some of you may have noticed a small change in the logo. During the month of June it was:
And during the month of July it will be:
As you can see we made progresses! A fantastic 1.1% closer to the final goal in last month! This happened despite Brexit and generally a bad month for investments. I’ll go deep with numbers in the near future, for now consider this:
Let’s call the percentage shown in the logo progress bar.
The progress bar shows how close is family RIP to Financial Independence. The (obvious) goal is to reach 100% and ideally retire, semi-retire or I don’t know now… food for a dedicated “goals” post.
The progress bar represents Net Worth / FU Number, i.e. how wealthy we are now over how wealthy we need to be to live on our wealth forever. More on this (both the theory and our actual numbers) in dedicated posts.
I measure Net Worth in 3 currencies, since I have assets in CHF, USD and EUR, but the reference Net Worth is in EUR because at the moment, the idea is to retire in some EU country (like Italy?), assuming EU will still be a thing in ~5 years. More on this in future posts.
Our FU Number, i.e. the amount of wealth we need to reach to call ourselves FI, is going to change based on decisions we are going to make in the next few years, plus factors like inflation rate, etc. Decisions that impacts the FU Number are kids, cars, housing, location,… everything comes down to “what would be our FIRE monthly budget” and “which Withdrawal Rate do we consider Safe“? More on these topics in future posts.
I’ll update my finances monthly with a dedicated post and an update of the progress bar in the logo. Skipping this one month because I don’t have yet cleaned my spreadsheet from Personally Identifiable Information.
The current projection is that we’ll be at 100% in roughly 5 years, before I’ll turn 45.
Given a fixed FU Number, several factors contribute to the progress bar: incomes, expenses, investments performance, currencies fluctuations.
Fun Story: I took a sabbatical month in May 2016. I earned close to Zero that month (except for some health insurance contribution, Hooli stocks vesting and a rental property). At the end of the month my NW in CHF went up 12k due to good investments performance. This month, June 2016, I’ve worked the whole month and earned my 5-digits but the NW in CHF stayed flat, due to bad investments performance and the strengthening of the CHF with respect both EUR and USD. At the same time, the NW in EUR went up 11k (that represents the +1.1% on the progress bar… homework: what’s my FU Number today?).
This is the third chapter in my financial story series. In the previous chapter I was a high school student with millions in my bank. Here I’ll show you how I survived through University years without piles of debts. Next chapter will be about my first steps as researcher.
In 1996 my monthly allowance raised to 200.000 Lira. Now that I think about it, I find ridiculous that my parents continued giving me a monthly allowance. But that was how things worked in Italy in late 90s.
I decided to get a Master Degree in Software Engineering. My father was clear on this: university costs were on me. Universities in Italy are essentially free. We can get a (not high quality though) passe-partout that enables all kind of career for free. Yes, ok, taxes… but as a student I think every Italian student should only be thankful for what we are getting without having to bury ourselves below tons of debts. Close to zero tuition costs, but still people complain about high fares.
A full year costed something around 1.000.000 Lira (500 Euro) with discounts based on family income (the poorer you are, the less you pay) and, but only in my first and second year, based on performance. If you keep a high average score on your exams you win next year free. The target was not even that high. For the first 2 years I was able to achieve it so I didn’t pay 2 years of University tuition costs. Then they shot down this opportunity and I had to pay my million per year. Italy is not the land of meritocracy. Being above average is something you should feel guilty about.
I continued with private math lessons (I actually made the business grow a little) and I found a part time job as tech assistant at one of the many computer laboratory. It paid poorly but it was fun. I had access at high speed internet! Internet was not a real thing in late 90s, there were nothing to do there. I, as anyone at that time, used it to download music on Napster. Yes, at the lab. I also supported practical programming lessons and it was super fun. I forgot to mention that I started coding at age 9, on a Commodore64, and never stopped until… well… it’s my daily job. The lab was big and it was mainly used for programming lessons for big crowds. Only first or second years courses had such big crowds. First and second year courses of every faculty in the campus used that lab. I got to attend Pascal language coding sessions for Lawyers, Introductory C++ Programming for Economists, Java for dummies for Architects. It was extremely fun.
