Each year, during the period between Christmas and New Year’s, I sit down and look over what happened during the past year, what I can learn from that, and what I can apply from that to the year to come. I usually come up with a big handful of life lessons during that review, things I learned from situations in my life that didn’t quite go as I liked. What went wrong? Where did I go wrong? What can I do better? These life lessons spread across all spheres of life and usually number in the dozens. I tend to literally make a list of them as I review the year as a way to figure out how to do better in the coming year.
Among the lessons I learned in the past year were 10 that have real personal finance implications, though some tend to branch over into other spheres of life. I thought it might be valuable to share those lessons, along with what I hope to do differently going forward.
Lesson #1: If the stock market is scaring you in terms of your future, you’re either not invested appropriately or don’t know what you’re invested in.
This is something I did right this year, but the bumps in the stock market reminded me of the panic I felt in 2008 when I watched my retirement balance fall by 40%. I didn’t change anything back then, but I was often sick to my stomach about it and my instinct kept screaming to run away from the risk.
But then… things recovered. Between 2008 and 2018, my retirement accounts tripled in value.
The stock market is swooning again, but this time I don’t have the butterflies. Why?
First of all, I recognize that the stock market will rebound. The entirety of the American economy is not going to disappear in a puff of smoke. There are millions of Americans out there every day working hard and innovating, and that’s where the value of the stock market comes from. This is a correction, like every other, not an apocalypse.
Second, I recognize that the stock market is only a place for individual investors to put their money if they have long term goals. If you’re going to use that money within the next ten years, it shouldn’t be in the stock market. Over a period of more than ten years, it will enjoy several years of growth and multiple corrections, which is enough time for that investment to start to approach the long term average annual return of a stock market investment, somewhere between 7% and 10% depending on how you calculate it. I have nothing in the stock market that I intend to use within the next ten years.
I’ve honestly barely paid any attention to the ongoing correction. It’s just another good sized correction, like 2008, like 2001, like 1992, like 1987, and so on. It’s part of having investments in stocks – every several years, the stock market corrects itself.
If you know this and you still feel the butterflies, one of two things are happening. One, you’ve got too much risk – you have money in stocks that you’re going to need within 10 years. You fix this by moving such money out of stocks. Two, you’re looking at the trees and can’t see the forest – the success of long-term investments is judged over the long term, not over a few months.
What I’ve learned from this correction is that I’m a lot more confident and sure about my investing plan for an early retirement than I was ten years ago and, because of that, there’s no risk of me making an emotionally driven bad financial decision in the face of a momentary change in the stock market.
Lesson #2: Give yourself plenty of breathing room in terms of both time and money when doing a major home improvement project.
This year, Sarah and I chose to take on a pretty large home improvement project. We tore out our old deck which had some structural issues, replaced it with a four-season room which now functions as our primary “living room,” put a small deck beside it for things like grilling, and then started down a path of renovating rooms in our home (fresh paint, new carpet in a few cases, and rearranging the purpose of several rooms by moving furniture around). The main reasons were to free up a bedroom for our youngest child (who shared a bedroom with his oldest brother), migrate a lot of “kid’s stuff” to their rooms, and still maintain a good home office space for me while achieving some other minor goals around the house. Almost every change we’ve made will increase the value of our home should we resell it.
We learned a lot of lessons from this project, which we’re still finishing up. The biggest lesson? Projects like this will often exceed your initial time and money budget. Our initial budget for all of these changes was… optimistic, shall we say. Our initial timeline for all of these changes was also optimistic.
At various points, we had to hire help for parts that we realized were over our head. We anticipated doing so for a few pieces, but we ended up getting help for more than we’d planned, which added to the cost and also caused delays. We’d hoped to complete the project by the end of summer but some of the smaller finishing tasks are still ongoing.
We were able to pay for all of the additional costs in cash, of course, so there wasn’t a debt issue here, but if we had been financing these home improvements and changes, this would have been a serious financial problem.
So, what did I learn? When you’re taking on a big project, make your time and cost budgets high rather than low. Give them both some flexibility and breathing room. My advice is to add at least 20% to the cost and time of everything, if not more. That way, when surprises happen, you’re prepared for them, and if everything goes well, you’re done early with money left over. We may have considered a different plan had we budgeted more accurately in terms of time and money from the start.
