How my thinking about money has changed over 20 years (and what hasn’t)

When I started my first blog in 2004, I was in my early 20s.

I’m now in my mid-forties. And while my first blog no longer exists, I still remember a lot of the posts I’d written (and I can always peek into the Wayback Machine if I forget, you can too… enjoy!).

Over the last twenty years, my life has changed a lot.

I got married, we started a family, we bought our forever home, we got a wonderful dog, etc.

My thinking about money has changed too.

Here how:

Age & finances play a big role

Before we get into how my thinking has changed, the reason it’s changed has a lot to do with age, life experiences, and the improvement of our finances. When you have more money, your approach to money will change. In fact, it has to change.

When I was 23, I had exactly $8,745.69 to my name (and that wasn’t even taking into account $35,000 of student loans, which I didn’t record in my net worth spreadsheet). And $4,519.44 of that was in a Roth IRA.

What you do when you have $4,226.25 is different when you have $422,625. Or more.

It’s natural that my approach to money would change and evolve.

Also, the considerations and maturity of a 20-year-old are vastly different than that of a 40-year-old.

So I attribute much of these changes to better finances and getting older.

“What got me here won’t get me there” – evolving is necessary.

It’s OK to slow down

Do you remember the movie In Time?

It was a science fiction movie starring Justin Timberlake in which people stopped physically aging once they hit 25 years old. They are given a year of life that they use as currency. Once you run out of time, you die.

I enjoyed science fiction because you’re asked to accept an absurd premise and then think about the implications of that premise. The premise isn’t all that absurd and the implications are not unlike real life.

“Poor” people in that world have limited time and rush through everything. They eat faster, they run everywhere, and they rush through things because in that world, time is literally money. And when you run out of time, you die.

In our world, when you’re young, you’re often rushing through things too. You want to get to the next thing. You’re eager to achieve as much as you can, as quickly as you can.

As you age and as your savings and investments grow, you realize that the things you do have a smaller and smaller impact on your finances.

If you’ve been diligently saving $500 a month for 10 years (8% annual return compounded monthly), you now have ~$91,500 in savings on total contributions of just $60,000.

Do it for 15 years and now you’re at ~$173,000.

20 years = $294,500 and 30 years = $745,000.

At some point, if you’re diligent, your money makes more money than you do. There’s no need to rush because compounding is rushing for you.

Money is a tool for improving quality of life

I grew up in a middle class family that was financially stable but we were not rich.

We were frugal by choice. We saved money because it was expensive to fly back to Taiwan. We would go back about once every four years. We also saved because for some time we were the only ones in our family to be in the United States. It was our safety net.

The best analogy I can think of is that we slept with sweaters on but were never worried we wouldn’t have heat. I was never concerned where my next meal was but we rarely went out to eat.

When I was in my twenties, I remained frugal because that’s how I was raised. I saved a high percentage of my income because my expenses were low. I still went out with friends and had fun but didn’t make many major purchases. Cars were used and apartments were rented with a roommate – frugal but my expenses were not cut to the bone.

As I’ve gotten older and built up a larger financial cushion, I’ve been able to loosen up the purse strings a bit. We pay for things that I could do myself, but the time savings lets us do another things. Money is now a tool that we can use, rather than a resource that we need to hoard.

I still get annoyed at waste (yes, I turn off our LED lights knowing full well I’m saving mere fractions of cents!), something I doubt I will ever surrender, but spending money to make our lives a little easier is something I’m comfortable doing.

Becoming comfortable with investment losses

My first foray into investing was during the dot com bubble and I lost a (relative) ton of money. My portfolio was just a couple thousand dollars but I lost a big chunk in companies that I thought were the future (I was not a good predictor of the future.. and everyone lost money on JDS Uniphase).

In the more recent market volatility (during the pandemic and also this most recent inflation/Recession fearing market), we’ve “lost” the equivalent of houses. These are paper losses and only if you consider market highs as “ours” (which it isn’t). But we also got them back as paper gains once the market recovered.

In these instances, I don’t lose my mind because we’ve gone through these ups and downs before. When the market is soaring, the money isn’t “ours.” When the market is sinking, the money isn’t “ours.” It’s only ours when we sell and as long as we keep our financial house in order, we won’t need to sell.

Stop playing the game when you’ve won

When you’re 20, an aggressive asset allocation makes sense. You have nothing but time on your side and the volatility won’t break you.

Even at 40, you still have plenty of time but the amount of time is getting shorter. In the future, there will be years in which I’ll want to adjust my allocation so it’s less aggressive.

There’s also the issue of whether it makes sense to take on risk when you’ve already won. Our finances are stable.

I avoid speculation completely. That means I missed all the booms and busts of cryptocurrency. I didn’t invest in individual high flying companies like Tesla (though I am a shareholder now that they’re in the S&P 500 index!). It’s just not a game I’m willing to play because I don’t need to play it.

Doubling a small sum of money might be exciting but it doesn’t impact our life. Losing it would most certainly impact my mood. No upside, all downside… why bother?

I am getting better at spending

My friend Ramit Sethi says that spending is a skill. I agree.

My frugal upbringing was rooted in the idea that being frugal was a positive character trait. I still believe it is.

But it’s not the only character trait I possess.

And my ability to grow and evolve is one of them and one that I want to cultivate more than frugality.

And part of that process is learning how to spend money wisely. Money is a precious resource that shouldn’t be squandered but that doesn’t mean you should be looking to spend as little as possible.

By spending money in the areas that you care about, you’re improving your quality of life. And quality of life is the whole ball game!

When I’m on my deathbed, I won’t care about what’s in my bank account. While I’m not ready to Die with Zero, I appreciate the message and the sentiment.

What hasn’t changed?

The basics of personal finance are pretty much the same.

Harold Pollack summarized it on an index card:

1. Max your 401(k) or equivalent employee contribution.

2. Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds.

3. Never buy or sell an individual security. The person on the other side of the table knows more than you do about this stuff.

4. Save 20% of your money.

5. Pay your credit card balance in full every month.

6. Maximize tax-advantaged savings vehicles like Roth, SEP and 529 accounts.

7. Pay attention to fees. Avoid actively managed funds.

8. Make financial advisors commit to the fiduciary standard.

9. Promote social insurance programs to help people when things go wrong.

I think the index card still applies but needs a few additions.

It’s always important keep an eye on costs, especially if it impacts something as important as compounding. When you can get an index fund and pay a 0.03% expense ratio each year, why pay more?

While I don’t price check every single purchase we make, I still comparison shop when it comes to big expenses. It’s less about cutting costs and more about not letting someone else take advantage of us. I’m OK with spending my time there.

The basics are still the basics, but everything around it has evolved.

How have your finances evolved as you aged?