Investment & Retirement: My Journey to Financial Independence — The Beginning
I love finance and investment. However, pretty much in my life I didn’t have any proper training about how to manage money or make profit from it. In addition to that, living in our current economy makes people feel uncertain about their future and tend to make foolish decisions to survive. Therefore, I decide to document my personal journey to Financial Independence because it’s the final destination where I am going to be when I’m ready to retire.
***Below story depicts my personal experiences with investment. This is not for educational purposes about finance and retirement since I am not a professional financial advisor. I strongly suggest doing research on what works the best for your retirement.***
Financial Independence vs. Weath
People are often confused between Financial Independence and being wealthy that ones who are able to achieve Financial Independence are supposedly very rich. Even though there exists a positive correlation to support above claim in most cases, being wealthy is not really the only reason that people want to take control of their finance. Moreover, the concept of wealth is hard to fathom since everyone has different perspectives about being rich. The path to become wealthy is even more difficult to attain that requires efforts, perseverance and luck. That’s why my immediate goal for myself as a financial novice in this long journey is to have some basic backgrounds on how to manage my personal portfolio that performs well in many different situations throughout my lifetime.
Some backgrounds about me
I am a very young, enthusiastic and passionate software engineer. I was very fortunate to graduate from colleges without debt or student loans thanks to financial aids and scholarship. I also had a good paying job since I graduated from my undergrad so the idea of investment came to me at a very young age. I don’t plan to get married or start family soon so it gives me time to focus on building my portfolio in a long term. I would say I am very frugal in terms of spending habits. This definitely gives me advantages to spend more money into investment or something that are appreciated over time.
401k Account and Emergency Fund
During the time working at my post-college job I learned that my company had offered a 401k, a tax-deferred retirement account. They provided a very good match up to 6% and also offered a ROTH 401k, a tax-advantage retirement account. Both of them were from Vanguard. Since I didn’t have any knowledge about these retirement accounts at the start, I didn’t contribute anything at all for the first few months. After an one-on-one conversation with my boss at the time, I told myself I had to contribute to my 401k until at least I got a full match because it was free money from our company. I made my first contribution to 401k but didn’t do anything with ROTH and it ended up being my biggest investment mistake in my early 20s. Meanwhile, I started building my own emergency fund for 1 year. That’s why I could only give 6% of my paycheck for 401k. I know I could do better but I’m glad that I had started early with my savings.
Graduate School, HSA and New Debt
About 2 years into my first professional job, the idea of going back to school had made me realize that I also needed to save for my tuition instead of asking for student’s loan. I went to school part time as well as keeping my full time job to help fund school expenses. My goal was trying to finish school early (~1 year — 30 credits total). This is another type of investment that, I think, will help me in a long run: An “education” investment.
At the same time when I started going back to school, I had learned more about HSA, a triple tax saving account that I was not aware of in the past. Since I was enrolled in a high deductible health plan I was also qualified for HSA contribution. Compared to other saving accounts, HSA didn’t let you contribute much so I tried my best to max out this account first because of its tax saving advantage. One thing that I learned recently: to get the most of HSA account, people should pay their medical bills using their own pockets and leave HSA account untouched. We need to start this habit because HSA allows us to invest and we should let the compound interests grow as much as it possibly can. Moreover, we also have the ability to reimburse all the money we have paid throughout the years as we reach full retirement ages so don’t throw away the medical receipts.
After a few years saving up, I think it’s time to treat myself with something nice. As my sister started going to college she needed a car to commute. Therefore I gave her my current car and bought myself a brand new SUV. I decided to go with financing this time as an “excuse” to increase my credit scores. Yes I could pay everything in cash but never had I been in a certain debt and this was not good for my credit due to lack of credit mix/diversity. To keep myself from paying this auto loan forever, I added extra payment to principal every month in order to shorten the time of this loan. I heard there was restriction to prevent user from paying off early but it was not applicable to my loan. My target goal was to pay off this debt for 2 years.
Graduation, Job Hunt and 401k Pause
The time has come. I officially graduated from graduate school with no debt (again!) after 1 year of studying. I hope this achievement will set me apart from other candidates when I apply for job in the future. Speaking of job I was actually in the job market searching for new opportunity right after being out of school. I also planned to go live with my parents for a few years to save money. It was a perfect timing that my apartment lease was up as well. Because of all these reasons, I quit my job of 4 years, moved out of apartment and went back to my parents’ place to start a new life. The bad news was I had to stop contributing to my 401k because I was no longer employed and had not found any new job yet. I was financially frustrated and disappointed of myself. Thanks to the support from family I tried to stay positive and eventually got a local contract-to-hire job. Even though this temporary job offered me a retirement plan after 3 month of employment I felt like I could wait until they hire me permanently. I also rolled my 401k accounts from previous company into an IRA account for easy management and cost reduction.
2020 Pandemic, ROTH IRA and big lump sum
Right after I started working at my new job for a month, the world experienced a global pandemic caused by COVID-19 virus. I was afraid I might become jobless again. But I am not. The only change was that my company allowed everyone to work from home instead of going to office every day. Hence, my income was stable during the pandemic.
During the quarantine, I learned the benefits of ROTH IRA to my retirement because it’s a tax-free account. I immediately opened a ROTH IRA account with Vanguard and the process went very smoothly. Plus, I was able to catch up my contributions for both 2019 and 2020.
As mentioned before, I am staying with my parents right now to save money for my future’s plan. I also have a bunch of cash sitting in my checking account doing nothing. Because my parents have a mortgage with a high interest rate I am thinking of dumping all the cash I have to the mortgage’s principal so their house can be paid off faster. It’s such a relief for me because, I believed, this chunk of cash has been invested in some way even though it will take me a few years to rebuild it. On the other hand my emergency fund is still being kept in a high yield saving account.
I know this is a long rant but thank you for reading it. I hope it somewhat relates to your experiences to become financial independent. This is just the beginning of my journey. I will post my updates with tips and tricks to show my progress and performance throughout the years.
Feel free to share your personal journeys because you never know if your story has helped someone out there.