I’ve made some great progress so far in my life in striving towards financial independence. I make a very good income, I own rental properties, I started saving right out of the gate. But, alas I am not retired yet like Mr. Money Mustache did at 30 (I’m 32). What gives?
Well, there are a number of differences between our paths, but I think the biggest difference is that I made one or two major mistakes that set me back big time. The biggest by far was my divorce.
I was married in my mid-twenties to a woman whom I had met in college. We initially shared a common vision for our lives together. Unfortunately that changed very quickly around the time we got married – when my goals to start a family and become financially independent soon – and her goal of becoming a tenured track professor doing research clashed heavily. While she initially shared the same goals and plans for family as me, she found that ambition in her career became her highest priority and dramatically altered her desire to have a family. The lesson learned here is that you should really wait to get married until after you’ve both gone out into the world and started your careers, post-college.
Let’s get right to it and talk numbers. How much did it cost me? Where did the money come from and where did it go?
Well, the one thing that we did right in the process is act civilly and work out the divorce outside the court system. We used a mediator to work out the details and only then hired a lawyer to draw up the official paperwork and file. The mediator charged a flat $2000 fee, which we split. But as a result, I ended up paying only about $250 in legal fees to a lawyer.
We had to split our net worth accumulated during the length of the marriage – which meant I’d be losing the much greater share. When we got married, I had just started a new job where I had a huge 50% pay bump. I made five times what she did, and I saved like crazy. I maxed out my 401k, and saved plenty after tax. She spent what she had left after contributing to shared bills (we split those in a 5:1 share as well). So during the marriage I paid five times more than her towards our bills, but in divorce I gave her half of what I saved (and she gave me half of what she saved, though half of zero is still zero).
That meant that we’d split our savings account balances, the investment account, the 401k, and the accumulated home equity. I liquidated some of the investment account to pay for it, and the end result of non-401k paid out was $55,144.50. In addition, I had to do a QDRO to pay out the 401k share of $19,171 dated August 15, 2009. So the grand total at the time was $75,565.50.
If you adjust for market movement and assume I had all of that invested in the S&P 500 index, that’d be about $141,724.09 today. Enough to pay off my primary home’s mortgage and save a little, lowering my monthly expenses by $1043.46/month. (Although, I wasn’t invested only in SPY at the time, and some of that money was tied up in home equity and cash – so that figure is a little on the high side).
Given that I’m remarried, have two more mortgages and have a child my savings rate isn’t what it used to be back then. That figure now represents years worth of savings, and given that I could have paid off one mortgage and freed up another $1000+ in monthly savings to put towards the other two mortgages, that effect will only widen.