Middle-Class Millionaires — Page Two

Jan Geiger’s Story of Finding Life Purpose (E-Mail to Rob) — “We Didn’t Need to Be Married”

“When I was married in my 20s and 30s to my previous husband, he and I were determined to be rich and financially independent at an early age. When we were first married we saved about 10% of our income. Each time we got pay raises, we would increase this. By the time we got divorced, I was 38 years old and we were saving 50% of our take-home pay. We lived in a nice house and drove decent (not fabulous) cars, and we took decent but not lavish vacations every year.

“When I met the man who became my next husband five years later, he was really terrible with his money. I told him that if he would not get out of debt, get on a budget, and start saving for our financial independence, we didn’t need to get married. In the first eight years we were married, we more than quadrupled our net worth. This was a combination of new savings and investment growth. In the next seven years, we saw our investments go down in 2000, 2001, and 2002, but we still managed to nearly double our net worth during the seven years. Therefore, our net worth today is nearly eight times what it was when we married 15 years ago.

“My numbers are not unusual for somebody who is motivated. My two sons are 22 and 25. They both intend to be millionaires while they are in their 30s. I have absolutely no doubt that they will both achieve this goal. They have absolutely no doubt that they will achieve this goal. Anyone who has the right mental attitude and the right training can do this.”

Rob’s Comment: Jan made it a condition of marriage that her future husband get serious about money management. I wouldn’t do that. Financial freedom isn’t high enough on my list of priorities for me to take that stand. Whether you are in her camp or my camp on this particular question, I think there is a lesson to be learned from her story.

The more stress you place on financial freedom as a life goal, the more likely you are to get there. That’s the lesson. Some might say that Jan is crazy to think that her sons will become millionaires when they are in their 30s. I’m not so sure. If they are as determined as she is, they just might. Determination counts for an awful lot.

Determination comes at a price. Jan’s determination put her at risk of losing the man she ended up marrying. Her sons’ determination may cause them to take a pass on career options that would have compelling appeal to young men with less determination to acquire lots of wealth early in life. I think that it is generally so that most of us can attain financial freedom a lot sooner than we imagine is possible. At a price. But it can be done.

Most of us are not as determined as Jan and her sons. Please don’t think that that’s a prerequisite to pursuing a financial freedom goal. Many who know that they can never possess the high level of determination that Jan evidences decide as a result that financial freedom is not for them. No! This is not an either-or choice. There are all sorts of levels of wealth-accumulation determination possible.

If you become more determined than you are today, you will achieve financial freedom sooner. That’s the magic that I see in Jan’s story. She is showing us that determination translates over time into wealth. She’s right.

How to Manage Money

Jan’s Note: As a financial planner, I’ve seen far too many marriages destroyed by fighting over money. To me, it was not a risk of losing the man I wanted to marry. It was mitigating the risk that we would fight about money all the time and become divorced. That was the far bigger risk in my mind.

Charlie’s Story of Finding Life Purpose (Comment Posted to the Financial Freedom Blog)“We Will Not Compromise Our Principles in the Rest of Our Life Endeavors”

“Unfortunately I know first hand the pressure to do something unethical at a job to keep a paycheck coming in. As my wife and I get closer to debt freedom (thanks to a lot of great material read, namely your book Passion Saving and Tim Covell’s Rational Simplicity), we will not compromise our principles in the rest of our life endeavors.

“Thanks for your work!”

Rob’s Comment: These few words tell a big story. Financial freedom is not something that has value only after you turn 65. One of the benefits of attaining financial freedom at a stage of life when you still have many years of productive work ahead of you is that it allows you to live a life of integrity. It’s not about retirement, it’s about empowerment!

Thank you, Charlie, for bringing forward a point of such importance to your fellow community members. My guess is that your words will serve to put some new and highly liberating thoughts in the heads of a good number of people.

Javier’s Story of Finding Life Purpose (E-Mail to Rob)“I Was Able to Take an Extended Leave”

“It was about a year and a half or two years ago, I can’t remember well now, when I came across your Passion Saving website. I didn’t know how much you would change my perspective of life and finances.

“I went from being thousands of dollars in debt to having thousands of dollars in savings in a time-period of two years. Thanks to your words I was able to take an extended leave for three months and take care of my wife and newborn. I did this without getting in debt, paying hospital bills, buying a used but dependable sports utility van, taking care of my family, and still not wiping out my savings.

“I do not make a lot of money, mid 30’s to low 40’s. I’m 30 years old and thanks to you my perspective on money changed for good. Now I’m taking some of the first steps to get serious about my own online business on something I like (photography) and about other business opportunities.

“By reading all the information on your website I was able to develop a part of me I didn’t know I would be able to become. And I am sure that you have made the same impact on many other people.”

