Money Lessons Learned, Freedom Gained

 Money Lessons Learned, Freedom Gained 

I’m getting up in years so it’s fairly easy to show my age when it comes to the price of things. I’m pretty exasperated at how much things cost, but I’m equally troubled at how much debt we as Americans have compiled over the years. The fact there are financial websites telling people to get a low interest credit card as a good money saving/making tool shows how far we’ve fallen from reality when it comes to our relationship with money. 

I’ll out myself to all those who aren’t aware. I made 3 mind numbing and terrible financial decisions in my mid 20's that qualifies me to at least have an opinion on how to avoid financial pitfalls in your life. Here was the scenario: 

I received what was called a STAR award for good performance at work, the award was for $2500. This was by far the most money I had ever received in my life. I’m pretty sure I had less than $100 in my savings account at the time and probably $300 in my checking account. I also had $4,000 in credit card debt, outstanding student loan debt of around $18,000 and a car payment of $170/month (more on that in a minute). I lived with a buddy of mine in an apartment and had no property to speak of. Let’s do the math on this real quick:

Assets: 

• Checking: $300

• Savings: $1,800 (with the award factored in, after tax)

• Total: $2,100

Liabilities

• Credit Card: $4,000

• Student Loans: $18,000

• Car: $170/month*

*The car was essentially a “lease to own” scenario, whereby in 3 years I could either buy the car or trade it in; however, I had to stay below 12K miles per year. Alright, it was a fancy lease that my Dad and I got duped into doing. I didn’t own it, so it was worthless to me as an asset. 

• Total: $22,000 (not including the car) 

As you can see, I was upside down $19,900 liabilities compared to assets. In any financial terms you want to use, I was broke and had essentially no assets to my name. Did I care at the time? I did not. I used the $1,800 I had in savings and bought a very used boat (hey, it came with a trailer)! Well, that’s great, but now I need a car to tow the boat. In order to keep costs down and use “good fiscal responsibility” I leased a Jeep for $337/month. So, instead of paying down some of my debt and attempting to set myself up to buy a house in the near future, I decided to use this money to buy two things I absolutely didn’t need that would undoubtedly provide me with limited joy and a ton of headaches down the road. 

Long story short, I used the boat 4-5 times total and it was in the shop at least that many times. After sinking another $500 into it (where did that money come from? I’m not sure, but probably credit cards) the engine died on me the final time taking it out and I barely got it out of the water (for my friends who were there, this is a story that will never die, much to their delight). I eventually got rid of the boat which left me with a Jeep I didn’t want, a lease payment I didn’t want and more debt with zero to show for it. Learned my lesson right? Not quite yet. 

My next major purchase was a condo about 10 minutes outside Uptown Charlotte. The location was amazing and the condo itself was pretty cool, albeit very small (around 600 sq feet). I wanted this condo and was going to do what was necessary to get it done. Once again, price became the main driver so I was talked into getting an interest only mortgage loan (this is before I worked for a mortgage company BTW). This knocked a couple hundred bucks off my payment each month, which was great. What I didn’t consider was paying more on the loan than the monthly payment in order to knock down some of the principle over time. I just made the monthly payment without even thinking about the long term effect of never putting anything extra toward paying the mortgage down. Why? Because I didn’t know any better. I thought I was doing the right thing by simply owning a condo in the first place. This is half true of course, the other half is actually using good financial sense to pay down the loan. 

By this point you’re wondering, how did this guy work at a bank and why should I listen to him? Because these are the same mistakes most of America is making, sometimes without even knowing it. Thankfully I made mine when I was relatively young so I could learn from them and reverse course, not everyone can be so lucky to see the signs. In my previous article I wrote about the price of cars and the fact they’re ridiculously expensive, with the average new car costing well over $45,000. Even with a low interest loan your payment would more than likely exceed $500 a month or more depending on how much you put down. So many of us think, “I can afford that payment each month.” That may be true, but that doesn’t mean you should buy it, especially if this will have an impact on the health of your savings over time. 

A quick search reveals 42% of Americans have less than $1,000 in their savings account, 58% have less than $5,000 in their savings account while the median savings account balance amounts to $5,300. (https://www.zippia.com/advice/american-savings-statistics/). If you own a home, and your HVAC unit conchs out on you, it’s most likely going to cost more than $6,000 to replace. This is not a good outlook for most Americans and certainly wasn’t for me at one point in my life. So, what changed? 

I got older and hopefully wiser, but the Jeep, boat and condo fiasco taught me important lessons about the value of the money I made and that I shouldn’t automatically spend it as soon as it hit my hands. I began to remember the “needs vs. wants” lectures I had in the college economics courses and they finally began to ring true. When it’s your money, it’s certainly easier for bad decisions to impact you quicker and more distinctly. If my parents had bought me the boat or the car I’m not sure I would have cared as much. Since it was my money, the impact was greater and more profound. 

Obviously many Americans haven’t learned their lesson. I realize it’s hard to save and it’s even harder for those who are living paycheck to paycheck or working 2-3 jobs to get by. You’re not the people I’m speaking to as your problems go deeper than anything we can solve in a 2-3 page article. But what about the married couple who both have six figure jobs, drive luxury cars and live in a house they clearly can’t afford? What are they doing and why? You can’t afford a $115,000 Lincoln Navigator! In order for America to sustain and thrive, we all need to brush aside our reliance on banks and lending in general, get rid of credit cards and buy only the things we can afford. Crazy concept right? Our parents and grand-parents did it, we can too.  

Money isn’t that difficult to understand when you use basic common sense. If you have a ton of credit card debt, a mortgage, car loans, etc., you don’t have nearly as much money as you think you do. When you have a moment, take part in a little exercise:

• Take a notepad and draw a line down the middle

• On one side put “Assets”

• On the other side put “Liabilities” 

Assets would be things you actually own or money you have in certain accounts (checking, savings, 529 Plans, etc). Liabilities would be loans you have outstanding (credit cards, mortgage, car loans, etc). Keep in mind, if you have a loan outstanding, it’s not your asset. You’re on your way to owning it, but you don’t own it yet. 

Feel good about where you are? If the answer is yes, that’s fantastic. If the answer is no, it’s time for you to have your Jeep/boat/condo moment and get better. You can start by stop buying sh*t you don’t need and begin living within your means. No, you don’t need to take that girls trip to Vegas or go play golf with the boys in Myrtle Beach. Or, if you do, make sure you’re within budget and don’t extend outside of what you want to spend. 

Live within your means and stop paying attention to what others have. It’s just stuff, it doesn’t matter. Ownership of the things you have provides you with an immense sense of freedom. The freedom to put your money aside for things you want to buy rather than attempting to keep up appearances with those around you. Make smart decisions with your money, you’ll be amazed what can happen.You may even be able to start a blog, take some time off work and become a Manny, like me.