In this first example post of the series on personal finances, I’ll share some details of how my personal financial resilience (number of years that my accumulated financial wealth can sustain my lifestyle) has varied through my short career to date. This example should give a good indication of the factors that make or break financial resilience, putting the previous posts on the topic of wealth into some real world perspective.
Firstly, I have to acknowledge my financially responsible parents who put me through university debt-free and invested some money in my name many years ago in order to give me a smooth start in real life. I really am deeply grateful for that. The result was that I could move my life from South Africa to Norway and start fresh in a permanent research position with zero debt obligations.
This move was right after my student days which taught me (among many other things) the priceless value of thrift. That, combined with the ridiculous Norwegian prices, caused me to save 60-70% of my income during my first two years years in Norway. I lived in a single room with a shared kitchen and bathroom rented out by a friendly old Norwegian lady for a very modest price and, because of that, my financial resilience rocketed from 1 year to a full 5 years.
By the end of these two years, I was financially free and decided that it was time to acquire my own apartment. And yes, I soon found out that this was probably the most efficient killer of financial resilience on earth. The initial down-payment and the furnishing of the apartment consumed more than half of my financial wealth at the time and tripled my monthly accommodation expenses. The result was that my financial resilience instantly slumped from 5 years back to 1 year.
As a result of the increased living expenses, I now only save/invest about 30-40% of my income in financial assets with an additional 10% or so being the non-interest part of the home-loan payments (essentially savings in a fixed asset). Now, almost two years later, my financial resilience has recovered to over 2 years, implying that I am once again financially secure, but not yet financially free.
The next big impact on my financial resilience will probably be the starting of a family, but that is still many years in the future. For the time being, I will just patiently build my financial resilience beyond the point of total financial freedom so that money really has no influence on my life whatsoever and I can simply focus on living.
So, that’s it. Yes, it is pretty boring I know, but that is the way that personal finances are supposed to be. The rest of life should be filled with lots of thrills and excitement, but when it comes to personal finances, you really don’t want any drama. Boring personal finances really form the basis for a very exciting life.