The author discovers the “most important financial skill” to achieve financial freedom

Most of us have bumps and beginnings in our financial journey. But in the end, it comes down to “sober prudence,” or, more simply, a monotonous approach, according to Jonathan Clements, pension expert and author of the new book My Money Journey.

Clements, who spent two decades with The Wall Street Journal, where he was a personal finance columnist, is also the founder and publisher of the HumbleDollar website. In his latest book, he tells the story of the financial lives of 30 people, ranging in age from their 30s to their mid-80s, including a high school teacher, a minister and a software developer.

“When we write about our money journey, we inevitably describe our life journey,” Clements said.

Speaking to Yahoo Finance, he shared some advice and insight on everything from the role parents play in shaping their children’s future financial lives to recovering from financial failures.

my money trip

my money trip

Edited excerpts:

What inspired you to write this book?

One of the strengths of the site I run is that I get everyday Americans to tell their financial stories. When they write for the site, they write about their personal experiences, such as how they’ve dealt with retirement, how they’ve dealt with market downturns, and how they’ve dealt with financial emergencies. I invited the contributors to share their full financial story. The message: If these everyday Americans and investors can achieve financial freedom, so can you.

What do you mean by financial freedom?

This means that money is not an everyday concern. That doesn’t mean you can buy anything you want, but it does mean you have enough money to meet your wants and needs. If your financial aspirations are relatively modest, you could be financially free with a relatively small portfolio.

Only five of the contributors are women. What gives?

There’s a less somber answer. These are the readers who have followed me since wall street journal, and when I was there it was mostly read by older white men. But I think there is also a societal problem here, namely that for far too long men have been responsible for financial matters in households and women have been pushed into the background. I find it completely unfortunate and hope that future generations will deal with it in a much more balanced way.

You’ve been known to praise frugality in your own financial advice. How is that reflected in your book?

A common thread is that these 30 people are disciplined. They have gotten very good at postponing gratification and living below their means. This is the most important financial skill. It is much more important than being able to choose good investments. It’s far more important than deciphering social security data or figuring out the best credit card.

What are some of the other main themes in these money essays?

Most of the contributors are dedicated index fund investors. Many of them didn’t start out as index fund investors. Many of them made mistakes early in their financial lives, but eventually realized that they were hurting their financial future by following the latest trending stocks or trying to guess where the stock market was going. Eventually they settled down and spent many years diligently saving and shoveling those dollars into index funds.

One of the lessons of the book is that even if you screw up when you’re 20 or 30 and haven’t saved as much as you should or made silly investing mistakes, that doesn’t mean you’re down. You can still retire comfortably at 60.

What lessons can we learn from these people’s stories about how to comfortably retire?

A little work in retirement can help. One of the great sillinesses out there is that countless readers have told me over the years that if you’re still making money, you’re not really retired. This is nonsense. It provides retirees with extra income but also gives them a sense of purpose. And we all need a sense of retirement. We all need a reason to get out of bed in the morning. I want to encourage anyone nearing retirement or who is in retirement to think about what gives you that purpose. Because if you retire with the idea that you’re going to sit around all day watching Lifetime and playing golf, you’re destined for a miserable retirement.

Jonathan Clements

“Everyone should sit down and write their financial life story:” Clements. (Photo courtesy of Jonathan Clements)

Were there any surprises in the stories?

One of the biggest surprises is that there is more than one way to the top of the mountain. People achieve financial freedom in many different ways. They don’t all enter the workforce in their 20s, start saving like crazy, and invest wisely from the start, which end up with these huge portfolios. You know, a lot of people try all kinds of avenues. Our financial life is messy. We make mistakes. We get off track a number of times throughout our career and that’s okay. That is the nature of being human.

Joan Didion wrote: “We tell each other stories in order to live.” Your book reminds me a bit of that, don’t you think?

In a way. But everyone should sit down and write their financial life story. By writing this story, you will gain insight into yourself and learn what you did right and what you did wrong. But it’s also a chance to commemorate something that will be of value to future generations. I mean I know very little about my great grandparents. I would love to read her account of her financial journey because if I read about her financial journey, I would also read about her life journey.

Did your contributors find it uncomfortable withdrawing their story to tell others?

Definitely, but they did. Money is the last great taboo. People will tell you about every other aspect of their life, even their sex life, but they won’t have an honest conversation with you about money. They won’t tell you what their net worth is. They will not honestly tell you how their investments have performed. They will not tell you their salary. I’m not saying that everyone should disclose their financial life to the world, but at the very least, you should discuss all of these things with your children. You should tell them how it is financially. At some point, they may take over your finances.

What can our children learn from our money stories?

When you are a parent, the influence you have on your children is scary. One of the things that emerges from the book is that parents have a huge impact on their children’s financial thinking. Many of the people who wrote essays lived much of their adult lives in the financial shadow of their parents and struggled with the lessons their parents taught them.

You should really think carefully about what financial lessons you want your children to learn from you. And it’s not just the words that come out of your mouth, it’s the things you do. You will model your behavior. If you spend your days shopping like crazy and worrying about credit card debt, think about what it will mean for your kids later. They will either mimic this behavior or they will go to the other extreme.

IIn your money history, what does retirement look like?

I am now 60 and semi retired. I envision a world where I work less but keep working. I plan to defer Social Security until age 70 to get the maximum benefit. Social Security is the best income pension there is. It’s government-guaranteed, partially tax-free, inflation-indexed, and you’re guaranteed to get it for the rest of your life. I believe delaying Social Security is key to a comfortable retirement.

As for my portfolio, I plan to invest about 20% in cash and short-term bonds and 80% in stock index funds. That might sound like a very risky portfolio. But with 20% in cash and short-dated bonds, I essentially have five years of portfolio withdrawals there, assuming I use a 4% portfolio withdrawal rate.

And if I start collecting Social Security at age 70, it will also cover most of my retirement costs. So my portfolio at this point is less about funding my retirement and more about, at least in part, securing a beautiful legacy for my kids and some of it that I hope to one day donate to charity.

Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist, and the author of 14 books, including In Control at 50+: How to Succeed in The New Work of Work and Never Too Old To Get Rich. Follow her on Twitter @kerryhannon.

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