It’s easy to look back on all of the money you’ve made over the years and wonder “Where did the money go?” It’s a common thought – that we have squandered years of toil and trouble at work, and now have very little to show for it.
But is that true? Do we really have nothing to show for (in my case) almost 27 years of work? I recently looked back at a list of tax records to see how much money my dear wife and I have brought home in our paychecks over the years. I’m not counting money that was paid in for taxes, because we never saw those bucks, just our pay minus taxes.
I was quite surprised by the results. I expected to see some fraction of our earnings was left over, but our current net worth was actually 15% GREATER than all of the money we had been paid for our work. How could that be? It’s not that we hadn’t spent anything since we started working in 1989, so that means our savings and growth from “passive income” (investments) has more than offset our spending for almost three decades. It was hard to believe, so I had to look at it several times.
If you are a fan of the book Your Money or Your Life, you know that their concept of financial independence is when your passive income is enough to fully cover your desired retirement lifestyle. By this definition, we’ve somehow achieved this RETROACTIVELY.
We were good savers from early in our careers. We maxed out our 401k plans right away when we started working, and paid off all of our student loan & a couple small car loan within a few years. We had help from parents in covering half the down payment of our first home and also did a good job keeping our lifestyle in check relative to our growing income.
Don’t get me wrong, we’re not “frugal living” devotees – but we have banked quite a few raises and invested about 100% of our annual bonuses and income from a long-term stock plans. Clearly keeping what we earned, instead of immediately spending it got us off to a great start and the appreciation of these savings has made a huge difference. It has more than offset everything we had spent over more than a quarter century.
I don’t think I have ever read about anyone analyzing their net worth this way, so I’ll make this into a reader challenge (if you are comfortable sharing): Where are you at on this measure of “Where Did The Money Go?”
Add up all of the money you’ve earned (less taxes) over your career and compare it to your current net worth. At what % do you sit today? Are you close to 50%? 75%? Over 100%?
Why do you think that is?
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