Wednesday, April 15, 2015

It's Never Too Late!

At age 27, I basically had nothing to my name but a used Chevette.

I have gotten some interesting mail and even phone calls from readers lately.   Some are remarkably young (19 even) and have saved up heroic amounts of money ($11,000!!) for their age.   I am sure they will do well in life. I only wished I had the wherewithal to start saving at an early age.   But like most Americans, I "spent it all" and borrowed a few dollars more, to have "stuff" in my life, and ended up with nothing.

Almost 30 years ago (28 years, to be exact, as of June 22) I drove down from Syracuse, New York to Washington, DC, to interview at the Patent Office.   They had already offered me the job, but I wanted to check them out and see what it was all about.  They were offering me a GS-7 position at the stunning sum of about $21,000 a year.   Not a lot of money to live in the DC area.

The sad thing is, at age 27, I was basically broke.   Although I had been working for nearly a decade for GM and UTC, as well as a host of other, part-time jobs, I had nothing saved in the bank, and little in the way of equity in anything.  I had a house in Chittenango, New York, that I paid $22,000 for, and would sell for a $5,000 gain, after paying back the Farmer's Home Administration for the interest they subsidized on my mortgage.  That was about it.

Along the way, I had earned money, but spent it nearly as fast.   When I left GM, I cashed out about $2200 in a retirement plan, and bought a motorcycle with it (and nearly got killed).  That was pretty dumb.   I sold a perfectly good working van to buy the Chevette - that was pretty dumb, too.   I drove like a nut and paid nearly $3,000 a year in car insurance.  That was pretty dumb as well.

When I left UTC, I cashed out another small retirement account - and spent that as well, although this time, on school expenses to finish my Engineering degree.

So here I am, in the big city, nearly 30 years old and nothing to show for it in life.  I had to borrow money from the credit union just to make the security deposit on my first apartment.   Oh, and I had about $8,500 in student loans coming due.

Things seemed pretty hopeless at the time, but oddly enough, I was not depressed.  I remember driving through Old Town Alexandria, and thinking to myself, "Gee, this looks like a nice place to live!  I'd like to buy a house here someday!"   And within a decade, not only would I own a home in the area, but an office building, a duplex, and a condominium.

It is, as they say, a classic rags-to-riches story.

What changed?   Well, I stopped smoking pot, for starters.  I even gave up drinking.   You'd be surprised how differently your mind works when not altered by mood-altering drugs (which as their name implies, alter your moods!).  And the expenses of drug use were pretty high (if you'll pardon the pun) and are not limited to the cost of the drugs themselves.   When you are stoned all the time, you tend to make bonehead decisions - like deciding that cashing in your retirement plan for a motorcycle is a swell idea.  It wasn't.

I realized that even though advancement at the Patent Office was pretty quick, that in order to buy a home and "settle down", I would need to make more money - and start spending more frugally.   By this time, I met Mark, and when I told him the Patent Office would pay for some of my law school tuition, he said, "Go for it!"   Having someone to back you up - as well as share an apartment with - really helps.  In fact, it is essential.

So along the way, I made more money.   Not a lot more than I would have working at the Patent Office.   But I also had more options.   I still was doing dumb things like buying cars and junk, when I should have been saving.   I am not sure why I felt I needed that Suzuki Samurai.  What a piece of crap.   I was so busy working and going to school that I should have just borrowed Mark's car, or bought something more practical (as I eventually did).

It was right about this time that I started to do net worth calculations.  I was about 30 years old by then, halfway through law school, and I realized, after taking a course in "Trusts and Estates" that my "Estate" amounted to "Bubkis".   I started saving more in the firm's 401(k) plan.  Mark maxed out his contributions to his company's plan (who matched the first 10%). I bought my first life insurance policy.  I also bought a few stocks, and I started calculating my net worth on a monthly basis.

It was pretty alarming at first.  It seemed we were in a mountain of debt that we would never dig ourselves out of.  And our savings were growing at a snail's pace.   But that is the nature of the beast.   For young people, it seems like nothing will ever change, so why bother?  Just buy that new Camaro and have fun, right?

Within a few years, though, assets started to add up.   And when some opportunities came along to buy some investment properties, well, I took advantage of them.   While I had not saved a lot of money, I had saved some, and moreover, my personal debt load was at least manageable.

I took a huge leap and decided to start my own law practice.  I still look back on that in wonderment.  What was I thinking?   It helps to be young, sometimes, and fearless.  Today, I would not have the balls to give up a cush job and take a risk like that!