Rob’s Comment: Please note Javier’s comment that: “I didn’t know how much you would change my perspective of life and finances.” In the days before you become an effective saver, your focus will be on the hurdles. You might be thinking that you don’t earn enough, or that your spouse isn’t supportive, or that perhaps it’s too late for you to turn things around. When you get to the other side of the river, you will be saying things similar to what Javier says here, that you never anticipated that the life changes you were bringing into effect would be so sweeping.

The Word's Greatest SaversBecoming an effective saver is a big change. It’s not money that we talk about at this site. It is Life; money is the fuel we use to realize all of our most important Life Goals. Any changes that affect your ability to achieve your Life Goals naturally make you uneasy. It makes all the sense in the world to start out slow. As you become more comfortable with the changes you make, however, you will find yourself picking up the pace because you will have come to enjoy the change that saving brings to your life.

This stuff goes deep. That’s why it’s hard to get started. That’s also why this stuff continues paying rewards for a long time to come.

Arty’s Story of Finding Life Purpose (Post to the Financial Freedom Blog)“A Less Secure Future, but A Good Retirement Already Had.”

“From the mid 70s through the late 80s, I was involved in producing corporate advertising, creating the artwork. When I first began, the pressures and bustle and novelty thrilled me. I also worked on Wall Street in the same capacity, but never cared about anything except going home from another overtime day to sleep. The irony abounds, as now I wish I cared more about my finances!

“We worked overtime so often that it could not rightly be called that. Sometimes, during huge crunches, I saw 40-year-old creative directors (overweight and with “necessary” gin in them) weeping in the hallways because some artist I hired wasn’t capturing their “feel”. The pressure was murdering them and they had tons of money (which I envied), wife, kids, great homes and cars (which I also envied), but no time or life outside the agency (which I did not envy). The pressures on me were heavy but much less than what applied for them.

“By the late 80s, I became a freelancer, which paid well when I was busy but not at all when I was not. It was when I was slow that I realized the joys of staying home as a young man. These were simple things, playing with the cats, enjoying a sunny day, vacations, etc. I became convinced that this was the life that many were saving to experience in retirement, when they might be too infirm (or whatever) to enjoy it as fully. I had also begun writing various hobby books and human interest articles, which paid less than ad work but enough for a young man with low rent and no wife or kids.

“So, without the more careful planning that Rob employed, I “subtracted” myself from the conventional work mode. I now remain subtracted, living as a writer with few expenses, a good, full life for me. While I still write, and am paid to do freelance marketing, consulting and editing, I do not regret the decision to abandon a good, regular job and “live” my life, albeit poorer, than my peers and friends who got jobs providing good pensions but still await the day to spend them.

“But I could have done far better in planning my retirement, or saving in general, because I had no interest in money. And now I need to do just that, so I’m putting great energies toward learning about it to catch up. So, in that sense, I’m living life “backwardly”, with a less secure future, but a good retirement already had.

Rob’s Comment: The common theme in all Passion Saving/Retire Early stories is planning. These things just do not happen by accident. The core reality is that we have more money running through our hands than our parents or grandparents had running through their hands. More money means more choices. If we plan. If we don’t plan how to make use of the added money, by default we just end up with more stuff.

There are lots of potential paths. One of the things that I most enjoy about reading through the stories posted to this section of the site is that there is such a wonderful diversity of stories. We all plan; that’s the common element to all the stories. But we all choose our own particular path; that’s because it is the intense appeal of the particular path to the one person choosing it that gives him or her the motivation to become one of the world’s most effective savers.

Tmeri’s Story of Finding Life Purpose (RetireEarlyHomepage.com Discussion Board) — Here Was Someone Who…Was Not Afraid to Call the Corporate Culture B.S.”

“Somehow I stumbled across intercst’s page…. Finally, here was someone who…was not afraid to call the corporate culture B.S.”

The Path to Plentiful Free Time and Soul-Satisfying Work

Rob’s Comment: If you read the entire thread containing Tmeri’s story, you will see that I posted comments on that thread back in October 2005 describing the significance I see in it. There are now a good number of blogs and web sites exploring early retirement topics. This was not so back in 1996, when Greaney created his site. A lot of people (including me) felt emotions similar to those described by Tmeri when coming across John’s site at a time when comparatively little in the way of resources dealing with this topic was available.

Humans are social animals. We act on things that we view as “okay” to act on. We develop out ideas as to what is “okay” and what is not by looking at what our fellow humans think and say and do. It was a big move forward for the Financial Freedom Movement when Al Gore invented the internet and made it possible for those of us exploring these ideas to share what we have learned with others in the process of forming similar strategies.