Anyway, earnings was always more than spending. I decided I want freedom from my dad, so I opened a true bank account with special conditions for students and started moving my money over there. I planted the first seed toward one of the biggest financial mistakes I’ve done insofar.
University years flowed financially ok till year 2000. I structured my private lessons business, working with with 4-5 kids in parallel and dreaming about making it a full time job. Did the math: I can work for 8 hours a day on 10.000 Lira per hour (well, I could raise this factor a bit). It’s 80.000 per day = 1.600.000 a month (800 Euro, a good salary at that time) if I work 20 days per month! Expenses could be close to zero for this job (if the kids come at my place). Forgot to mention that paying income taxes on private lessons were not very popular at that time, and it still is not.
I attended University in Rome, in my hometown. Rome Universities are still popular among south Italians. There were (and I guess there still is) a huge community of resident students, living in shared apartments (no, we have almost no dedicated campus or housing), studying in libraries, attending events, hanging out together, partying,… I totally missed that side of the college years. I kinda regret it a little bit. I used to go to college like it were a high school: attend lessons, coming home, studying, prepare exams, getting high votes, repeat. No true academic life. No deep connections. No secret projects in a garage. No startup dreamed. If I could go back in time, I’ll be more present in the student world, trying to find professional connections and start true profitable projects. I think not having exploited these academic years, not having pushed a little bit outside my comfort zone, prevented me from ramping up early in my career. Unlike MrMoneyMustache, Livingafi, MrRoG, Jacob (ERE) and few others, who were able to boost their income at a very young age, I had to wait a lot – till age 35 – before earning 6 digits and dreaming about retirement.
Year 2000 came and my bank convinced me to put some money on the stock market, via an obscure same-bank managed Italian stock-based fund that had zero apparent costs (all fees were embedded in the fund value). How many mistakes can you recognize in this? Let’s run though them:
I had no idea what were my short and long term financial goals.
I had no ideahow long I was going to hold the positions.
I was investing on something that I don’t understand (never invested in stocks before).
Financial adviser was making money on my subscription, so my wealth was not his best interest.
Bank, adviser and fund were the same entity.
It was an actively managed fund.
It had obscure costs. tracking the Mibtel index (Italian main stock index) and the fund performance the fund was always behind. Everyday.
We are talking about Italian stocks… Italian economy…
Long story short: I invested 16 Millions on the fund and after 2 years of continuously losing money I sold my positions for 8 Millions, 2 years later, just before the bull market years. I bought very high and sold very low with 50% loss. I didn’t sleep very well for a while. Years of earnings thrashed. Due to that experience I built a kind of repulsion toward stocks and the market in general. For the following 13 years I only invested in low revenue CDs or Postal Bonds.
I don’t have economic tracks of some of the years between 2000 and 2003, but a graph of my Net Worth between 1996 and 2003 looks like this:
Putting all together since 1991:
Btw, it took time to digest the stupid investment I’ve done, but looking things in perspective it didn’t take too much. During my Master Thesis development (2002 – 2003) I had three parallel jobs: private lessons, lab and research assistant (and lecturer) for my supervisor, which paid very well. I was earning more than 1500 euro per month (yes, true Euro, finally!). Apparently I was good with students of any age and I loved doing applied research on robotics so… why not accept my supervisors offer of becoming a PhD student and join the robotic lab over there? A dream job… (poor Mr.RIP, what a reckless dumb!)
This is the second chapter in my financial story series. In the previous chapter I discussed the preteen era and first contact with money, here I’m going to show you how my finances evolved during the 5 years of High School. Next chapter will be about University years and the taste of actual jobs.
High school years are both the worst and the best of your life. The best because you’re young and full of hope, the worst because you face the teenager years and the need of approval by the crowd. For a young frugal guy like me it meant balancing my instinct to save and the challenge of keeping up with the Joneses’ kids.
