Wealth example: Financial resilience

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. 

7 thoughts on “Wealth example: Financial resilience”

  1. It really comes down to simple or not so simple economics. I wish our schools taught more about this. It is never too late to teach the basics.

    We always have choices to make and many are very difficult. Apply the opportunity cost and make your decisions. Many want more than they can afford and learn the lessons the hard way.

    I perhaps do not have all I want, but I have peace of mind which is priceless.

    1. True that. Money cannot buy much happiness, but a clear lack of money (and overwhelming debt) can definitely bring lots of misery. Your peace of mind regarding personal finances is definitely a very valuable thing and I wish that more people had that…

  2. I can’t begin to tell you how good it feels (for me) to be financially free. My parents did not save for me to go to college, nor did they save or invest in a retirement plan (they are retired and on social security). I had a lot of activities growing up, and was a busy and happy child. However, looking back, I don’t remember my parents or school teaching about saving, investing, or debt. I am 40 and JUST FINISHED paying off my student debt and, in fact, all of my debt. It was painful and quite stressful. Now I am FREE! It feels great.

    My husband, on the other hand, had his entire university paid for(room and board) as well as stock in a certain software company given to him throughout his childhood. He has always had a very good outlook on saving, investing, and paying off debt.

    I learned by making bad decisions in my early days (this isn’t to say that student loans are bad… I needed them to go to university and don’t regret them. Student loans have changed a lot since I started so reading the fine print is key.) He learned by following in his parents example so it is intuitive to him.

    Having good role models and education are two of the most important factors for financial freedom.

    1. Congrats 🙂 Reducing debt has never been as important as it is today. Unfortunately, at least two Western generations have been brought up without an understanding of the simple 10 word secret to lasting financial security: spend less than you earn and save/invest the difference.

      I really am very concerned about the millions of good people who, as a result of this terrible cultural mindset of consumerism and entitlement, have gotten to the end of their careers with virtually no financial resilience. My studies into the world economy has taught me that American Social Security and Medicare are two of the most unsustainable things on this planet (and that is saying quite a lot). Plainly speaking, the American entitlement programs are even further out of touch with reality than the European ones and will therefore need even more painful austerity measures to reform back towards sustainability. The only reasons why American politicians can still keep on promising bigger and better entitlement spending in their campaigns is because the dollar is still the world reserve currency and investors see the US as “too big to fail” and keep on buying American debt. This misguided market perception will not last much longer.

      Your parents are lucky because they have some financially responsible children as a safety net. Millions of others are not so lucky unfortunately…

    1. Sure, but you have virtually zero debt and some good savings, implying that you don’t really need any luck. It is only those who have consumed everything they ever earned over their entire careers who really need any luck. And yes, there are millions of older people who are in this dangerous position of zero financial resilience and childlike dependence on totally unsustainable government entitlement programs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s