About the author: Jonathan Clements is the founder of the personal finance site HumbleDollar. He spent nearly 20 years at The Wall Street Journal, where he was the newspaper’s personal finance columnist, and six years at Citigroup, where he was director of financial education for the bank’s wealth management arm in the US. Read a section edited with permission from Harriman House from My Financial Journey: How 30 People Found Financial Freedom—and You Can Too.
It was the end of 2007. I was about to turn 45. I was in an unhappy relationship and didn’t have the courage to end it. I was talking about my 1,000th column in the Wall Street Journal. I wondered how long I could go on before my articles turned into repetitive nonsense. My running career, which had been the pride of an English schoolboy so cowardly, was faltered, and my Achilles tendon aggravated by a bone spur.
After years of saving, I have a mortgage-free home and a portfolio of $976,000. But my two children were my only source of happiness. Hannah was in college then, and Henry in high school.
I don’t mention this to claim that money often fails to buy happiness, although I do think this is true. I even recall the end of 2007 to draw a line through my life calendar. The years that followed brought events—good and bad—that upset the predictable rhythm of my life. But it was the monotonous early years that put me on the path to financial independence. And along the way, I’ve learned 10 key financial lessons. I can’t claim to be naturally thrifty. I spent my college years and my first year in the workforce racking up credit card debt and occasionally overdrawing my checking account.
In August 1986, after working in London for a year, I moved to the New York area and settled down with my fiancée, who was a PhD student. She had a modest salary, so I was the main breadwinner, earning at first a miserable sum of $20,000 a year at Forbes. I had to grow up financially, and I had to do it fast.
We have called these years the “lean years”. The takeaway pizza on Friday night was exorbitant. Car repair was a crisis. Our Brooklyn apartments left me terrified of cockroaches and mice. The occasional restaurant meal would have me pay the bill when ordering food – which is totally indigestible.
Things slowly got better. My salary went up, and my wife got an academic job. In 1992, we moved from Brooklyn to the house we had bought in suburban New Jersey. The house, at $165,000, had three bedrooms and one bathroom, and was hardly affordable. I will live there for two decades.
Financially, the only major hit during those two decades was our 1998 separation and subsequent divorce. It wasn’t very successful because we didn’t have much to split. The silver lining that I only later appreciated: After the divorce, I had to make up my mind about every dollar I earned.
Journalism wasn’t a high-paying profession then, and it’s even worse now. However, I had a knack for taking the somewhat boring topic of personal finance and making it understandable. By 1994, when I was 31, I had become a columnist for the magazine on personal finance.
I hastened to supplement my salary. I wrote a second column every week for the Wall Street Journal Sunday, and I got paid extra for it. I’ve written three books over the course of a decade, and they each garnered advances in the low six figures.
Where did you hide this money? A lot of it went into stock index funds. This brings me to one of the first financial lessons I learned: If you want to outperform most other investors, just aim to match the market averages. I have become known among my colleagues and readers – perhaps infamous – for favoring stock-heavy portfolios built with broad-market index funds. I got it wrong many times, but that was the only thing I got right.
And while I thought of my stock index funds as growth money, I saw mortgage payments as an alternative to bonds. This brings me to the second early lesson. Why would I buy an actual bond at 4% or 5% when I could actually earn more than 7% – my mortgage rate at the time – by paying off my home loan? By 2005, I was mortgage-free. It was the best bond investment I have ever made.
The third major lesson I learned from those early years: the importance of a low fixed cost of living, which – when combined with my rising income – has allowed me to save huge amounts every month. My humble home was the biggest factor. But in fact, I was reluctant to spend on almost anything. I don’t eat out much. I’ve driven the same used car for years. I’ve taken my kids on fun vacations, but I’ve always kept a close eye on the cost. This was a great strategy for accumulating wealth. I’m not sure it’s a great strategy for enjoying life.
I wasn’t counting the pennies—I was never too mindful of a budget—but I did keep myself on a financial leash for a little while. I never liked the house I lived in for those twenty years. The occasional indulgence, along with less self-inflicted work stress, would have taken some of the pressure off my path to seven figures.