First of all, daily allowance didn’t make sense anymore (but I kept going to the arcade room, till its death in 1995… RIP baretto). My father announced the big revolutionary change: a monthly allowance of 100.000 Lira (50 Euro) for the first year of my high school (1991-1992). It’s a great improvement with respect the 1000 per day, plus I get to access the whole budget at the beginning of the month so… amazing! The problem is: I just underestimated how expenses grow _A_LOT_ when you’re a teenager.
I would like to write a small disclaimer here: I don’t agree with giving children unearned money, even for kids. When I’ll be a parent I do my best to be sure that my kids earn their money. Via small chores, errands, whatever… I just don’t think free money are the right way to go. In early 90s, in Italy, it didn’t work that way, so every kid got free money.
Second, to attend high school you have to buy student books that are not super cheap. I don’t know how it works today, but at that time there were a huge underground market of used books for half price. As incentive to earn more money my father proposed the following deal: I’ll let you keep half of the money you make me save on face value of every book you need to buy. Wow! So here’s my first job: try to buy used books to earn extra money! If a book’s price is 100 and I manage to buy used for 50 then I make my father save 50 that means I can keep 25 for me! I took this challenge very seriously, actually pushing it to the limits! For a couple of books I bought used copies of out of print older versions! World History didn’t change since last year, so why should I accept the professor’s blackmail of printing newer versions to kill the used books black market? On one book I saved up to 80% of its tag price!
Third, I started accumulating money in physical form and it was not a very scalable solution. My father offered a better and more adult-like solution: he’d be my virtual bank. It looked fun so in 1991, November 24th we started this virtual saving account in the form of a notebook (that I still preserve):
This virtual account lasted till year 2000. I started draining it in 1996, when during University years I opened a true bank account and moved savings over there, but that’s another story.
The virtual account helped me a lot in getting confidence with digital money (even though there were nothing digital in it!). I measured the size of my Net Worth without having to keep physical money somewhere. It was nice to picture all the money I had at any given time all over my table. I learned how to decouple earning and spending. I already had a grip on it, but now it was crystal clear that money were like a bathtub with two taps: one (earning) there to regulate the input and one (spending) there to regulate the output. Opening the output tap (making a spending decision) can now be based on the available water in stock instead of the input flow.
I felt rich, with a lot of money saved! Financial life weren’t easy though. Discussing with other guys was hard. None seemed to have spare money. Everyone complaining about everything about the money subject. None seemed to understand the concept of saving some of the money you have in your pocket. “Why should you do this?” or “money are meant to be spent… do you want to bring them in the coffin with you at the end of your life??“. Their money model was not like mine, the bathtub, but a public fountain with no way to store the flow.
Anyway, as time passed in high school I didn’t quite understand what was going on around me. None had money, sometimes not even to buy an ice cream or to take a bus for a single ride. I felt like everyone was extremely poor, always… but with better clothes. On Mondays, every Monday, few had new shoes. High quality shoes. Those that cost three times the monthly allowance of mine! It simply didn’t make sense. The same guy, whoever he was, could be switching from “guys, no, I can’t go to the comics bookstore, I don’t have a dime” to “I need to buy a new pair of shoes, I was thinking Nike Air Jordan or, better, Reebok Pump?“. It didn’t make any sense at all. The question I never asked was: “wait, but how can you buy a 200.000 Lira pair of shoes if you don’t have the 500 Lira for a Nathan Never comic? And, btw, since both seem to be cool shoes, why not to pick the cheapest one? At the order of magnitude of their absolute prices the difference should be in the order of some 10.000 Lira, just cash that difference so that you won’t ruin our group plans to go to the comic bookstore for the next 20 times at least!”. Their fountain of money didn’t allow to stock, but their flows were way bigger than the one flowing out my small tap.
Another disclaimer: I’m using “he” to refer to third person singular not because I’m a sexist but because there were no shes at my school… Technical school with some computer science… zero girls for five years. Very very though days, bear with me.
It took me years to understand why people (not just teenager) think this way. At first I was disappointed. I felt rich no more. If I summed up the assets of anyone of them, just the visible assets like jeans, jacket, shoes,… they were richer than me. All of them. I couldn’t have afforded their shoes all at once. Or maybe I could, but then what about their Scott leather jacket? Am I doing something wrong? Aren’t my parents spoiling me hard enough? It was a problem. Age 15, I’m the only one not wearing a pair of shoes above 100.000 Lira and people are making fun of me. Girls don’t even think I’m worthy their spare gazes.
