Frugality Magazine - Frugal Living Tips for Financial Freedom

How to Get Everything Wrong and Still Succeed Financially

Contents

Do you ever look jealously at other people’s finances?

Have you seen those annoyingly impressive interviews with people who retired at the age of 40, only to find out later that they earned a six figure salary or inherited a mortgage-free house?

Yeah, me too.

As they say, comparison is thief of joy.

It’s tempting to look around you and assume that you’ll never achieve these dizzying heights.

Under these circumstances is everything still lost?

Should you give up the fight, and accept that you’re financially doomed? I say “no” – and here’s why…

The 10 Year Rewind

Let’s step back in time for a moment. Ten years my finances were, to be polite, strained. The list of mistakes and unfortunate life events had grown to a worrying level. Just a few classics included:

  • Working a retail manager job for little more than minimum wage.
  • Living in one of the most expensive areas of the country, in a house I couldn’t afford.
  • Staying in that same property when my girlfriend and I split up, refusing to accept that paying all the rent was unfeasible.
  • Clocking up five figures in credit card debt, reaching the point that I couldn’t afford the minimum payments
  • Financing a motorcycle to help me get to and from work, eating up yet more of the money I didn’t have.
  • Spending so much on debt repayments that I couldn’t afford to pay my household bills, resulting in ever more penalty fees and angry letters from debt collection agencies.

As I’m sure you can see, this was a “perfect storm” of financial mismanagement. Soon afterwards everything came crashing down around me, forcing me to essentially start from scratch.

It’s fair to say that I did pretty much everything wrong in my 20’s, which had a significant impact on my life for years afterward.

The Turnaround

I don’t reveal my mistakes because I feel sorry for myself (well, not totally anyway). I tell you to contrast it with life as it is right now. Comparing my current financial situation with those of my younger self there have barely anything in common. While I certainly don’t consider myself wealthy, I’m what most Brits would refer to as “comfortable”.

  • I’m debt free.
  • I earn almost three times as much as I did back then.
  • My housing expenses are almost the same as they were ten years ago.
  • My credit is healthier than it’s ever been.
  • I have a detailed handle on my income and outgoings, and intimately know where my money is going.
  • I earn enough not to worry about a surprise utility bill or car payment.
  • I’m putting money into savings and my pension every month like clockwork.

In other words, my financial life has changed beyond recognition. Comparing the two different financial statements you’d barely believe they applied to the same person.

So did I receive a huge inheritance? Did I land a super well-paid job? Did I get lucky with investments? None of the above. All the changes you see between the two situations have been slow, progressive, almost imperceptible. Indeed, it doesn’t feel like I’ve done anything special, apart from living my life. And that’s great news.   

Time Is Your Friend

I used to lie awake at night worrying about money. It was the central topic on my mind, day in and day out. Dodging calls from debt collectors. Avoiding knocks on the front door. Wondering how I was going to pay the rent this month, and how I could borrow from one source of debt to pay another.

It didn’t seem like there was a route out of this plate-spinning – was I forever doomed?

The funny thing is that probably my biggest allie was simply time itself.

I kept my head above the water just long enough for life to start helping me out.

Here are some examples of ways in which time can help to heal your financial situation…

Credit Improves Over Time

If, like me, you made some silly mistakes with debt, then the good news is that these mistakes don’t have to follow you around forever. Black marks on your credit report only stay there for a number of years, then they get expunged. Assuming you buck up your ideas and start to become a more responsible borrower then you should find that over time your credit rating improves.

While your credit rating might seem like an abstract concept for many people, it can have a range of impacts on your lifestyle and your finances. For example, an ever-improving credit rating makes it ever more likely you’ll be able to get a mortgage in the future.

In terms of any borrowings – from a credit card to a car loan – you’ll find that you become applicable for more generous rates. This means that you’ll pay less interest than your old self, which helps to make life cheaper for you. The minimum payment that was $100 a month is suddenly $80 or even $60. Over time, these impacts help you spend less and less while living the life you want.

The key is making the necessary changes to start seeing that credit score improving.

You’ll Land Pay Raises

There are so many opportunities for pay raises as you age that it almost blows my mind. Firstly, many companies offer an annual pay assessment, and each one is an opportunity for higher wages.

When you’ve established yourself in a company there are also opportunities for promotions. While they may not come along very often, in the next 5 to 10 years you can feel certain that at least a few of these opportunities will come your way.

Lastly, of course, moving from one employer to another is another great opportunity for income growth. Even doing the exact same job you can often negotiate a pay raise when jumping ship.

At the time, it’s all too easy to be ungrateful for these tiny incremental improvements in your salary. You do the math and you’re like “so that’s like an extra $50 a month after taxes – big wow!” but it all adds up. Suddenly there you are ten years later having doubled or trebled your income thanks to these little improvements.  