Lesson #3: Stress is one of the biggest enemies of good spending behavior, and thus managing stress is a powerful financial tactic.
In addition to the home renovations, this year brought us more travel than we expected (including a trip to a destination wedding), a vehicle replacement (which I’ll discuss again in a bit), some serious family health issues, and an extremely busy family life. There were times during this year that have been among the most stressful of my adult life, and on the whole, this was probably the most stressful year of my adulthood.
This year taught me many lessons about how to manage my own stress, and I’ve figured out some tools that really help. I find that journaling, vigorous exercise, and meditation have been low-cost life savers in this department. They’ve really helped me deal with a lot of the stress related to these ongoing issues.
Having said that, virtually all of my worst spending mistakes in 2018 were during situations where I was stressed out and feeling completely overworked. There have been many, many times in which I spent an entire week doing everything in advance so that I could spend a day on the weekends just relaxing and enjoying a hobby, only to find that something interfered with those plans and stole away that planned time. Countless things were dumped on my plate at the last minute, leaving me feeling like getting all of the truly important “priority 1” things done was impossible, let alone the “priority 2” things.
It was in those peak stress situations where I would resort back to throwing money at problems rather than using better approaches to solving them. For example, I’d order food to be delivered because I was under a writing deadline and couldn’t find time to make dinner. Sometimes, I’d convince myself to buy a hobby item when leisure time was ripped from my schedule (something I’ll revisit in a bit).
So, what’s the lesson? If you’re finding yourself really stressed out and a complete mess at spending money in sensible ways, work on alleviating the stress first. The most effective way to alleviate stress is to simply get things done. Clear big tasks and ongoing responsibilities from your plate so that you have breathing room again and you’ll find it’s much easier to make sensible changes in other areas of your life. For me, simply being efficient and productive with my time while giving room to journaling, meditation, and exercise each day is the key to keeping stress in check.
Lesson #4: Hobbies actually become less enjoyable when you hit a certain threshold of “stuff” associated with that hobby.
There comes a certain point with any hobby when the items you own related to that hobby go from being items you’re actively enjoying to being a collection that you manage, and a certain significant portion of your time and energy for that hobby moves into curating and managing that collection rather than enjoying the hobby itself.
It’s often hard to identify exactly where that threshold is, but you tend to know when you’ve crossed it.
For me, that’s a sign that I need to pare down the items associated with a particular hobby. When I’m spending a lot of time figuring out how to shelve books, I need to pare down those books and adopt a “when one comes in, another goes out” mindset, for example.
I reached that point this year with my board game collection. While I enjoyed trading games, I found that I was spending more time finding shelf space and figuring out which ones to trade and things like that than I was actually playing them, and I didn’t like that tradeoff.
My solution? I’m downsizing my collection until it’s below that threshold again where I can focus on actually enjoying the hobby itself, rather than curating and managing a collection. This is an ongoing process but I find that I don’t miss items once I’ve purged them. Rather, I’m usually relieved once I convince myself to let them go.
This leads into the next lesson of the year…
Lesson #5: Getting rid of and selling off old things that you no longer use is a huge mental relief on its own, even beyond the value you get back from the sales.
In the past, I’ve been a collector of certain things and I’ve allowed them to accumulate and fill space in my home. I had a routine of spending my monthly hobby budget by going to clearance sales and looking for hidden gems and spending a lot of hobby time working out good trades. I’ve done this with other things, too, and there comes a point where you need to downsize, not just for physical space, but for mental space, too.
At the same time, there are some aspects of my life where I’m extremely minimal and I’ve come to realize that those are the parts of my life that work best. They require little upkeep and mental effort. They just work. I want that standard in my life in virtually all areas, because I’ve come to realize just how much of a hidden burden an overstuffed closet really is.
The approach I use is somewhat inspired by Marie Kondo’s book , and her technique works as advertised. I’m using it right now to tear down my board game collection, as noted above. I basically ask myself if I would be genuinely excited to play this game right now (assuming I had a block of time and I had the right number of players available) and if I can’t give a wholehearted “yes” without reservation, I’m downsizing it (usually by selling it locally). This approach works well with any collection, honestly.
I intend to use this very approach with a lot of things around my house and garage over the coming year.
Lesson #6: The car-buying process is much easier if you do the homework first, know exactly what you want and how much you’ll pay for it, and communicate that up front to dealers.
