Read Douglas’s success story of achieving financial freedom in this sample lesson from Financial Freedom 1. Got questions about how the course is structured and why it’s different from other financial courses? Check out the FAQ here.
lesson 1.7 - douglas’s story: financial freedom at age 42
You may have read this on my blog or on my Facebook, but I thought I’d stop here to tell you my story and how I reached financial freedom a few years ago at age 42.
I grew up in an immigrant family who fled the Communists for the US. Money was tight. When I was in college, my personal budget was $5,000. When I graduated in 1994, I got a job as a paralegal at the Justice Department and made $25,000 and spent $15,000. I felt rich! I was spending literally three times more than I was used to. I decided then and there, philosophically, environmentally, and financially, that that amount was enough to make me happy. So I decided that that was what I was going to spend annually from there on out. Since then, I’ve
spent 3 years in law school, no income
worked for 2 years as a corporate lawyer at $120,000
worked for 4 years as a Quaker schoolteacher at $30,000 + free housing
spent 4 years (two 2 year stretches) underemployed/looking for work/changing careers
worked 6 years in nonprofits, earning between $25,000-$70,000
Each year, I only spent $15,000-$25,000 and invested everything else. When I got laid off in 2014, I realized that I had made enough money not to have to work anymore.
A major key is keeping a tight lid on expenses: I needed a smaller nest egg to produce the annual passive income I need. Also, having a rigorously tight budget means I had a lot of freedom even during those 20 years. I was out of work for 2 years after being laid off/fired from being a lawyer and another 2 years when I left teaching in Pennsylvania and moved to Portland on a whim. Lastly, over those 20 years, I also made a ton of financial mistakes, like buying a condo in Philly in 2005, which I had to foreclose on in 2010 after the housing crash. I lost a lot of money there and that delayed financial freedom for a number of years. But when you sock away a lot of money, you can recover from mistakes. It’s called financial resilience.
The big thing I’ve discovered about financial freedom is you get to do what you truly want with your life. Again, you own every hour of your life. Do you care about your health? I play soccer and take naps everyday. Do you care about your relationships? I get to travel to see family when I want and vacation with my friends when I want. Do you want to make a positive impact? I got to create PUGS and enact the vision of what I want in the world. I think the best thing you can buy with your money isn’t things or experiences, it’s your freedom.
More concretely: 5 years ago I got a house in Portland for $300,000 cash. I immediately built a separate basement apartment ($40,000) to create passive income, and I got a housemate to live with me upstairs. Now the rent from my downstairs unit and my housemate ($20,000) is enough passive income for me to live on without having to work.
A couple of key points:
I was privileged enough to have parents who could loan me $200,000, which I paid back with the rent the house made (like a business loan). I could have bought the whole thing outright myself or gotten a mortgage, but was emotionally hesitant because I was burned in the housing market crash in 2008 and had to foreclose in 2010. But my parents wanted me to buy a house and pushed me over the edge with the loan. I was lucky there. There’s a lesson about race, poverty, and privilege in the next module.
I can live on the rental income because I live on very little. Again, I live on $20,000 a year. When your consumption number is small, your options open up.
I treat my house as an asset, not a “home.” I treat it as a business and work at being a good landlord who is constantly generating income. Sometimes, between tenants, I rent the place out on Airbnb and go on vacation, paid for by the Airbnb income. Also, I don’t fill my house with status symbols or things to make it “homey.” Here’s a funny story: when I bought the house, I sent an email to all my friends that said,
“Hi! I bought a house, but I don’t own anything except 2 pans, a chair and a typewriter. Can you help me furnish my house? Here’s the thing: I don’t want you to buy me anything because I don’t believe in buying new stuff, philosophically, economically, and environmentally. Just give me anything you don’t need anymore and would like to get rid of”
Between that and looking on Craigslist and Freecycle (a Yahoo listserv), I completely furnished my house.
I think a big lesson here is that financial freedom is a mindset. Yes, you have to do the math, but more than anything, it’s a way of being in the world. Being frugal is a way of seeing the world and trying to dirtbag it (I mean that positively). The average price for a new car is now $33.560. I have a 1993 Toyota pickup that I bought four years ago for $500. It runs great and I love it.
On the flip side, the money script that’s driven all of it is one of scarcity and insecurity. I attribute it to the generational trauma of my family losing everything and fleeing the Communists. But I am the most frugal person in my family, so that might be more personal than familial. The personal growth I want to do around money is about being able to spend money in ways that I find meaningful and joyful, losing my fear around it. It’s a work in progress, as I find myself going back to the money vigilance mindset by habit.
Someone in my past cohort of Financial Freedom 1 asked: “Wait, so you are saying that with a life of ascetic virtue I can quickly (somewhat quickly) ‘retire’ to live a life of… ascetic virtue?”
I guess other people see the way I’ve lived my life as “ascetic” or “virtuous.” But to me, this goes back to the concept of wealth. What does it mean to be wealthy? I’d rather be wealthy in time to do what I want to do, with the people I want. I take naps every day. I play soccer 5x a week and eat lunch with friends. I nap. I get to do creative endeavors like FF1 or writing. I travel to see friends or family 3-4 months of the year.
That to me is more luxurious than more belongings and consumerism while having to work at a 40-hour-a-week job for 40 years. Time is the only wealth to me, especially after seeing my dad die early and not do the things he wanted to do.
Then again, I sorta like the idea of ascetic virtue.
What are your thoughts of my story? Is this story helpful? What seems doable and what doesn’t?
PS: One thing I’ve put thought into is what purchases are worth the amount spent and which ones aren’t. I’ve saved a lot of money over the years by not drinking alcohol or coffee because I decided I don’t like how they make me feel afterwards, so the costs outweigh any temporary enjoyment. I’m not suggesting you should do exactly what I do; you can drink alcohol or coffee if you love it. But I am suggesting that you think about whether the money you spend on something is worth the value you get. Any money you spend is a loss of profit, which means you have to work longer and delay the day when you completely own your own time. I bet there are a number of things you buy that aren’t worth the extra hours it took to earn it. We’ll cover this in Module 2.