people in the pf world talk a lot about the power of compounding over time, and we want to talk about how this power has been made evident to us most of all: in our incomes. as our last post showed, we’re definitely earning (though not spending) plenty now, enough that we are able to save up relatively quickly for early retirement.
but it wasn’t always this way. and for those of you who are early in your careers, and wondering how you’ll ever save up enough to meet your financial goals, we have this advice: be patient, and stick it out. time is on your side.
our career paths have both been a little bit throwback, in that we’ve each stuck it out long-term with our employers, one of us since college, and the other since just a year out. (we’re 35 and 38 now, so we’re talking 13+ years each.) we are both consultants, which is a vague descriptor, but it essentially means that people or companies hire our companies to do work for them, and then we are the ones who do the work. we’re both good at our jobs and have advanced over time. but lest you think we have always been high earners, consider this: we each started out at a salary under $40,000 a year (one of us well under that), and this was while living in very expensive cities. in fact, back in those early days, we both often struggled to afford groceries, and for sure struggled to dress professionally, and we ran up significant credit card debt just getting by. (and, let’s be honest, probably paying for some happy hour drinks, too.) we didn’t make all the best financial decisions in those days, but we didn’t make horrible ones either.
over time, staying in those same jobs, and getting consistent though never huge pay raises, our income has gotten to a point where we can live extremely well on a tiny fraction of it. that’s without job hopping, without ever asking for a raise, and without switching to a higher earning industry. not because we’re super awesome. just because of the power of compounding and time. if we’d job hopped, there’s a good chance we could be even farther ahead of where we started, though in our case we think we’ve both been rewarded a bit for loyalty.
of course, at the same time, we’ve seen the power of compounding in other aspects of our finances, namely our 401(k) accounts and our taxable investments. we know that millennials were deeply scarred by the 2008 financial crisis, as we all were, and we were also deeply scarred by the dotcom bust — that affected our returns very early on in our careers, not to mention it made it pretty tough for one of us to find a job and necessitated a cross-country move to escape tech-land. but still — despite going through two major market crashes within the timespan of our careers, and starting out with modest salaries, we’ve gotten to a place where we feel beyond amazing about where we are and where we’re headed.
we offer our story as a lesson to those who look around the pf/fi/re space and think, “wow, look at all of these software engineers. they all make mega money. that’s why they can afford to retire early, and i will never reach that.” it’s just not true. trust us — we know what it’s like to be starting out and feel like you’ll never reach your goals. we were watching home prices climb mighty fast in the 2000s, after all, and thought we’d never be able to buy. then the market correction happened, and we’ve since bought three homes — our first condo, our current home, and our rental property. and we watched those measly looking dollars go into our 401(k)s, thinking “how will we ever get enough to retire?” but magically, over time, those numbers grew and grew, both as we could afford to put more away, and as compounding did its job.
there seems to come a day when your finances reach a tipping point — which could be earning enough to comfortably live below your means and accelerate your savings, or could be the point when your investments start to make more in compounding than they do from your contributions — and when that happens, things change fast. your goals get closer quickly, and it’s suddenly easy to forget those years of slogging, when progress feels slow and incremental. as long as you keep investing steadily, take care of your debt quickly, and stay committed to increasing your worth in your career, it will happen.
are you in the early stages of your career or your investing life, and feeling like your goals are out of reach? or are you past the tipping point, and now amazed at how things are falling into place? we’d love to hear your story!