In the early part of the year, Sarah and I finally replaced the used SUV we bought off of Craigslist almost 10 years ago. Yup, for 10 years we drove around in a SUV that we originally bought used off of Craigslist. We drove that thing until it was approaching the 300,000-mile mark, and we knew it was time to move on when a couple of small things failed and the mechanic pointed out about 15 more things that were going to fail before too long. The total repair bill was big enough that we realized it was time to move on.
We spent a few months shopping around and really refining our strategy. At first, we went to various dealerships and just looked at cars to figure out what we liked and what we wanted and we found that salespeople were all over us when we didn’t really want them to be. We made the mistake of giving out our information to a couple and heard back from salespeople endlessly for a while.
Once we had an idea of what we liked and what we actually needed, we cross-checked those models with the recommendations from Consumer Reports and came up with a brief list of makes, models, and years that were acceptable to us. We wanted a late model used (three to six years old) Toyota Sienna or Honda Odyssey, with a few other models that might be acceptable. We identified what we were willing to pay for that car and again we shopped around.
What we learned, after some trial and error, is that the best approach for us is to know exactly what you want before ever ing the dealer, seek out only models matching what you want online before stepping foot on the lot, and really only looking specifically at those models. In fact, it’s probably worth your while to directly the dealership in advance and state exactly what you want and what you’re willing to pay, and if they’re willing to play ball, then go and actually examine the car and test drive it. If you’re not going to take that approach, then the Craigslist approach we used beforehand works best, because if you have a very wide range of vehicles that you’re willing to drive, you might as well cut out the middleman and find someone to buy from directly.
Lesson #7: A social circle that centers around low key social gatherings without the need to spend much money is worth its weight in gold.
During the year, we came to realize that virtually our entire social circle prefers either to hang out at each other’s homes (dinner parties and game nights) or go to free community events. We don’t really “go out on the town” together unless we happen to be traveling together for some specific reason.
Of course, that means that socializing is a very, very inexpensive part of our life, and for that we’ve become very thankful this year.
At an earlier stage in my life, most of my friends were big spenders, constantly going out on the town, playing golf, trying to “one up” each other with new possessions, and so on. I had fun hanging out with them, but it came with a steep financial cost, one that ended up creating a net negative in my life.
Friendships shouldn’t be a net negative. If the cost of friendship is so high that it is a net negative in your life over the long term, then it’s a friendship you need to reconsider whether you should continue. Note that this does not mean abandoning friends when they have a difficult patch, because they’re often there for you when you’re going through a rough spot.
Having friends that enjoy simple potluck dinner parties and game nights and love doing free stuff around the community makes social decisions much easier because there’s basically no financial component to it whatsoever.
If you’re struggling to find friends who feel this way, the best way to find them is at free community events. Start checking out things like , your local community calendar, your local library, and your local parks and rec department. There are almost always things going on near you, and if you go with an open mind and an intent to get to know people, you might find friendships bubbling up.
Lesson #8: When you’re thinking through a financial decision, nothing beats some time with pen and paper.
In the past, my decision making process for major choices (like, say, what car to buy) was to quickly whittle things down to a small handful of options, then turn them over and over and over again in my mind until one of them stood out for some reason, then I’d go for it. I’d make mental pro and con lists and revise them and check them again and hopefully eventually reach a decision. In short, a big decision could distract me for months.
In the past several months, I’ve been using a different approach, one that borrows heavily from the book Creating Great Choices, which I mentioned in my recent article about impactful books I read this year.
Basically, I’ve just blocked off some significant time for coming to a decision – usually, I block off two or three hours on a weekend for this – and I sit down with several sheets of paper. On each piece of paper I identify one of several options for that decision and I try to make a long concrete list of both pros and cons for that option.
Once I do that, I start pairing them off. I look for ones where some of the “pros” cancel out the “cons” of the other option it’s paired with. I try to find pairs (or even sets of three) where most of the “cons” are eliminated by the various “pros” from the other items in the pair or trio.
If I find a really good pair or trio that synergizes well, I then brainstorm and see if there’s a good solution that can incorporate both (or all three) of those options. Is there a way where I can essentially do these both at once?
For example, we recently decided to give our oldest child a cell phone, as he’s involved in a lot of after school activities and that sometimes creates logistical issues in making sure he has a ride and so on, and having a cell phone just makes everything easier. This led to a lot of possibilities about how to do this. Should he have a very simple light plan of his own? Should he be on some sort of family plan with us? Is this a moment to change carriers?