So there came my first impulsive splurge. Just to be accepted by the crowd. I wanted a pair of Reebok Pump! It was a lot of money. Although I could have afforded it with my savings, using most of them on a pair of shoes didn’t make sense to me so I went begging to my grandma and she bought it to me as a present. It caused fights within my family, since none had ever spent all these money on a f*cky pair of shoes that exist only to show off, to brag. Regret caught me three days after the purchase. All the happiness about the shoes disappeared, leaving my family with less money and few wounds. Avoid luxury, it’s worthless.
During my second year in high school (1992-1993) I found my first job! Private math lessons. Yes, forgot to say I was very good at it :). My first student was older than me but was repeating first year for the second time. It wasn’t awkward, I felt very confident and I think I did a good job. 10000 Lira per hour, for ~10 hours total. It felt good!
Then a new era of temptations came: the Scooter bikes / moped era of the 90s. Almost every 14-17yo kid owned one at that time. It was a 4.000.000 Lira Thing, i.e. 2k Euro of 25 years ago. Accounting for inflation it should be something like 10k of today’s Euro. Not something you get by adding up spare changes of your mother’s grocery list… It’s another incredible bad example of how to spoil kids with umbrella money. A lot of them. Joneses’s kids were getting harder to keep up with. Now that I write this post, 25 years later, and now that I know in what kind of economic hell most of the shortsighted neighboring families had fallen into in these recession years I wonder how useful that 10k Euro would be in their pocket right now. Was it worth those wheelies?
But I was a kid and a kid asks. Even though my net worth was growing, I was nowhere near to the amount needed to buy one. It was unfair. So I asked my parents to buy one but they rejected my requests. I felt poor this time, angry with my parents. I had to pretend something to not appear different. I told one of the classic story poor kids used in defense to not own a moped: “My parents think it’s dangerous so they don’t want to buy one for me. But they are going to buy me a car as soon as I turn 18!“. It was a lie, it just bought me 3 more years. I knew purchases were on my own control. I knew my salary, I ran my forecast, I knew I won’t be able to buy my shiny new car (a 10.000.000 thing) in 3 years, even though my “salary” raised to 120k Lira.
The fact that none of my friends seemed to have a vague idea of the value of money made me sad and lonely. I was the one pushing to go having a pizza out together on Saturday night, a 15.000 Lira thing that I valued a lot at that time, but none had money for this. I had plenty. They’d rather spend the entire evening sitting on some bench talking about their mopeds, trying to gather 5000 Lira for the gasoline to use one of them. They had tons of money on demand but no control over them. I had a different relationship with money, but less of them in total. Now I know it was the right way to go, but back then? Nope, it was frustrating.
I was in charge of decisions such “which extra curricular sport/course do I want to follow?”. I had to pay for my Basketball course, Swimming course, karate course. Discussing with friends was awkward: “hey guys, why don’t we try Volleyball? It’s 30.000 per month, not so much, and it seems fun!”, “oh cool, nice idea. Let me discuss with my mom and I’ll let you know”. What the fock… do you really need to have an approval for such an expense?
Money kept growing till I become a multimillionaire! Yes, in Italian Lira though 😀 A million is just 500 Euro. Grandparents helped with that. My Grandpa used to give me 50.000(100.000 Lira) for every vote 9 (10) out of 10 at school. With Math & Physics it was an easy win. Sadly my grandpa died in late 1992, RiP dear grandpa. My grandma kept the habit till my master degree in 2003 and somehow till her death in 2013, even though I was already earning in a month more than her yearly pension. RiP beloved grandma. The bottom line here is that I loved those prizes more than unconditional salary that came from my parents. I was pushed to perform well at school and it definitely helped me a lot.
