History of Me Hemorrhaging Money
When I was 12 years old, my mother took me to Wells Fargo and helped me open up my very first bank account - a savings account - of which I promptly deposited a small jar of coins I had accumulated. She told me to be diligent in putting whatever money I could into this savings account, since it will help me reach goals in being able to buy things. Sound advice - except for the latter part of it. Reflecting back to this moment, I wish it was my grandfather who was teaching me about savings accounts in the first place. His advice years later would be "I wish I saved $20 a week and just forgot all about it. Put that money in a savings account and forget all about it". I was in my late teens when he gave me that great advice. Unfortunately, it was too late since I had been brought up to save money then immediately spend it.
My dad used to pay me and my brother a weekly allowance of $5. I used to buy baseball cards whenever I could get my hands on that cash. As soon as I had the cash, I would go to the supermarket, where they had an actual sports card display full of unopened packs of cards and I would hope to land the next awesome Ken Griffey, Jr., or Frank Thomas, or Cal Ripken card. I actually did score a few nice cards, and to this day, they are all in plastic sleeves stored in a huge stack of 5-row card boxes pilled from the floor to ceiling in my old room's closet at my parents house. I guess some would call this an investment, but unfortunately the period I was actually collecting cards was a bad period to collect cards in. They were all over-printed, over-priced to begin with, and thus were way too saturated in the market. So, the baseball cards of years 1989 through 1995 that I do have are not that valuable, even more than 15 years later. Reflecting back on this, I wish I had Warren Buffett as my dad who would have told me to invest money in the stock market, especially before the dot-com boom, then cash out at the peak of that bubble. Baseball cards were a stupid thing to invest hemorrhage my money on.
When I was 17 years old, I proudly applied for my very first credit card. I wish I could remember who told me to apply for the card. Maybe it was a commercial or ad I saw somewhere. Maybe it was a friend. Maybe it was my parents. I have no idea, but I remember the excitement I had when I opened the Wells Fargo envelope that contained my first piece of plastic. I showed my mom my card and she smiled and said she was proud of me and that I am now a grown up. I had a whopping $700 credit line, which was huge for me, being a high school student with no job, aside from the allowance my parents gave me. What's interesting to me right now, as I reflect back on this, I recall that I was still smart with money. I was still very smart with the credit card. I would use the card for certain items, like food, maybe a DVD or two, and then promptly pay it off. I understood the importance of "building credit" so that I eventually would be able to get a loan for my first car, my first house, and a loan for anything else I needed. I felt, at the time, that this was very important. My main financial goal was to obtain and maintain a FICO score of 700 or greater. When I checked my first credit report, I was proud to see I had a 714 FICO score. I felt I had achieved financial greatness and was on the right path to being financially smart and responsible. After all, I was paying off my credit card each and every month, without accruing any late charges or any interest. I did this for years, until I moved out of my parents house.
Even during college, when I had a job and was earning roughly between $400-1000 per month, I was still using my credit card for everything. I was actually depositing my checks into my bank account, but using my credit card for purchases and then paying it all off at the end of the month with all the cash from paychecks. I was keeping careful track of purchases in a spreadsheet and making sure that I wasn't going over my "budget" which basically was my credit line. I was always earning more money than my credit line, which was $700, but always managing to rack up $700 in charges each month, and then some. I was using the card as a means to be able to buy things and be a consumer. I never looked at my finances as if I had to "save up" for something, since I had the credit line ahead of time, and could simply work for the next 2-3 weeks to pay it all off and then start over. Reflecting back on this habit, I realize that the credit card, and the way I was using it, was keeping me in an endless trap of consuming, spending, working to pay it off, consuming more, spending more, working to pay it off. Never did I actually set aside a percentage of my earnings in a savings account and "just forget about it" like I sure wish I did.
While in college, I met my future wife. We would go out all the time to dates, dinners, and whatnot. My spending greatly increased during the time of my early twenties. I had a $2000 credit line at that point, and was beginning to earn money on the side freelancing for computer consulting for various businesses and individuals. Once again, I was racking up thousands in charges, and managing to pay it all off without ever getting hit by fees or interest. I continued to spend all the money I earned without saving anything.
