so that those new to saving and investing can learn and also those that are experienced can share their successes and tips as well. He accumulated his wealth the long, slow and not-so-sexy way, which is week by week and month by month of steady saving and investing. He didn’t use any get-rich-quick schemes, didn’t win a lottery, didn’t sell a business, or inherit money. He just did it by saving and focusing on the long term goals he has.
On the blog, he discusses savings/frugality topics and also on some of the traditional financial products on the market right now. The site is not into giving stock tips or how to get rich quick, but helping folks get on track and do the right things with their finances that will help them gain some financial freedom.
Let’s hear how Scott has simplified his personal finances:
What event lead you to realize you needed to get your financial life in order?
For me, it was not really one life-changing event, but rather a knowledge that the alternative of not having my financial life in order was not desirable. I had good examples with my parents that kept their financial life in order and taught me well in that respect. I saw from an early age that it was not a good thing to have your finances a wreck and I wanted to make sure I didn’t end up like that.
What area of your financial life needed the most work?
Spending and entitlement are probably the toughest areas that need work still to this day with me. Whether it is wanting and buying nice clothes or a nice car, it can easily creep up and ruin your budget. Not only that, I’ve realized in the past couple years that the decisions I make with regard to my spending can have dramatic affects to my future savings/nest-egg. It’s been great to see some of that desire subside in me to have all the best things, even if I can “afford” it.
What did you do first to get your finances in order?
There was the spending that I mentioned in the previous question, but the first step I really did was to start saving at an early age. After a year at my first job when I was 16 years old, my father talked to me about an IRA. I can’t remember off hand how much I put in that year, but my parents agreed to match what I put in. I think it was maybe $250 each. That’s not a huge amount of money but back then, it was to me. I’ve been saving ever since then, so after 27 more years of doing that, it has definitely had a huge impact on my overall savings and investment balance. Of course the thing that I do differently now than I did then is that I do my saving along the way and it comes out of my account automatically, so it is less tempting to spend it.
What was your biggest challenge or roadblock you faced to get them in order?
The only roadblock was me, and getting my spending in check. It wasn’t out of control and I never had consumer debt, but there were some areas that we could throttle back our spending to be more in line with some other frugal ways my wife and I share. Fortunately my wife and I are very similar in our frugality and we discuss spending and saving regularly, which makes a huge difference in the success of our combined family finances and the health of our marriage.
How did you overcome this challenge or roadblock?
For the combined finances in our marriage, we had regular discussions about what our goals, dreams and aspirations were. As it turned out, many of them were long-term and would require regular saving at an early stage to start building and compounding the gains. This helped us shape the framework for what our budget would be and helped us both keep our spending in perspective.
How has getting your finances in order changed your life?
Having our finances in order has changed our life immensely. We’ve been fortunate to have steady employment over our marriage (almost 20 years) and we’ve gradually been saving more and more of our income to the point now where we save 37% of our gross income (48% of net income). Doing this aggressive saving has allowed our net worth to increase by 6 times just in the last 10 years. We are not business owners, never hit the lottery, or inherited money; we just did it by working normal jobs and saving aggressively. The 6x net worth increase was even through the down-turn of 2008. With all of this happening, my wife and I have been able to accelerate out financial independence goals and we’re thinking about making some major steps toward that goal very soon.
What was your reason for starting I love Compound Interest site?
While I know that the personal financial blogosphere is populated with many good quality sites that offer unique stories, great tips, and solid advice in all facets of personal finance, I still wanted to start my blog. I’ve enjoyed learning and teaching others about personal finance, saving and investing for a couple decades now and after some good urging from my wife, I decided to start the “I Love Compound Interest” blog. She would always tell me that I light up with excitement any time I start talking to people about their finances, so the blog seemed like a good outlet for that.
I’m still a newbie at blogging, but I enjoy sharing my stories of success and failure over the many years of saving and investing. I have a particular soft spot for Millennials since they have the advantage of time on their side. They can take some small steps now that will help them immensely in the future. I’m living proof of that and love to share about it.
I’ve also taken some steps to get my Series 65 license and will hopefully be able to professionally advice people in the near future. It would all be separate from my blog, but if I go that route, then the blog serves as a great indicator of who I am and my investment and savings philosophies for anyone that might seek my services.