The Greaney approach to early retirement is far too negative and hostile for my tastes. I enjoyed all my corporate jobs for the opportunities that were offered me and for the people I met and for the things I learned. Still, I did experience that same click moment that Tmeri talks about when I discovered John’s site (this was in late 1998, when few knew of it). I didn’t feel comfortable with John’s tone even then. But I was excited to hear someone talking in an open way (if not in an entirely fair or balanced way) about the downside of paycheck dependence.

To attain early retirement, you need to desire early retirement. To desire early retirement, you need to know that early retirement is possible for you. To know that early retirement is possible for you, you need to hear how lots of different people have done it and how they have gone about doing it and what obstacles they encountered and how they overcame them. You don’t learn about this stuff by reading a single article or a single book. You learn about it over time as your mind gradually becomes open to a greater and greater number of new ideas, each one building upon some earlier one. It’s a process that can only be pursued in a totally effective way in a community of people pursuing similar life goals.

Aaron’s Story of Finding Life Purpose (E-Mails to Rob)“This is What Investing Should Be — Calculated, Deliberate, Confident, informed and Simple.”

“I read a number of your articles tonight, and I’m very impressed with your insight about finance and investing.

“Protecting one’s savings and purchasing power while still attempting to invest well for the future is a very challenging thing to do for a human being. There is no such thing as long-term for the majority of us. Give me six months, and I’ll make a plan and probably stick with it half-way. It’ll probably work out for me, half-way.

“The intellectuals mean well, but they don’t add any value. The number of people I know who trust their futures to statistics cannot be counted on one of my fingers. A 20% loss in any investment will make them bail. I am more advanced than they are, in that I’ll bail at a 5% loss and probably buy a little bit of what they are selling. The vast majority wish there was some way this whole ‘chore’ of investing could be taken off their hands.

“I enjoyed your disrobing of Taylor Larimore (co-author of The Bogleheads’ Guide to Investing). I honestly suspect that he’s a respectable and likable person in real life, but believe his advice is fueled as much by faith as reason. If I reasonably believed the next 20 years would be like the last, his quotes from the investment masters would hold a lot more weight.

“As it is, I’m learning to trust my gut more and feeling better. I know you had something to say about that as well….

“I read more of your archived material today. I’ve also been to Mr. Russell’s site on several occasions as well (from his links on the Morningstar forums). I didn’t realize you were Hocus! Man, those Diehards are a piece of work sometimes. That dogmatic, guru-worship thing combined with ridiculing the non-believers really drives down my respect for people.

“You and Mr. Russell are on to the most valuable ideas about spending and investing I’ve ever encountered. Saving 30% can be easier than saving 10%? That is absolutely brilliant, and I know it’s true because I’ve been there. One is a quest, and the other is a drain. Totally different energy.

“I am not willing to save 30% anymore, but I do have 15 years of accumulated savings that I am dead-set against losing and will count on for financial independence some day. I’m waiting for another 1982 opportunity, but don’t know when or if it will ever come.

End of the Day

“Then I saw the PE10-weighted TIPS/S&P 500 portfolio and had an ‘ah-ha’ moment. This is what investing should be ~ calculated, deliberate, confident, informed and simple. And based on mathematics and reason. We should know why our investments will work, and feel good about being able to invest. Faith should not be a factor, and ‘sacrifice’ should not be the attitude.

“I’ve got a lot to learn, Rob. Thanks again for putting all your ideas out there. I really can’t express what I’m going through right now. It’s a turning point for sure.

“Anyway, I’m recommending your site to my friends. It’s the best there is of its kind, by far.”

Rob’s Comment: I hope that the Normals did not take my article about Taylor Larimore (please see the article entitled “Taylor Larimore and the Monster Mistake that Ate Middle-Class Wealth” at the “Heroes and Villains” section of the site) to be uncharitable (the Goons of course view any reference to flaws in the Passive Investing approach as the launching of nuclear missiles). I agree with Aaron’s assessment that Taylor is a likable enough fellow who happened to fall for a Get-Rich-Quick investing approach and who lacks the emotional maturity and balance to fully appreciate the great personal and financial harm he does to those who place their trust in his recommendations when he employs abusive posting practices to block questioning of his ideas. There were of course positive things said about Taylor in the article, and properly so.

Aaron’s “this is what investing should be” statement gets right to the heart of what I am trying to accomplish with the Valuation-informed Indexing approach. I do not say that this is the investing approach that will offer the best possible returns; it is not at all my purpose to devise such an approach (and I lack the ability to do so in any event). The key word in Aaron’s list of characteristics of the Valuation-informed Indexing approach is “simple.” It is my contention that 80 percent of the investing literature is aimed at helping 20 percent of the investing population (that 20 percent probably buys 80 percent of the investing books, but still…).

