Even though my wife Susan deserves the lion's share of the credit, I am immensely proud of my three daughters – Alison, Emily, and Katharine, who are now 30, 27, and 24 years old. Here are pictures of Susan and me with them nearly 25 years ago and today:
They're kind, smart, hardworking, athletic, and beautiful. And they're good investors – despite never having bought a stock.
Allow me to explain...
Being a good investor doesn't mean being a good stock picker. It means making good financial (and life) decisions so that you build wealth over time. In doing so, you can live a life without financial stress and retire comfortably.
My daughters are off to a good start, following in the footsteps of my parents. As I wrote in my June 8 e-mail, my parents achieved financial security:
... despite never earning high salaries, nor did they inherit a meaningful amount of money or strike it rich with any investments.
No, they achieved financial security the old-fashioned way: slowly and steadily.
The keys to their success can be broken down into three categories: income, expenses, and investments...
Regarding income, my daughters have been steadily employed since graduating college – just as my parents were for their entire working lives:
... and neither was ever involuntarily unemployed.
Like I mentioned, they never earned high salaries. They met and married as teachers in the Peace Corps in 1962 and have worked for schools and other educational nonprofits their entire careers. But two incomes – even modest ones – add up over nearly half a century...
Plus, they didn't get divorced, which can be financially devastating (in addition to often being an emotional disaster for everyone involved).
My daughters are following in their footsteps regarding expenses, too:
The single most important thing you can do to build your wealth is to live beneath your means – which is exactly what my parents did. Every year, they were net savers. No matter what their after-tax income was, they spent less than that.
All three are living beneath their means, despite the challenge of doing so in the most expensive city in the U.S. – New York City, where the cost of living is more than double the national average.
For example, to mitigate the cost of housing – also the most costly in the U.S. – two of my daughters lived at home for a while, and now they all have roommates. (Emily and Katharine share a modest apartment, while Alison lives with her boyfriend.)
As I continued in my e-mail, the key to living beneath your means is to develop good financial habits:
A 1996 book called The Millionaire Next Door: The Surprising Secrets of America's Wealthy shaped my thinking on this topic...
The authors refuted many misconceptions about financial success – chiefly the idea that to become wealthy, you have to inherit money or have a high-paying job like a Wall Street banker, celebrity, or professional athlete.
But, in a fascinating finding, it turned out that income level was only moderately predictive of whether someone would become a millionaire. More important was whether they lived beneath their means, year in and year out...
Our economy and financial system are incredibly predatory in many ways. They make it easy to spend, luring people into living above their means, including taking on debt. It's imperative that you resist this siren song. No matter what your income, figure out a way to live within it.
My parents are ridiculously frugal – clipping coupons, buying used cars and clothes, etc.
Here's another example: They could easily afford to travel comfortably in their old age. But in their entire lives of traveling frequently all over the world, they've only flown business class once.
My dad splurged for their 50th anniversary in 2012, when they flew from their home in Nairobi, Kenya to Manila, where they got married just before starting the Peace Corps in the Philippines. Here are pictures from that day, December 10, 1962, and today:
Now that my parents are financially secure, I've been encouraging them to stop saving and start spending. As I described in my June 10 e-mail:
... they should look for additional ways to spend to 1) maximize their happiness, comfort, experiences, etc. in their remaining years, 2) do the same for the people they care about, and 3) make a difference in the world through charities and political donations.
I told them they could likely easily double their current spending, and in doing so their net worth – assuming modest stock market returns – probably wouldn't budge (it has been going up every year for the past five years).
My parents are huge penny-pinchers, which, over a lifetime, is the main reason they're financially secure. But now that they've achieved this security, they should enjoy it by spending their money – not on material goods primarily, but rather experiences.
Extensive research shows that this is what leads to the greatest happiness...
I'll discuss the final piece of the puzzle, investing, in tomorrow's e-mail. Stay tuned!
In the meantime, I suggest reading my September 20, 2021 e-mail. In it, I shared the financial advice I gave to a recent college graduate I met in Yosemite National Park.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.