How much of your personal finances have you automated?
I’ve automated the vast majority of our bills, salary inflow, and monthly investments. And then after all the bills and investment payments go out each month, we’ve been fortunate enough to have extra funds available on many months. Those funds I have to manually go in and invest, but that’s a small chore considering I’m paying myself.
What do you automate?
I’m old enough to remember when it was kind a unique for an institution to offer automatic payment for a bill. I’ve got almost all my bills being paid that way now. Sadly there are still a few utilities that I have to deal with that do not offer this service without a fee. I’m too thifty to pay to automate something that ultimately helps the company billing me in the long run, so on those bills I just go to my bank website and send them a check for the bill (for free of course).
All our monthly investments (retirement, 529, taxable accounts, etc.) are drawn out automatically as well.
What advice or tips would you give to others who want to simplify their finances?
First, you must track your expenses. It doesn’t matter if you use Quicken, Mint, or a paper tablet, but you have to have a grip on your inflows and outflows before you can really start simplifying things. Nothing would be worse than having overdraft charges for savings or bills you are automatically pulling out each month in the name of simplification. Once you have your monthly income and expenses set up, definitely set up your employer 401(k)/403(b)/457 plan to draw out a good portion of your salary prior to taxes so you can get the benefits of tax savings and any matching money they offer. Those withdrawals will be automatic and you’ll start to forget (in a good way) how much money you are saving. You can also automatically set up these plans to increase your savings percent each year so that the small incremental steps aren’t too painful for you.
I think another overlooked way to simplify your finances is simply to spend less money on purchases. If you are spending less money on dining, food, clothing, entertainment, furniture, etc. then there will be fewer bills to pay and fewer expenses to track. If there are less of these to track, that seems like it would be more simplified to me.
What’s your best savings tip?
One of the best ways that people can use to save money is to reduce the amount of times they eat out at restaurants. Like most things that are experienced in moderation, restaurants are great. My wife and I love a good meal out. The trick is that so many people eat out most lunches while working at an office and then they may eat out several evenings or weekend nights as well. That adds up really fast. Run the numbers and you may be shocked. Brown bagging it at work and cooking the majority of your meals at home will save you immensely over time and an added benefit is that the meals you cook or bring from home will typically be healthier for you. That’s a win-win!
What book, blog, or podcast would you suggest to someone who is looking to simplify or improve their finances?
The podcast that I really enjoy is called “Radical Personal Finance” by Joshua Sheats. I like to think I know a pretty good amount about personal finances, but there have been so many of his podcasts that dive into financial matters well beyond my knowledge or from an angle that I never considered. He’s really challenged me in several areas of my finances, how I think about money, and life in general. One caution is that he can get pretty deep into the weeds on some topics, so if that is not your style you can fast forward or skip those episodes.
Do you have an emergency fund established, if so how did you determine the amount needed to fund it?
Yes I have an emergency fund that amounts to about 3 months of expenses. I have a tiered system I use instead of the entire balance in one account. There is about a month of expenses in a quick access savings account tied to my checking account (which doesn’t really pay any interest). Then I have another month of expenses in an online bank savings account that pays better interest than the one at the bank. The rest is held in taxable accounts at Vanguard. With the speed at which we can transfer money in our economy, there seems to be less and less need for all of my emergency fund in one account that might not be paying me any interest.
What percentage of your income are saving?
37% of our gross income (48% of net income after taxes)
What are your current financial goals?
For the past 10 years we have wanted to retire early (under 55 yrs old). Since we have now realized we do not want to retire in the traditional sense of the word (never working again), we have modified that goal to be able to achieve financial independence very early and be able to purse meaningful work that doesn’t require working the traditional 9-5 job. We are now getting very close. We are getting ready to take our first step toward that goal with me leaving my job in my early 40’s and my wife may work until her early 50’s.
Are you on track to reach your financial goals you set for this year?
Yes, and we’re pretty excited about it!
Thanks for sharing your story with my readers.
Please check out I Love Compound Interest to learn more about Scott’s saving and investment ideas.
You can also follow him on twitter @Comp_Interest.
To read previous interviews in the series click below
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If you are interested in sharing how you have simplified your financial life, send me an email and I will follow up with you. Enjoy the rest of your week. Til next time, take one step at a time to simplify.