(This is a true story, but names have been withheld to protect privacy)
When Mr. X was a boy, his dad was a business owner who worked hard 6 days a week. By this example, the children were taught the value of work, saving money, and taking good care of the house and the car so that those items would last. Expectations were clear and reinforced with disciplinary measures.
Mr. X’s mother worked hours such that she was home when the children were home. When home, the children learned about things like gardening, food preservation, and keeping up with the painting, all while having a good time together. What was missing in all of this was parental direction regarding finances. Money was a secret and mysterious subject.
Fortunately, Mr. X took a consumer math class in high school. He was surprised to discover that getting a loan results in paying about three times as much for a purchase. He immediately became averse to debt. Still, he no idea of managing savings by investing them.
College was the next stop for Mr. X. Although he had no insight into how his parents handled their money, when he asked for help with his college costs, they contributed some. However, Mr. X had to work after school and during the summer to come up with most of the money. Then, two years into his college courses, Mr. X realized that he didn’t know what he wanted to pursue; plus, he wanted to be independent. It was time to think, work, and save money for when he would go back to college a year later.
When he returned to college to study industrial engineering, Mr. X was paying 100% of his expenses. Now, he noticed that he was much more careful about taking meaningful classes. He wanted to get his money’s worth! The concept of getting a good value for his money was beginning to coalesce more clearly.
He and some friends found that the basement of the house they had rented was quite full of moldy throw-aways from previous renters. They mentioned this to their landlord, who happened to be a builder. He offered to pay them to clean it up. When they were done, he asked if they were interested in any more work. Only Mr. X said he was! He began mowing lawns and cleaning houses for the man, then gradually worked his way up to roofing and being on the construction crew.
Too many hours of work a week made it very hard to keep up with his studying. Possibly more importantly, Mr. X was learning a lot from his employer. This man owned real estate and a construction company. Mr. X saw how profitable it was and began forming a plan to do similar things himself. As soon as he graduated from college, he paid off all his debt in one year. The next year, he bought himself a fixer-upper.
In 3-years-worth of all his free time, while working 50 hours a week, Mr. X worked on that house. He fixed everything structural in it, from plumbing to wiring. When he sold it, he made enough money to be able to buy a duplex and start the process all over. However, now he was beginning to notice that doing all the work himself was not necessarily the best use of his resources. He began to think about the benefits of hiring someone so that the property could be rented or sold more quickly. He was also seeing that all the effort he was putting into fixing everything was not paying off. People weren’t willing to pay that much for new plumbing and electrical wiring. Sweat equity was not proving to be a good use of his time.
With this second house half-gutted, Mr. X went to visit his sister, who introduced him to the woman of his dreams. She was a medical student with loads of debt, who needed to be moving to another state for her residency. He took 6 months to finish his house project, then moved out-of-state and got married. It was going far backwards financially, but it was worth it. He had to deal with a discouraging job market in this new location, and the real estate market was not nearly as active as in the larger city he had been in. Not only that, but his wife was getting paid very minimal wages as a resident doctor. It was time for a new plan and a new schedule of paying down their debt.
After those lean five years, his wife got a job in another somewhat small city. Mr. X was able to continue his computer work for a company via long distance. He kept making some contributions to the 401K account that he had started about 12 years prior, when working as an industrial engineer. His wife also started saving in one. When they decided to go ahead and have kids, Mr. X made the choice to be a stay-at-home dad with them. Reading Your Money or Your Lifestrongly influenced that decision. It looked like anything left after taxes and expenses-likely-to-occur-if-both-parents-worked, might just go toward paying a nanny.
Making good use of the family income became even more important. Mr. X realized he should have taken time earlier in his adult life to learn about investing, but now was better than never. What he learned lead Mr. X to scrutinize the management of their 401K accounts. It seemed to Mr. X that the fund managers were not working nearly as hard as he and his wife were, nor were they giving very good advice. He began to contemplate managing his own stock market investments.
Meanwhile, Mr. X and his wife had invested in some real estate in the new city, so he was still making good use of his other knowledge. Still, the stock market seemed to have a different kind of dynamic and potential. About a year ago, he talked to his accountant about it and began attending American Association of Individual Investors (AAII) meetings to learn as much as he could. He started reading voraciously about the stock market, often into the wee hours of the morning. A couple of books he found useful are: Investing DeMYSTiFieD, Second Editionand Investing For Dummies. He also read a lot of AAII articles.
The goal is to amass a knowledge base and get to the place where he feels comfortable firing his fund managers. Mr. X is tired of paying them fees that seem like money down the drain. He has finally opened an online brokerage account. He thinks he will be ready to take over for the so-called “professional” money managers very soon. He sees himself as becoming a conservative, value oriented investor, but is carefully sifting through all the different investment philosophies. At age 49, he feels like he is still playing catch-up in the world of investment, partly due to not having parental guidance and partly due to his earlier lack of initiative. Since he doesn’t think the pace that a doctor works is something his wife can maintain, he is highly motivated to learn to invest well. Mr. X says it’s his job to make sure the family finances are well prepared for retirement.