The Benefit of Ignorance
Lesson 1 – Ignorance helps to numb past mistakes made at the time, but hindsight will not make you feel better about.
When I was younger and even going into my mid-twenties, my understanding of how to build wealth was very typical: get a job, work hard to get a few pay rises along the way and if I can pay all my monthly expenses (including debt commitments) then I must be doing alright.
Even during university where I studied finance and investment, the idea of investing to build up my own wealth wasn’t even on my radar.
This was not unusual.
The talk amongst us budding Warren Buffet wannabes in the student halls was how we can get a job at an international investment firm and work in ‘The City‘. All the while, what we were actually unconsciously working towards was how we could make money for other people.
As I approached the end of my degree course, I decided that a career in finance didn’t suit me and pursued one of my childhood dreams of being a Police Officer.
I think that being completely ignorant about how to really build wealth and not knowing about FI/RE allowed me to make some really bad financial decisions. It allowed me to experience the brief period of enjoyment by succumbing to consumerism completely guilt-free. I didn’t know any better. Just like when I look at my 18-month-old son explore the world around him, fearless, yet ignorant of all the dangers out there.
I enjoyed mymistakes at the time because I didn’t actually know I was making a mistake and utterly unaware of how destructive they can be for my long-term financial wellbeing.
So to show that I am not perfect and that the path towards financial independence does not require perfection, the post is about my own mistakes so far.
Maybe you can avoid some of these mistakes. On the other hand, you might not be able to help yourselfand there will be times when the urge to spend unnecessarily is too strong to fight. That’s okay too.
We all need to let our hair down every so often. Just don’t make a habit of it unless you can really afford to.
There have been times when I look back and reflect. It’s the very nature of my imperfect path towards financial independence which has helped me learn how to avoid moments of weakness at the latter part of the journey.
With potentially just a few years to go, these experiences have taught me to become conscious when these urges inevitably re-awaken. There will be times when a shiny new gadget comes along at just the right moment to test my willpower.
There is a saying which goes something like: your experiences shape who you are today. That’s partly true. Such a saying is sometimes used as an excuse to justify the poor decisions of the past. It’s missing the part where if I don’t learn from my experiences, then who I am today might be exactly the same person as who I used to be. In fact, there is a risk of the now me being worse than the past me.
Finally, there will come a moment when you realise you’ve made a financial mistake. Don’t be too hard on yourself. Take the invaluable lesson from it and be grateful that you’re one step closer towards FI because there are many people who continue to sleepwalk themselves into financial ruin.
Buying ‘Friendship’
Lesson 2 – People will take as much as you will give so choose your moments of generosity carefully.
I’m an introvert and for those really interested in the personality testing stuff, then I’m an INFJ-T.
Growing up I found it difficult to make friends. I was usually the quiet one sat in the corner of the classroom just getting on with my work. I would never put my hand up to ask questions because I would be too shy. Instead, I would end up going to the library during breaks to find the answers in books. I rarely went to speak to the teacher privately because I saw them as an authoritative figure which scared me.
To think that I’m now a Police Officer surprised not only me but those closest to me. This serves as a reminder to me to not let my own self-limiting beliefs prevent me from pursuing my goals, be it work, our FI Plan or anything else.
During sixth-form and university,I got my first part-time job in Nando’s (I love a cheeky a Nando’s and am even considering having a separatemonthly budget for it once FI). My starting pay was about £3.60 an hour.
I spent a large proportion of that money going out and always buying other people drinks. There were occasions where I was out with ‘friends’ and would wait until midnight to get paid. I would then go straight to the nearest ATM to withdraw the whole lot and buy a round of drinks.
Madness.
Looking back now, I feel a mixture of shame and sadness.
I honestly felt at the time that I was being generous and these people were my friends. In truth, I was probably just trying my hardest to fit in and wanted to be liked. It bought me a sense of happiness despite how false and fleeting it was.
Deep down, I didn’t enjoy going out as much as I thought I did. I especially disliked ‘clubbing’, the environment was dirty, loud, sweaty and smelly but I still went. I wish I had the courage to be comfortable with who I was and had the wisdom to know which relationships were worth investing in.
The Car (and a Motorbike)
Lesson 3 – A car is a depreciating asset and is not an investment. Getting it on finance is like allowing someone to rob you 10 times the original amount.
As soon as I was old enough to drive, I started to take lessons. Fortunately, my parents were kind enough to pay for these lessons which back then were £10 per lesson. I managed to pass with about 20 one-hour lessons which were about the average back then.
With licence in hand, I could smell the freedom.
No longer did I have to endure the journey to my sixth-form school in my suit and sports briefcase. I was a perfect target for any bully; all that I was missing was a spotty face, dorky haircut, slanty overworn shoes and reading glasses…oh wait.
In addition, it wasn’t so much the walk to the nearest bus stop, but more of the bus journey itself. On a rainy day, the buses stank of BO, it was humid, the air was stale and there was usually the pungent smell of cannabis which everyone knew to turn a blind eye to unless you wanted to be spat at or worse.
As soon as I turned 18, I marched into a Toyota dealership and placed a deposit for a brand new Toyota Yaris. What was the interest rate? I have no idea. Not because I have forgotten which would be understandable, but because I don’t even remember asking.
All I cared about was how much the monthly payments were going to be. My mind at the time calculated the cost by how many shifts I needed to do each month. So what if the car payment accounted for 75% of my pay. It was under a 100%, so hell yeah I could afford it. In fact, show me the list of upgrades!
Fortunately, when I told my parents about this purchase I was so proud of, they marched me back to the dealership the next day to try and cancel the order. To avoid losing my deposit, which I think was about £500, I bought a used car from them instead. Still on finance though. That car cost me £250 a month for the next three years. Money which could have gone a long way during my time at university.
Lesson learnt?
Far from it.
I spent money on the car, getting alloy wheels, changing the exhaust, improving the suspension, getting a better sound system.
Once university was over, I got myself a motorbike. A brand new one and on finance. I sold it back to the finance company a few years later having realised the errors of my ways and paying them for the privilege to do so.
That’s the reality of buying something that falls in value the moment your name is written on the title and even before it has a single mile on it. It was a cost I was willing to take a hit on as a valuable lesson to not do it again.
It was about the same time when I stumbled across the first book which introduced me to personal finance:The Richest Man in Babylon, byGeorge Samuel Clasonand my relationship with money started to change. I owe a lot to that book. It’s not the best personal finance book but for some reason, what I read made sense and stuck with me.
So back to the car. At the end of the day, it’s just a chunk of metal and plastic where its sole purpose is to get me from A to B. Even then, it’s not very efficient at doing that with fuel costs, road tax, MOT and maintenance. There is also the time cost of sitting in standstill traffic on the M25.
What’s even worse than getting a car on finance is some form of Personal Contract Hire where you pay a monthly fee to drive a new car every few years but you never own that car. The opportunity cost of those monthly payments say £300, not even including the initial payment in the thousands had the money been invested is astonishing.
Lets take an example of a medium size family car, like a Toyta Auris. At the time of writing (24/09/18), one of the ‘deals’ available is as follows:
