Saving Myself

Jonathan Clements

WHAT DOES IT TAKE to succeed financially? Pundits love to parse stock market returns, dig into the minutiae of Roth conversions and debate retirement withdrawal strategies. Yet, when asked what’s the most important financial virtue, almost all give the same answer: great savings habits.

That mundane reason certainly explains my financial success. Yes, I’ve benefited from owning index funds, holding a stock-heavy portfolio and buying enthusiastically during market declines. But all of that has been gravy. Instead, what’s done the trick is earning a steady income and keeping my living costs low—and taking the difference between those two and socking it away for the future.

Reaping windfalls. When I moved to New York from London in August 1986, I was a year out of college with no savings, $1,000 in credit card debt and a fiancée who was a graduate student. My starting salary as a reporter (a.k.a. fact-checker) at Forbes magazine was $20,000 a year. Needless to say, there wasn’t much left over once rent, commuting costs, food and other necessities were paid for.

But every so often, windfalls would arrive in the mail—a health-insurance reimbursement check, a tax refund, money from a freelance article I’d written. Unlike my paycheck, this money wasn’t already spoken for. I would immediately deposit these checks and then mail off an offsetting check to one of my investment accounts. I can still recall the pleasure of reviewing the resulting account statement, with its modestly bigger balance.

Later, the windfalls got much larger. I penned three books that garnered sizable advances, which I was able to save, because I wrote all three books while holding down my day job. Similarly, my six years at Citigroup meant six year-end bonuses, though those were icing on the cake, because by then I was already comfortably on track for retirement.

Cheap digs. In late 1992, my first wife and I bought a home—and it was, in one sense, a mistake. At $165,000, it was less than we could afford, and yet we worried about paying more. The three-bedroom, one-bath colonial was located on a busy street, and badly maintained, to boot.

I lived in that house for almost two decades. After some expensive renovations, it was no longer a badly maintained three-bedroom, one-bath colonial. But it was still on a busy street and it was never a house I loved. Nonetheless, because the mortgage payments and property taxes were so low, I was able to save prodigious amounts. Indeed, the gap between my housing costs and my paycheck grew ever larger in the decades that followed, thanks to frequent pay raises.

Since then, I’ve owned a couple of apartments that I have loved. Still, living for two decades in that $165,000 house was, I suspect, the biggest contributor to my nest egg’s growth.

Out of hock. Soon after we closed on the house, a mortgage statement arrived in the mail, with a payment coupon for the next month. There was a line to include an additional principal payment. I added $10.

Every month thereafter, I’d add extra to the mortgage check, with the sum growing ever larger. I rationalized that paying down my 7%-plus mortgage offered a better after-tax yield than any bond I could buy—and, indeed, at the time I owned little or no bonds in my portfolio. I finished paying off the mortgage a dozen years later. Like the modest windfalls I saved every time they arrived in the mail, adding extra principal to each mortgage check was another example of a small step—taken consistently—that snowballed into a huge financial win.

Hard road. Housing is the typical American family’s biggest expense, accounting for a third of their spending. No. 2 on the list: cars, which devour 16% of spending.

I’ve never cared much about the car I drive. Admittedly, for 13 years, I owned a Lexus SC300—but I bought it secondhand and drove it until electrical problems made starting it a daily dice roll. In fact, almost every car I’ve owned has had a previous owner and often multiple previous owners. It’s been a big money saver over the years.

No interruptions. I’ll take credit for my good savings habits. But I’ve also been lucky. I’ve never been laid off or had a long period of unemployment—though I would have been fired from my first job out of college, if I hadn’t made it clear that I was planning to leave anyway.

That job was as a reporter-researcher at Euromoney magazine in London. The editor, Neil Osborn, could barely disguise his disdain for me. For years, I hung onto the draft of one of my articles, across the top of which he had scrawled, “This is shit.” His summation of my talents, delivered when I told him I was leaving: “You seem smart enough. Maybe you could be an analyst. But you can’t write to save your life.”

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Breaking BadBullheaded and Count the Cash. Jonathan’s latest books: From Here to Financial Happiness and How to Think About Money.

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Boss Hogg
Boss Hogg
3 years ago

I appreciate your writing going back to the WSJ (print edition). You are a personal finance pioneer. I wonder how much of this comes natural to you, without much conscious thought, until you want to relate it to others? What I’m getting at is I sense you are kind of wired for this, and your readers benefit, but those not so wired will naver attain the personal financial awareness you have.

I’m curious what that $165,000 house is worth today.

3 years ago

you forgot a few reasons in this great summary of your life, that allowed you to end
up on the winning side of your life:

. being healthy most of the time
. being born in the right country
. working in the right country at the right time

. being born with the right skin color
. liking your job most of the time, which allowed you to get better pay from great work
. not divorcing more than once
. not having 10 kids
. being smart
. being sceptical of the ‘too good to be true’ sales tactics used on you

. being mentally stable (no need for drugs, alcohol, sugar overdoses on a regular
basis to feel good)

. being humble

Mik Barbasol
Mik Barbasol
3 years ago
Reply to  alain

Please explain to us what what skin color you believe is most beneficial and why for financial success…???

Joe Tillman
Joe Tillman
3 years ago

You know Neil Osborn was an idiot. I have followed your writings since the WSJ days.
You are one of the few writers I recommend when asked about good financial advice.

Peter Blanchette
Peter Blanchette
3 years ago

I respect you very greatly as a journalist over a very long period of time. You always give great advice for everyone reading your articles here and going back to the WSJ where I discovered you. This article is another in a long series of quality journalism.

However, I believe that, like many pundits(financial and otherwise) you conflate the personal habits of Americans with the more structural issues of the American economy. The latter has much more of an effect on the financial condition of individual Americans. Scolding people(you do not do this) by saying that they are poor because of poor financial habits takes little effort. I understand why it is done because not every one who writes these articles is an economist. I understand that. To allieviate some of this I would suggest something like: encourage people to use state colleges, suggest free government publications that would educate individuals on financial issues and suggest that they VOTE if they are concerned with their financial future. From the CBO is the following:

“The data reveal starkly uneven income growth over recent decades. Between 1979 and 2006, real after-tax incomes rose by 256 percent — or $863,000 — for the top 1 percent of households, compared to 21 percent — or $9,200 — for households in the middle fifth of households and 11 percent — or $1,600 — for households in the bottom fifth. (See Figure 1, next page.) In 2006, the average household in the top 1 percent had an income of $1.2 million, up $63,000 just from the prior year; this $63,000 gain is nearly two times the total income of the average middle-income household. 1 In addition, the share of national after-tax income going to the top 1 percent of households more than doubled between 1979 and 2006, rising from 7.5 percent to 16.3 percent.”

Roboticus Aquarius
Roboticus Aquarius
3 years ago

You nailed it. Housing and car costs are the biggest impediments to the ability to save, and to become wealthy. This part is really very simple, and yet not very well known.

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