In 1994 (age 17) I did my second big splurge, but this time it wasn’t an impulsive purchase. I loved leather jackets, but branded versions were at around 700.000 Lira (350 Euro, more than 20 years ago… it was crazy!). I could have afforded, I had enough money saved but it seemed too much to me. I did some research, I went to second hand shops, local shops, several of them till I found the one I loved priced 240.000. I negotiated with the merchant and I brought it home for 200.000! It is a high quality copy of the famous-at-that-time Avirex. Yes, it still is, since I wear it every year since then. This time no regrets, no guilt. I’m still proud of my purchase. I learned that if you let impulse go and you still really want to buy something then you should get it. Saving is not meant to make your life miserable. Sure, once you decide you want that item, it’s very wise to invest time to optimize your purchase and get a good deal. As Trent Hamm suggests as rule of thumb: for every $100 I spend on an item over the item’s lifetime, I try to devote an hour to researching the purchase before making a move. Your actual value may differ.
Next big economical experience was the windfall of turning 18yo. Before turning 18, my net worth looked like this (Y axis shows Euro, even though Euro was not yet a currency):
You can see a steady growth in the first months and a plateau due to increasing life costs of a soon to be 18yo.
Then my Birthday came and my parents gifted me with 1.000.000 Lira while My grandma gave me a stellar 5.000.000 Lira to help me building my future. I suddenly had the money for my car. But I didn’t buy it. having close to 10 Millions in the bank made me feel extremely powerful and I moved on the moped thing so I didn’t need a shiny new car anymore. I could drive my mother’s old car, who cares?
At the time of my Diploma (end of high school) in July 1996, my net worth looked like this:
Note that the portion before the 6 million spike is the same as shown before… Ok, yes, I had a drop after the windfall, but my 18yo summer was legendary (and not super cheap). No regrets!
Bottom line here is: once you learn to model your money as a stockable commodity, once you learn to decouple earnings from spendings, once you resist the urge to lifestyle inflation then a windfall is what it really is: more ‘stash into your bank account. I never understood those question like “how would you spend a lottery prize of XYZ?“. Why spend it out?? Just store them (I didn’t know how to invest at that time).
In 1996, 19yo, I was ready to step into the adult life of a University student. Let’s go to the next chapter.
This is the first of a series of several posts about my financial story. Here I’m going to talk about my secondary school years and my first contact with money management. Next chapter will revolve around high school age and the taste of actual money.
I think it’s worth sharing to give the readers context about me, my financial situation, my epiphany, my decisions.
I grew up in an Italian middle class family in one of the worst neighborhoods of Rome. My father who is now retired worked in the Italian public national electric company while my mother has always been a housewife. We weren’t rich, obviously, but not poor either. Actually, compared with the average neighbor we were a decent family. Not that hard to achieve, since the median neighbor was probably in jail at that time.
My father has always been a frugal person, a saver. He taught me to save money pretty early. I learned to accumulate for purchases, to avoid useless spending, to avoid luxury in general. My father taught me to pay cash for things: “if you want to buy something that costs X, just save a fraction every week and when you have X you can have it! Avoid installment payments (very popular in the 80s and 90s in Italy) because you’d be giving the seller no less than 10% more!“. Note: there were not credit cards at that time, at least not in my world.
I’m glad that such good habits were installed so early in my brain, even though growing up I recognized several flaws in my father’s principles:
He saved because “you never know“. No big goals. This was sometimes frustrating in our family and it led to fights between my parents sometimes.
He never invested in anything riskier than Italian CDs. Are you crazy investing in stocks??
He’s not good at spending. He doesn’t do any research before spending, when he decided to spend. Usually ended either not spending at all or spending way more than necessary for things.
He’s still always worried about money, living in kind of unhappy misery.
Anyway, my first approach with money happened at around age 11 (1988) during first year of secondary school (in Italy grade school is split in 5 years of primary – 6 to 10 – plus 3 years of secondary – 11 to 13). I spent my preteen years, as almost everyone else, in an arcade room in my neighborhood, playing those amazing coin op games! Yes, Wonder Boy, Pac Man, Space Invaders… days gone by!
The other socially acceptable activity was playing soccer on the street. The average day of my life was: school till 1.30pm, arcade room till 5, soccer or hide-and-seek till sunset, crappy 80s/90s Italian TV shows till sleep time.