Of course, this was the go-go 1990's, when stocks went only in one direction - up.  And housing prices were in the tank, and it was easy to find good bargains.   By the late 1990's, however, prices started to edge up.  By 2000, I was beginning to think maybe I was doing OK.

Then September 11th happened.   I remember it clearly.  You could feel the ground shake as the airliner hit the Pentagon, and see the smoke rising in the sky.  Shortly thereafter we had the anthrax scare and then just to make things really miserable, someone started sniping at people at random points around the beltway.  I wanted to get out of DC.

The Real Estate market really started to take off.   A lot of people started to notice there were bargains, and like myself, wanted to invest in something tangible (mutual fund reports are nice and all, but what are they, other than a column of numbers?).   And of course, the market, after recovering from 9/11 kept climbing.  We sold the duplex and flipped it for a couple of condos in Florida and took $39 flights from Washington Reagan National to Ft. Lauderdale/Hollywood, about once a month.

But I could see trouble on the horizon.   By then I had a solo practice and was doing OK, although I was not making as much as my friends at law firms.   We kept our personal expenses low, though, and managed to keep saving money.  The Patent business started to slacken - not in volume, but in what people were willing to pay.  The number of attorneys had expanded considerably, and many firms were putting caps on what they would pay for Patent applications.

Worse yet, the national savings rate had started to go negative - including our personal savings rate.  Maybe it was delayed PTSD from 9/11 or something, or the craziness of the Bush years, but everyone seemed to be on a spending spree, including ourselves.   We fell off the wagon, convincing ourselves that we were "rich" because we had all this phantom equity in Real Estate.  I stopped calculating our net worth.

We had a chance to "sell it all" in 2005 or thereabouts, and we did.  Cashed it all in and bought a house on a lake in Central New York.  That was fun for a while, too, until the recession of 2009 hit.   I really realized that not only was business "not what it used to be" but that I was tired of doing it.  It was hard, intellectual work, and it is easy to "burn out" as you get older.   I realized that I wanted to work less, own less, and do more.    The lake house seemed like a nice idea, but I was working so hard that I never had time to enjoy it.  Now I know how my Dad felt.

That's when I started this blog.   I realized that along the way, I had done a lot of things right (saving money, investing, being frugal) and also a lot of things wrong (buying big-ticket toys like cars and boats, spending lavishly, failing to save more).   And I realized that by age 50, most of what I would have to retire on was what I already had.

Fortunately, by that time, I was a millionaire - down from over two-million at the peak of the market.  And since then, I have managed to increase this amount by half.  No real genius involved here - the market roared back and I learned to live within my means again.  We got rid of all our debts - even mortgage debt - and got serious about reining in the credit card thing.

What's funny about looking back, is that it wasn't all that long ago, it seems, that I started out with nothing.   And in retrospect, it is amazing how quickly wealth can accumulate, if you let it.  Within 10 years of moving to DC, my net worth went from negative to nearly a half-million dollars (looking back at 20 years of calculations is illustrative!).  Moss grows on a rolling stone.

Of course, this isn't to say it was easy, or that we didn't make a lot of mistakes along the way.   We borrowed when we should have saved.   And I wish I had every $5 I ever spent on that crappy coffee at Starbucks!   Plus there were a few cars I could have done without - as well as one boat too many.

But the point is, it takes time to accumulate wealth, and if you are young, time is one your side.   I had nearly a decade-late start in the game, dicking around smoking weed while I diddled with my college career.  But I still did OK.

Of course, the problem is, some folks want to get from point A to point B without doing the intermediate part.  The part where you stop smoking weed and hanging out with your "buds".  The part where you have to start saving money and working hard, and playing less.  Yea, that part ain't a lot of fun, in some regards, but on the other hand, it was the most vital and interesting part of my life - the exciting part, that is.   So yea, even hard work can be interesting, and in fact, fun.

I read today about these 20-something kids, who complain about their student loan debts and the lack of jobs.  They are convinced they got a rotten deal in life.   And who knows, maybe they did.   But I do recall when I was that age, it seemed the same way to me.   All I had in life was a broken-down Chevette and a few dollars in my pocket, some hand-me down furniture and one suit that I got when my brother got married (the suit outlasted the marriage, alas).  I didn't have shit back then.

But things change with time, if you let them.  When you are young, time is on your side.   But even as you get older, it isn't too late to change things.