January 12, 2009

My Financial Story : Part 1 - Important lessons of Childhood

A little over fifteen years ago I was 22 years old, unemployed, living with my parents and in debt with credit cards and student loans. Today I'm gainfully employed making over $100k, married, own my home as well as rental properties and we have a net worth over half a million dollars. I've made good progress in the past 15 years. Though I'm no Bill Gates or Oprah, I'm doing better than average. How did I get where I am and what shaped my journey? To understand my perspective I think its best to hear the entire story including all the mistakes and successes I've had along the way. Over the next few days I am going to write about my own personal financial story. I'm going to cover my own experiences with money from early childhood through present. Today I'll start with my childhood years.

I believe we learn our financial habits primarily from the example set by our parents. My parents set a very good example for me and taught me good money skills. Most of my financial story growing up through childhood was the various money lessons I learned.

When I was very young my first recollection of money was about saving. I remember being at the toy store and wanting to buy an item that cost more than my 50¢ allowance. My mother told me that if I wanted the toy I could save up my money from more than one allowance period and then buy it later. I think I must have been around 4-6 years old at the time.

Another strong lesson about money I learned a while later in childhood was from my father. I'm guessing I was around 8-10 years old. Dad had offered my sister and I some money to do some work around the house. If I recall right he offered to pay us the mighty sum of 75¢ each to do the job. The work turned out to be harder, more boring and time consuming than we thought. My sister and I wanted to quit and get paid at least partial payment for the work. However my Dad would not let us do half the job and he insisted that we finished the work we started per the agreement in order to get the pay. At the time we thought he as a heartless ogre but he knew what was right. I learned a few things from this. I learned that making money took hard work and I learned that you need to honor contracts.

In general my parents were always pretty frugal. My dad didn't buy new cars. We never bought expensive clothing and eating out was an infrequent treat. My parents didn't spoil us and the words "we can't afford that" were often used. Mom shopped for bargains and clipped coupons. My parents didn't carry credit card debts and I remember Dad being pretty against debt in general. I learned to control spending from my parents and they taught me that its not necessary to have new expensive stuff and keep up with the Jonses in order to be happy. However as a child at times I felt embarrassed by the run down old car we drove, my used bicycle or the off brand clothes I wore. I sometimes felt my parents were 'cheap'.

I grew up in a single income household. My mother didn't work when I was growing up and she was a stay at home mom. My Dad and uncle both worked in a skilled construction trade and were members of the union. They had a hard time finding work in the 1980's due to the economy. At times Dad worked only half of the year and he had to travel to other states for months at a time in order to find work at all. I saw how hard it was for him to keep a steady pay check when the economy got rough and I learned how work isn't something you can always count on. When Dad wasn't working our income was fairly low. We never wanted for any necessities. Thankfully we had no mortgage or consumer debt and our spending was low as well so we never really hurt from it but it was still a struggle for them to get by in those lean years. I learned the value of keeping spending and debts low.

Starting in the 1980's my parents invested in rental real estate properties. They bought rentals with a down payment and then carried mortgages on them which were paid by the rent income. Over the years they bought more properties. Generally this didn't net much cash flow at least initially and it was mostly a tax dodge and a long term investment. So many years went by that my Mom and Dad spent a lot of their spare time working on rentals and dealing with renters for little direct benefit. However gradually as time went by the rents kept going up and the mortgages stayed the same resulting in slowly increasing cash flow. Then after many years the mortgages were paid off one by one. Now in retirement my father has several rental properties all debt free providing him a significant annual income. I saw how well rental real estate can be as a long term investment and I saw exactly how much work and costs it can entail.

My parents always encouraged applying myself in school. I did well in school academically and somewhere along the line I learned that good grades and applying yourself in school are important for your future. Even though my parents were pretty frugal they did splurge on one item and bought us a personal home computer. At the time in the early 80's there were numerous 8-bit based computers being marketed to home consumers. My parents bought our family a computer and this played an important factor in my future career. I recall that a big part of the reason they bought it for us was so that it could be used to help our education.

When I got into high school I started to compete in academic competitions. This was mostly for fun and as an extra curricular activity. Some of the competitions actually had cash prizes. In my junior and senior years I won several hundred dollars in regional and state academic competitions.

Pretty early I decided I wanted to become an engineer. This decision was mostly based on my interests and aptitudes and it was mostly a happy coincidence that engineering jobs are paid well. My parents never pushed any particular direction me career wise but they encouraged that I look at jobs with good demand and earnings. I joined the Explorer scouts in high school and I learned about careers in engineering. One evening after the meeting I was waiting in the parking lot for my Mom to pick me up with some other kids. We saw a Porsche in the parking lot. One of the engineers from the program came by and saw us admiring the car and he told us how his coworker had bought it with cash.

I knew that my parents didn't have a lot of money and really hadn't had a chance to save towards my college education. It was clear that I'd have to get scholarships and/or financial aid in order to afford college. I applied to about seven schools and got scholarships and substantial aid packages from most of them. Ultimately I was only able to afford two of the schools. One was a private school in my home town and the other was a large public school on the other side of the state. I could afford both schools given the scholarship and aid packages. I ended up choosing the public school since the loans would be lower and it was out of town. So off I went to college where my first real dealings with personal finance started.

In my childhood I learned a lot of important very lessons about money: I learned the value of saving. I learned the value of hard work. I saw directly how low expenses are important in tough times. I learned frugality from my parents. I saw how rental real estate can be a very successful long term investment.

In the next part of my personal financial story I'll talk about my money experiences in my college years.

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