You Can Start Side Hustles

We personal finance bloggers love talking about side hustles, but the reason is simply that they work.

The thing that many people don’t tell you is that starting a blog or doing some freelance writing can take time to pay off. Unless you’re very lucky you’re unlikely to earn anything much from your shiny new blog for the first six months or more.

In reality, your first side hustle might fail completely; it happens. It certainly happened to me.

The funny thing is, however, that once again time is your friend. The longer the period of time, the more you learn, the more opportunities for success you create. In the space of ten years you can fail over and over again, and still have the time to find a winning idea.  And it only takes one idea.

I now own seven profitable blogs, in a variety of niches. This, of course, didn’t happen overnight. I invested many evenings and weekends to my craft, and I started many sites that flopped. But I stuck with it, and thanks to my refusal to give up I now own a network of passive websites that spit out cash daily.

It’s like having the income of a second job, but without having to go to the office.  

Your Monthly Expenses Can Drop

Your early adult life can be a very expensive time, because you’re essentially starting from zero. Your first car. Furniture for your first home. A TV, computer, phone. It seems like there’s no end to the expenses to get yourself set up to be a “grown up”.

Once you’ve bought all these, however, life can get a lot cheaper.

Oh sure, you’ll want to upgrade items over time, but this can be a lot cheaper than starting from zero. You can part-exchange your car, giving you an immediate step-up, and meaning you don’t need to spend too much to upgrade. You can sell that old couch on Craigslist, giving you some ready cash to put towards your new furniture.

In this way it is possible to actually see your expenses going down over time. When this combines with increased income and better credit offers, the difference between your income and expenses can slowly start to widen year after year.

The Debt Snowball

Being up to your eyeballs in debt is no fun, but debt doesn’t last forever. Over time you’ll manage to pay off that student loan or credit card entirely, and it’ll feel like a massive weight has lifted off your shoulders.

The nice thing is that you can then take the money you were spending on this debt, and now apply it to your next debt. This means you can pay more off that debt, and wipe it out much quicker than you expected. As time goes on, you wipe off ever more debts and spend ever more on repaying those few outstanding.

This allows your repayments to “snowball” as they gather ever more pace. Until one day you send off that final payment and jump for joy at the freedom you just bought yourself.

Inflation Works In Your Favour

Inflation is the word we use to describe prices going up. The house that is for sale in your street right now cost just a fraction of its current market value ten years ago. Whoever bought that house has seen their money multiply over that time.

Just as importantly, however, their mortgage was based on that old purchase price. Assuming they haven’t been silly enough to remortgage during that time, this means that – relative to their growing income – their house repayments has actually got cheaper and cheaper over time. They’ve spent an ever smaller proportion of their income on their mortgage.

This is another reason why time can work in your favour without you actually needing to do anything much. If you’re a homeowner, therefore, you’re likely to benefit significantly in the coming years, even if you can barely afford your mortgage payments right now.

Your Investments Can Grow

It can be tough to start investing when you can barely make ends meet. But even a tiny amount has the potential to grow over time. And the longer the time, the greater the odds of success.

Last year my small investment portfolio grew 12%. While I’ll admit that is unusual, all this growth compounds over time.

Heck, even money in a low interest savings account benefits from the same principle of compounding.

While investing $50 a month, or whatever you can afford, barely seems worth it right now, as the years go by you’ll see these tiny sums start to multiply faster and faster. Before you know it you’ll have accumulated a nice little nest-egg for the future.

To give you a specific example, let’s assume you invest $50 a month for the next ten years. That’s a total of $600 a year, or $6,000 over that decade. At an 8% interest rate you’d end up with $9,387. Someone just gave you $3,387 for setting up a standing order with your bank.

Imagine how this same concept can benefit you in the future, as you invest your pay raises each month, watching your money growing faster and faster.

You Can Fail at Everything and Still Win Financially

Now is the time to stop thinking that all is lost when it comes to your financial situation. As we’ve seen, you don’t need to become CEO of your company, or launch the next Instagram. Time itself, and the tiny, seemingly, inconsequential things that happen on our journey through life, can all positively impact your situation.

Just like me, in just a few years time you can turn around to suddenly find that your life has changed beyond recognition. It really can happen.

The only thing you need to do is start making smart money choices from now on, so you can make the most of every little opportunity that comes your way. Grab that tiny pay raise. Finally commit to starting that blog you’ve been thinking about. Try to overpay on your debts.  Start investing, no matter how little.

Your future self will thank you.

In doing so, even failures like me can win over the long term.

Worried or stressed about money? Don't let your finances get you down. Here's how you can get everything wrong and still end succeeding - so long as you follow these proven money steps from now on.

Richard

Sun-worshipper and obsessive frugality blogger. For loads more money-saving advice come and join us on Facebook.

Add comment