The reason why John Bogle is so popular among middle-class investors is that he is one of a very small number that gets this. Bogle’s advice is aimed at the average investor, the investor who most needs a hand today. Bogle does not aim to give the best possible advice, he aims to give the best possible simple advice. There’s a desperate need for simple but effective advice now that middle-class workers have been given the job of financing their own retirements.

I of course greatly admire Bogle for what he has done. At the same time, I am appalled by the pigheadedness of a good number of his followers (and to be fair to the followers, pigheadedness is not an attribute entirely non-evident in the Master himself). Indexing is a potentially powerful approach that is in its conventional form poisoned by Bogle’s acceptance of the Get-Rich-Quick gibberish of the Passive Investing School.

There is nothing in the nature of indexing that requires that it be tied in any way, shape or form with Get Rich Quick schemes. My aim is to disassociate indexing (which i love because properly utilized it can do so much good for so many middle-class investors) from Passive Investing (which I loathe because of the great destructive power it has been shown to possess during The Great Safe Withdrawal Rate Debate and during the out-of-control bull market that preceded it and set the stage for it). We are watching play out before us the greatest loss of middle-class wealth in the history of the United States (I am assuming here that stocks may perform in the future at least somewhat as they always have in the past). Indexing is going to be blamed. The only hope that I see for indexing to remain a viable investing strategy in days to come is for responsible indexers to do all that they can to disassociate themselves from any advocacy of the hateful (I don’t at this point think that’s too strong a word) Passive Investing ideas.

Valuation-Informed Indexing is the natural choice for the busy, realistic, emotionally balanced middle-class investor. It’s all the things that indexing once promised to be but then failed to become because its leading advocate got mixed up in promotion of Passive Investing gibberish instead of keeping his focus on the knitting. Valuation-Informed Indexing is indexing without the emotional baggage, indexing that makes sense to the rational human mind, indexing that works according to the historical data, indexing that deep inside feels good and right and on target.

A Rich Life

I am excited to see Aaron combine in the same e-mail observations on what he has learned from our community’s saving insights with what he has learned from our community’s investing insights. Yes, yes, a thousand time yes! I of course understand that saving and investing are different fields of study. But I reject out of hand the idea that we must forget everything we learned about saving when we turn our attention to investing.

Ask the typical aspiring early retiree how early retirement is possible and he or she will tell you that the key is to obtain value for your money, not to spend recklessly. Ask him or her how to invest, and there’s a good chance that he or she will say that Passive Investing is the way to go. Holy Cognitive Dissonance, Batman! Prices matter when buying cars and houses and bananas but make no difference whatsoever when buying stocks, the item that most of us spend more money on during the course of a lifetime than any other? That makes sense? No, that does not make sense. Not to this boy. Find someone else.

Prices matter when buying stocks just as they matter when buying anything else. Of course that is so! That’s Valuation-Informed Indexing.

Some have a hard time seeing how making that single change in one’s understanding of how investing works can bring on the magical results that the historical data shows have always applied in the past to investors willing to rein in the most destructive of investing emotions a bit. It’s a counterintuitive phenomenon, to be sure. But is the magic of Valuation-informed Indexing really so much more powerful than the magic of saving effectively? It is not! It is not.

All of those who have retired early have been amazed at how saving effectively can turn a life around, fill it to the brim with potential and accomplishment and energy and hope and drama and fulfillment. Why should we be skeptical that applying the same principle in the investing area can bring on a similar sort of magic? Fundamental ideas have huge consequences. The way it is.

And it’s great that that’s the way it is, you know? Discovering these simple but oh-so-important truths is what our movement is all about. The conventional media is not going to report on this stuff, not at all often. Not because the people who work those jobs are evil, not because the people who work those jobs are dumb. It’s because the people who work those jobs have not retired early! You start walking down the path that those who follow this site walk and you learn all sorts of things that most of your friends and neighbors and coworkers do not know and can hardly believe are true.

That’s the idea, eh? The goal is not to allow the conventional advice to pull aspiring early retirees into the same pit of boredom and frustration in which so many of those following the conventional financial advice find themselves. The idea is for the ideas we develop together at our boards to pull those following the conventional advice up to the higher place where those of us who were blessed enough to discover these ideas some years back now find ourselves.

Aaron’s story is the story of how middle-class investors will invest in days to come if we all succeed at the important work we have taken on. I find it an inspiring account reflecting deep knowledge of two different subjects on which only the rarest of today’s “experts’ can speak with such perspicacity.

Middle-Class Millionaires — Page One

Middle-Class Millionairies — Page Three