I sat down and looked at a ton of plans. I listed the pros and cons of each – the price, what we get, and so on. I looked at the new customer plans for our current provider and the new customer plans for other providers, too. I looked at some pay-as-you-go options. Naturally, there were different advantages to each choice and some disadvantages to each as well.
What I ended up doing is that I took the things I really liked from one provider and added them to what I liked from another one that ended up with a set of features and cost that nailed what we wanted, and I simply went to the provider that already had most of that in place and told them what we were seeking at what price. I pointed out a similar plan at another provider for a similar amount to what we wanted to pay. Guess what? They said sure.
Basically, rather than choosing an option, I combined two options into one which cancelled out most of the drawbacks of both of those options. We’re probably saving $80 a month over what we would have paid for the services we have without all of that effort.
I’ve used this with lots of decisions recently: What’s our best setup after cutting the cable cord, how to handle a couple of difficult personal issues, and so on. Each time, I’ve ended up going with a combination of solutions that ended up better than any of the initial solutions I was comparing.
Lesson #9: It is far easier to make good spending decisions during the ‘afterglow’ of exercise.
This seems strange, but I’m stunned as to how well it works.
This year, I’ve found that the absolute best time for me to go shopping is shortly after I’ve done vigorous exercise, when I’ve drank some water and rested for a bit and my legs no longer feel like jelly. I find that in the three or so hours after exercise, I have much better abilities in terms of focusing on the task at hand and not getting easily distracted.
I really discovered this earlier this year when I got into a routine of exercising in the early afternoon in order to kill the drowsiness I sometimes feel during that time of the day. Rather than slumping in front of a keyboard, I started making myself do some intense exercise and then get some household chores done.
I found that I was knocking out those household chores like it was nothing, and I also noticed that if I went grocery shopping during that period right after exercise, I stuck very tightly to my grocery list.
Since then, I’ve made it a point to go grocery shopping and make other financial decisions right after exercise, simply because I’m taking advantage of a sharpness of mind that isn’t always there at other parts of the day. It keeps me on task, and being on task at the store means that money stays in my pocket where it belongs.
Lesson #10: When you read about a new strategy or watch a video about it, take action immediately or you won’t do anything about it.
Let’s say you just read an article or a book on personal finance or some other self-improvement topic. There’s a lot of good ideas in there and you feel excited to take them on, like you’re ready to succeed.
That’s a great feeling, but it comes with a catch: Unless you do something very soon about what you’ve just read, you probably won’t do anything at all. Your brain will file it away as something interesting but unimportant. The urgency you feel to take action and make change will fade quickly. Very likely, you won’t do anything at all.
I’ve read countless articles over the years that suggested actions I could take to improve my situation – my finances, my health, my time management – but they simply don’t matter unless you do something with that information. That choice could be to choose to forget about it… but then why did you read the article to begin with?
Rather, try to find something actionable to do within 24 hours of reading something that really clicks with you. Whenever I read an article or book that’s intended to improve my situation in some way and walk away from it thinking about an idea that I really want to try, I lock it in as a priority task for the next day. I make it my goal to take some kind of action related to that article.
Maybe I’m inspired to try a new frugality technique, or a new exercise practice, or a new meditation technique. Whatever it is, I usually include it as a “priority 2” thing to do the next day (not the big main things I hope to do that day, but one of the lesser things that will fill the rest of my day, and I usually get to everything I have listed as “priority 2”).
This simple step alone has transformed a lot of articles and books that would have just felt like interesting ideas into something I can take action on in my own life to see if it really works for me or not. Sometimes that new strategy clicks and sometimes it doesn’t, but the worst case scenario is that I merely learned something new (that this tactic doesn’t work for me) and the best case scenario is that I now have a better approach to living.
When you read about a good practice you could incorporate into your life, don’t just let it slide by. Rather, make an honest effort to actually do it – and soon.
Throughout the past year, life has pounded each of these lessons into my head. My belief is that they’ve helped shape me into a better person, more capable than before of achieving my goals and reaching my dream of financial independence. These lessons also apply strongly to other areas of my life – fitness, intellectual growth, and so on.
What did this past year teach you? What have you really learned going forward?
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