The Incredible Power of Compounding (In Real Life)
Two weeks ago, I featured this quote in the newsletter:
In the initial years…compounding tests your patience and in later years, your bewilderment.
And last week I said now is the time to track your Q1 2024 net worth (it’s still a great time!)
With those 2 items in mind:
I rarely talk about my own personal finances, but this was too astonishing not to highlight the ‘in real life’ power of compounding and tracking:
Our net worth increased in Q1 2024, just from market growth, more than our entire net worth figure on January 1st, 2013.
Think about that!
That was two CPAs working and saving for over a decade to get to that January 1st 2013 net worth.
And now, from the immense power of compounding, just by sitting around and watching our investments grow for a measly 3 months, our net worth increased by more than that!
Truly astonishing.
What is Fat FI?
I was recently up in NYC recording two live podcasts with Paula Pant for her Afford Anything podcast (Episodes 500 and 501), which was so energizing and fun. I didn’t have “performing to a packed comedy club in Brooklyn” on my life bingo card!
I was fortunate to have a few of my lifelong friends make it out to the recording and Adam asked me via text the next day:
“Someone talking to you mentioned he is “Fat FI”…what does that mean?!?!”
My (slightly expanded) response was:
Fat FI is kind of like “rich FI,” which could mean a few different things:
- You currently have an expensive lifestyle (usually over $150k per year) and simply call that “Fat FI” to distinguish it from a more frugal lifestyle.
- You are living frugally now but want to spend more once you reach FI, so you need to save more than 25x your current expenses to be able to spend more in a post-FI life.
- You’re very conservative and don’t believe the 4% rule is safe enough, so even though you don’t plan to spend more post-FI, you save more than 25x to lower your perceived risk. For many this means saving 33x+ your current expenses (3% withdrawal) to deem it “Fat FI.”
My point to Adam was:
There’s nothing wrong with you choosing “Fat FI” in some form, as it’s ultimately just an equation based on your preferences and risk tolerance.
But let’s be clear: The sand is running through the hourglass of your life, and you can’t get that time back.
Working 5-10 years more just for extra security or the ability to spend a little more lavishly is hard to justify when you might give up 5-10 years of your life for that ability.
Need Your Input: Frugal Date Night Ideas
Michael recently asked in the Facebook group: “What are some fun and cheap/free date night ideas?”
There were dozens of great ideas, and I suggest you check them out for inspiration, but right now I’m asking for your help.
I’m going to do a podcast episode on frugal date night ideas and I want your input and ideas!
Hit reply to this email with your favorite date night ideas, or better yet, send me a quick voicemail.
I want to feature as many members of our community as possible and voicemails are more fun than me reading emails!
ChooseFI Community Taking Action This Week
Our 1% better has been cancelling difficult clients, over the last few weeks we have cancelled a couple of Commercial Property Management contracts as the client has become increasingly difficult to work with. This results in less stress and a smoother day to day business.
I bought, using 300k credit card points, 3 round trip business class tickets to Europe for myself, my husband, and my mom. My mother was outside of the Americas only once and it was 50 years ago as part of the military. She’s never made good money or traveled much and I cannot wait to see the look on her face when she gets ushered to her lie-flat seat in the front of the plane for a trip to Europe.
Thanks to Going (formerly Scott’s Cheap Flights) and KLM/Air France for this wicked redemption on points. Thanks to ChooseFI for what amounts to tens of thousands of dollars in savings on travel from intentional credit card use. Thanks for every other huge win you’ve given our family. I don’t know if it’s a 1% better, but it’s a great feeling and a rich life win and I am SO excited.
I’m writing this on a Tuesday morning as I fly to Florida to watch my favorite baseball team in Spring Training for a few days. As a freelance project manager for the past 6 years who is focused on my path to FI, I haven’t taken much PTO. I have even worked while “on vacation” in Europe and regularly on federal holidays. I figured my time is best used for earning more money which I can save and invest for FI.
This changed last December when I decided to exclusively accept 6+ month contracts on a retainer basis, rather than hourly, weekly, or project-based pay. I’ve realized that the psychological safety of being on a monthly contract has made me more comfortable taking days off work. My clients don’t notice or care when I’m on PTO as long as I deliver the results they need. I’m earning the same nominal monthly $$ but working less, so in terms of the hours I am sitting in front of my laptop I am earning probably 10-20% more now.
I’ll be watching baseball this week while collecting income, and when I’m back at work on Friday I’ll have a bunch of new “memory dividends” in the bank.
My 1% better this week came when I decided to finally tackle a project that’s been hanging over my head. Months ago I noticed the keyhole on my car door was damaged (likely in an attempted theft) and was no longer usable. I kept putting off fixing it because I use an electronic key fob and push button start, so I really only need the door’s keyhole in an emergency. Plus, car locksmiths were quoting me $350-500 to fix it.
This week I finally sat down to do some research for myself, and discovered my local dealership sells lock cylinders for just $30. I looked up videos online of how to remove my current lock cylinder and it was actually very easy to replace it myself. I’ve got a brand new lock and key for only $39 after taxes and shipping, saving me hundreds of dollars and teaching me a new life skill.
My 1% better is my husband and I are now, effectively, a one-car family. This has snowballed into other areas.
How we got here: in 2022 I found that we had reached our Coast FI number when I got an estimate of how much Medicare + Supplements would cost from friends of ours. About a month later, we were close enough to having “Farewell to U” level of expenses that I was able to leave my full-time job. I picked up a part time job in February that allows me to drive my husband to work and get to my job. Also in February, our older daughter got her first full-time job, so she is buying our other car. Win-win.
So now, my husband and I have more ‘chat in the car’ time and I have time during my driving to dedicate regular time to listening to podcasts. I’m looking into ways to hone our financial lifestyle, to improve our health for the long term, for me to look for ideas for remote part-time employment, and to gain knowledge for our hobbies.
Bonus 1%: the peach tree we planted last year and the nectarine tree we planted two years ago are blooming profusely – a first for both trees. Exciting start to March!
My 1% better this week is I finally sent off the list of estate planning contacts to the lawyer we will work with to finalize our will and establish a trust. We’ve been saying we need to do this for the last 15+ years but kept letting it fall to the bottom of the priority list. Episode 476 gave me the kick in the pants I needed to get this done!