Problem with this schedule is that the arcade room is not running for free. I need money to play my videogames. Not very much since 1) coin op games were very cheap those days (100/200 Italian Lira, 0.05/0.1 Euro) and – sorry for bragging – 2) I was very good at them! A single coin could last for hours 😉
Usual kid’s daily budget was 1000 Lira (0.5 Euro) and that was exactly my allowance. My mother gave me the mythical bill each day. (Almost) every single day. With this incredible amount of cash a kid could waste an entire afternoon at the arcade room and even buy a small ice cream!
Life was awesome, everything looked good. Except the day when I pissed off my mother and she didn’t give me the magic bill. Those days were like hell. Walking like a zombie in the arcade room, watching other kids playing. I was the condemned one. This cannot be accepted, I can’t be so threatened by my mother’s will!
So, one day, I forced myself to not spend all the 1000 Lira I got. I just tried to keep 200 Lira (20%) of them for the day after. It seemed a big limitation at first, it surely was… I was so close to beat my high score at Double Dragon, c’mon… let’s try again, it’s exactly 200 Lira, why wait?? I proudly resisted the urge. A free person was born.
So I started accumulating my spare coins, sometimes allowing myself to splurge above my daily budget, sometimes putting them in a piggy bank. Than one day I had a disciplinary note from school (don’t remember why) and my mother as usual punished me with the hated six words “you won’t get the money today!“. I shrugged and replied: “ok, you’re right. I deserve that.” and walked away, leaving her frowning alone.
I gave the impression of having accepted the punishment and learned the lesson and maybe even regretted the horrible mistake I did at school. Becoming independent from the daily allowance gave me more confidence and peace of mind. My mother understood that she’s lost power to make me fear punishments so she eventually stopped doing that. Bottom line: avoid living paycheck to paycheck drained power from my “employer” to fill myself.
My same age friends almost had the same daily allowance I had, but with this simple trick I felt richer.
One day, a friend of our family was playing Italian card games (tressette) at the same arcade room. The shop (bisca, in Italian) hosted more than just only coin op games: there were pinballs, pool tables, darts and spare tables for people playing non-gambling card games. That day, this guy asked me if I could do an errand for him, a simple one that requires no more than 10 minutes, purchasing something for him in another shop in the neighborhood. For those who wonder, it was nothing illegal :).
I did it, expecting nothing in return. Instead, this hero of the late 80s, offered me to keep the change of that purchase. I still don’t remember what I bought for him, but I do remember the order of magnitude of the change… it was a little below 5000 Lira. It was 5 times my daily allowance, all at once. Initial reaction to my first windfall was disbelief: “something was wrong, I didn’t deserve that money“. This guy wasn’t significantly richer than the average, 5000 Lira is not something you give to a kid for an errand. I asked ten times if he was sure about that and he laughed and thanked me for the errand. I’d love to be able to come back in time to stare at my face that day! I think in few months since I started piggy-banking coins I had accumulated more or less the same amount offered me that day. I doubled my net worth in a matter of minutes. Still couldn’t believe it!
Were I still living paycheck to paycheck how’d I invested that windfall? Handmade Gelato instead of commercial ice cream? 4 hours marathon at Wonder Boy 2? No need for 5K Lira for that, I was so skilled I can win the game (twice) with a single coin, I still can ;). I just banked the lump sum wondering which scenarios would it enable: having a pizza & coke dinner fully paid (not that I was going alone to a pizzeria at age 12, just fantasizing!), the first 10 Dylan Dog comics all at once,… the sky was the limit!
It happened several times again. When this fantastic, legendary superhero of my youth was playing cards in the bisca there were chances of ridiculously high paying task. I become addicted though. I started wandering around him, when he was there, putting pressure on him and probably making him feel uncomfortable with the situation. I remember one day spending most of the afternoon trying to be noticed by him – who obviously did notice me and my bothering behavior – and feeling like a shit about that the very same evening. I never did it again. I still feel embarrassed for that. I hope you forgave me, Enzo.
In spring 1991 secondary school was over, so was my daily allowance days. I’ll tell you my financial High School story in next chapter!