And while the two decades leading up to 2007 were a long period full of predictable days, the years since my forty-fifth birthday have seen all kinds of upheaval. I left The Wall Street Journal in 2008, then spent six years there
Ultimately, I focused my efforts on HumbleDollar, the website I launched at the end of 2016.
Over the past fifteen years, I’ve written eight books, moved home four times, remarried, and—sadly, divorced again.
There’s a fourth lesson here, and it’s one I learned from researching happiness: Our life satisfaction is U-shaped, with many of us hitting bottom in our late 40s. Do you want to escape the misery of middle age? Saving early in life can give us the financial flexibility to change the course of our lives.
For me, the past 15 years have seen the kind of trials and turmoil you would expect from someone in their twenties — a phase of life that I never experienced because I was pushed so quickly into the role of breadwinner. In fact, I have begun to refer to this period as my second childhood.
How was my financial performance during this stretch? It was a mixed bag.
When I joined Citigroup in 2008 and became Director of Financial Education for the bank’s Wealth Management Group in the US, my financial home was already in good shape. But my income doubled even as I continued to live as a newspaper reporter.
Working for a Wall Street firm was an education: I got to see the inside of the consulting business. But towards the end of my career at City, I realized that – for the only time in my life – I was only working for a paycheck. My dollar income may have been impressive, but the psychological income was not. And in early 2014, I resigned.
Meanwhile, I’ve sold three homes over the past twelve years. One was a huge success – the apartment you bought in New York City in 2011 during the height of the housing crisis and sold three years later. But one of them was a total disaster that probably left me over $100,000 poor. What happened? Among other things, the apartment’s fee was higher than the neighboring properties, which made it difficult to sell.
Therein lies lesson five: Almost all of us suffer one or two major financial blows during our lives, and it pays to be financially prepared, including having plenty of cash. This particular storm was painful, but it did not threaten my financial future. What about my wallet? Like everyone else who owns stocks, my investments were crushed by the stock market defeats in 2007, 2009 and 2020. But despite relentlessly saying that financial markets are insurmountable, I saw market pullbacks for what they were – moments of investor panic that caused stock prices to decouple from intrinsic value – and I bought like crazy. I entered late 2008 with 70% of my investment portfolio in stocks. By the time the market hit bottom in March 2009, I was at 95%.
This is the sixth major lesson I’ve learned in my investing career: Every now and then, we see a temporary investor frenzy, and that’s when we might stray from our usual asset allocation.
During the 2000s, my investment portfolio was entirely in index funds and mostly in stocks. But I had huge holdings of index funds focused on value stocks, small-cap stocks, developed foreign markets, and emerging markets, all of which lagged significantly behind during the US bull market of 2009-2020. Lesson 7: If you diversify widely, you will own the big winners in the stock market, but you will almost certainly also own the companies that fail.
Yes, I would have done a lot better if I had kept an unbalanced portfolio focused only on large cap US stocks. But I’m not about to change strategy. I have no idea what parts of the global market will shine in the next decade, so I will continue to own a little bit of everything.
Amidst the financial triumphs and disasters of the past 15 years, perhaps the biggest change is this: Even as I spend my days writing and thinking about money, I spend very little time thinking about my finances. In a world where so many people worry about how to cover daily expenses, I have come to see not thinking about money as a great luxury. Lesson #8: Often, the best way to buy happiness is not to buy anything at all – instead simply sit on a savings pile and enjoy the resulting peace of mind.
I’ve also become more comfortable with my spending. I enjoy helping my kids financially and funding a 529 for my grandson, and lately I’ve become more focused on charitable giving. Which brings me to Lesson 9: I have found that it is more pleasant to spend on others than to spend on myself.
Not all is well in my world. Like a moving force that stays in motion, I’ve found that decades of hard work have created a momentum of their own, a momentum I find hard to resist. In part, I attribute this to the delusion that what I am doing matters, which it may be, but not as important as I imagine it to be. And herein lies the tenth and final lesson: Time management is more important than money management, because time is the ultimate finite resource. I should live a more balanced life. I know that intellectually. But I’m still trying to convince myself.
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(tags for translation) Banking