When I was 24, my future wife and I decided to move into an apartment together. I didn't even have a job, although I was getting social security payments (about $550 a month) due to my disability, and I was still earning some cash on the side from computer consulting. By this time, I had zero savings (of course), probably $1000 in credit card debt, and a few hundred in cash/checking. We knew we were going to be okay to begin with, as my future wife had a large savings account built up due to a windfall that she came into. We were very lucky to have this windfall, but we refused to touch it. Within a few months, I had personally racked up over $5000 in credit card debt, had even started opening up more credit lines, and "investing" my credit lines into my new business, which I was trying to grow.
In late 2006, I landed my first big fish client. Once a week I would go there, work all day, then come home. Four solid working days a month of this equaled about $1600 per month in guaranteed income. This was huge for me and my fiancee (whom I proposed a short while later). I was on cloud nine making so much money. I went from earning $550 per month on Social Security, to earning $3000-4000 per month from clients. I had obtained several other accounts along with the big fish one.
Even while earning this much money, I was still trapped in the debt cycle. For the first time ever, I incurred my first interest charge on my credit card. I could no longer pay it off in full, because I had to have cash as working capital in order to buy computer hardware and software for clients, and then they would be late in paying me back, so I would be hit with all kinds of finance charges. It was a mess but I still paid no attention to it.
In January of 2007, my brother had totaled his car in a rear-end accident. At the time, I was driving a car that my parents helped purchase by taking out a loan from their home equity line, and I was paying my dad back interest-free at $150 per month and nearing the end of the car payments and finally paying it all off. Since I was now making so much money, and wanted to help my brother out, I gave him the car free and clear and let him take over the car payments. I went out and financed a brand new 2007 Toyota Matrix at 6.15% interest for 5 years. I did put $5000 down which was supposed to be working capital money but I didn't care - I wanted the best interest rate and the dealers said in order to get it below 7%, I would have to have a small stake in the purchase with a down payment. I would now have a car payment of $333 per month for five years. This didn't faze me since I had so much credit line, was making good money, and was able to stay on top of bills.
A few months later, we decided to move from our one bedroom apartment into a much larger apartment. We went from 800 square feet to 1250. We went from $990 to a whopping $1750 per month in rent. We had all the nice amenities with this new apartment. An attached garage, a second bedroom of which became my office, and fancy stuff like crown molding, nine feet high ceilings, a BBQ pit, and a nice green belt right outside our windows.
What would eventually follow from this move would be a lot more money hemorrhaging:
- Adopted another cat
- Bought two flat screen TVs, priced at $2,000 each
- Bought a PS3, XBOX 360, Wii (and eventually sold them on eBay for a fraction of the purchase price when we got bored of them)
- Bought a TiVo and the most expensive cable package (bill was $200/mo)
- Bought new furniture and home decor (pffft, thousands of dollars right there - I'm scared to look at the financial records here)
- Bought a brand new truck for my wife
- For my business, I built a new computer and home server, costing around $5,000 all told
- I bought a $2,200 Dell laptop - top-of-the-line - which eventually died 2 years later, out of warranty and salvaged about $200 off eBay for it
- We bought iPhones, and had unlimited plans costing us $120 per month at one point
- Adopted a dog
- Bought 3 servers for my web hosting business - which put me way over my head into debt
- Gambled away $3,000 in a Vegas trip
- Spent hundreds a month on bowling in a league
- Spent over $2,000 on building my company website which gets zero traffic anyway
- Spent over $1,400 on building my web hosting company website which I admit sucks, and isn't pulling in any customers
- Bought countless other things
All told, I racked up $20,000 in credit card debt, still had a car payment with about $14,000 remaining, and we had a new truck which was another $21,000 remaining on the loan by the end of 2010. And we did this during the recession!
Granted, I have been making good money with my business, which has thankfully been successful during this horrible recession. I still have my big fish client, and others to boot. My hosting company is now very profitable and I am easily able to cover my high costs and then some. I just wish I wasn't so stupid with money from the outset, and grew our lifestyle and my business with cash instead of financing everything with debt.
Stay tuned for my next posting, which will be all about how I turned it all around and finally became DEBT FREE!