It is IMO "what you spend" that is the most important "part" of the deal. Many earn a very good income but if you "grow into your income" you may "learn" to spend more than is prudent (and LBYM). Live for today but save for tomorrow.
This is so true.
I am the "poster child" for someone who made a LOT of mistakes in investing, but who muddled through anyway mostly due to LBYM. See below; I probably should have been investing money in taxable accounts from 2002-2006 instead of buying and paying off my house during that time, since the market was soaring. I also was an idiot to invest 100% in equity funds for several years, though a lucky idiot. I should have bought a Corolla instead of a Camry Solara. I could go on and on. Retrospect is great. But it is possible to recover from mistakes if you just LBYM and keep doing the best you can with the money you save.
For me, what worked in 10 years starting at age 51 was:
(1) Get a job with modest 5-figure salary but good retirement benefits in an affordable location and and start living "like a student", on as little as possible while maxing out retirement accounts (these three things needed to be in place from the start). I had other job offers with better salaries, but chose federal employment because I was seeking job and retirement security.
(2) Pay off and destroy credit cards and other debt, traded in my junker car (worth $200
) for a new Toyota paid for in cash; save up down payment for house and start looking for a house. (first 2-3 years)
(3) Buy a modest house, and pay it off (years 3-7)
(4) Build taxable investment accounts (years 7-10)
By year 8 I was already FI (at the level of LBYM to which I was by then accustomed) and just waiting for retirement elegibility and building my investment accounts. I had joined the ER Forum by that time since retirement was definitely on my horizon. As everyone here knows, during year 9 I came into an unexpected and substantial windfall although I was already financially independant before that happened.
My investment accounts have been solely in mutual funds, mostly index funds but some other diversified mutual funds as well. Is that the way to go? I don't know, but I didn't know beans about investing and I thought that would be a good way to diversify and spread out my risk.
I started my retirement accounts during the tech crash, and my asset allocation was almost entirely equity funds during the first five years or so (I figured I had to have b*lls of steel
and take some very uncomfortable risks if I was ever to have any chance of ER). I lucked out as the market rose substantially during that time.Then I gradually transitioned to a very conservative asset allocation by the time I reached year 8 or 9.
The point I am trying to make is that LBYM, putting everything you can towards your goal in some manner, and blind luck with the market can compensate for a LOT of investment mistakes. This is especially true if you make a sincere effort to read and study at least a half dozen books from
this list in order to learn as much as you can about investing.