Millionaire Librarian

Einstein is attributed with the saying “”Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

Using my example of Mary who is able to save $200 a month from age 25 until age 67 earning 10% annually. She will have more than $1,548,000 after ten years. How much do you think Mary contributed to this huge amount of money? Would half be believeable? That would a little over $750k. Obviously, this post is about compounding so it may be less she put in.

How about half of that being $325k? It is even less than that. Over the forty two years Mary only contributed $100,800. That means that over 1.4 million was growth and compounding. Take a second to reread that last sentence; over 1.4 million was growth and compounding. If Mary delayed investing one year, then she would have around $150k less. Additionally, if her money spends one more year compounding then she will have a similar amount more. This is because of how percentages work. 10% of when she is 26 after only one year of investing is $240. 10% of 1.5 million is $150k.

This is why it is extremely important to save anything and everything as early as you can. You want to get your snowball as big as possible early on, then you can start taking your foot off the gas once your money begins working as hard as you do. Think of it this way. If you are at $1.5 million invested assets. You could burn $150k a year in a bonfire and if you were able to continue living off your income from your job then you would be in the exact same place next year minus some inflation cost of hopefully around 3%.

It is all about scrimping and scraping for that big initial snow ball. Charlie Munger says it bluntly and best: “the first 100k is a bitch, but you gotta do it.”

Huge financial snow balls is why the rich keep getting richer and they are able to pass down generational wealth, which we can look how to build in my next post.

Substancial wealth is not made overnight or doesn’t even require an extremely high income. In the book, “The Millionaire Next Door” the primary premise is that many millionaires just saved a large percentage of their income and spent very little. Ironically, the people flashing Rolexes and driving fancy depreciating assets / cars have spent their money and therefore likely don’t have much.

Stealth wealth is my goal. Steath wealth is when someone has loads of money, but you would never be able to tell unless they told you. The wealthiest person I personally know is an elderly, retired lawyer. He has three cars, but the average age is well over a decadeand they are all Hondas. He has slowly invested his money in real estate, bonds, and farmland which he leases out. He has lived in the same house for over 50 years. Many people would laugh if you pointed to him, his car, or his house and you claimed he had lifechanging wealth. He likes to donate money to those in need. He gives to charities. He donates to his church. Also he will leave his wife, children, grandchildren, and great grandchildren generational wealth.

How did he do this? He lived well below his means and invested his money in appreciating assets for an extremely long time.

The word millionaire evokes images of suited CEOs and executives sitting around a table in a high-rise in NYC, NY. However according to the largest study on millionaires performed by Ramsey Solutions the third most profession of millionaires was a teacher. This should be surprising. I was initially surprised when I heard it. As Americans we harbor many money myths that hamstring our ability to build wealth.

Building wealth is a slow deliberate process. It is more the slow drop of water eroding a stone than a jackhammer bashing it. To illustrate this point lets ponder a hypothetical.

Mary completes college at 25 years old and saves $200 each month from her position as a teacher and invests it in an index fund averaging 10% until she is 67. She doesn’t increase her allotment even though it is likely her pay will increase either through cost of living adjustments or through a promotion. At 67, Mary will have around $1,548,000. However, time in the market is everything. If she waits until she is 35, then she will only have around $557,000. This is much better than most people, but some discipline earlier means the world of difference.

When you are young your dollars are extremely powerful and only grow weaker as you age until it is too late.

Geo-Arbitrage has become a popular term in the post Covid world. In its simplest form it is living in a low cost of living area while having the benefit of a higher cost of living job. With the rise of remote work this generally means remote work. However, I have been benefiting from geo-arbitrage in another way for almost ten years.

I have a federal position in a low cost of living area. Federal positions pay slight more locality pay to be in a HCOL area, but I don’t believe it is worth it. As a GS-11 step 1 you can expect to make $69,106 in 2023 in any LCOL area in the U.S. In the highest cost of living area as a federal employee you make $78,591. In my small town in rural America the median house costs $175k, while in Washington D.C. the average house is $630k. That extra $9000 doesn’t come close to filling the gap when comparing housing costs. Other needs will likely be higher in a HCOL due to everyone needing a higher salary for the same standard of living elsewhere.

If you are the type of person who needs to live in a giant city, then know that unless you have an extremely high wage it will be very hard to save any money much less become financially independent or retire early.

Remember it doesn’t matter how much you make, but how much you keep when saving money. Finding a unicorn job where you have a better than average salary and pay very little in housing is one of the best ways to do it.

I am sitting here with less than a week left of my 12 weeks of parental leave from working as a federal librarian. My newborn daughter is in her automatic swing sleeping in front of me, while my three dogs sleep around my small house located in rural middle America. My job is very comfortable and my salary is moderately higher than median. One of the reasons I chose the librarian profession, though requiring a master’s degree and generally not paying very well, is because it should be low-stress and I can perform this job well into my old age. I am extremely grateful of the life I live.

So why am I interested in finance and more specifically FIRE (Financial Independence, Retiring Early)? I want to provide a good life for my wife and family. I want my newborn to be able to attend college without going into debt. Finding a new job as a librarian can be extremely time-intensive so if I get a new boss and am miserable I want what JL Collins calls FU money. This is money to separate from my employer and go my own way for as long as it takes. That is the true power that money can bring. The ability to have the exact life you want.