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|Subject: Re: Newbie IRA question||Date: 1/14/2005 3:18 PM|
|Author: licensetokill007||Number: 44037 of 75779|
Thanks for your kind words, especially on my first post! While generally outgoing, I'm also very introspective and try to analyze my life and where I've been, and where I'm going, and I think that has helped me understand my financial picture and what got me into trouble, and I hope my comments can help others.
As you look back, can you identify how you bought into the consumer value system of spending and debt, and identify any ways that might have led you to avoid the problems you created?
Here are some lessons I learned from the school of hard knocks. The tuition is about $26K (with easy, 18% financing available):
Looking back, I've generally considered myself too sophisticated to fall victim to marking, but in a way, I fell into a marketing trap. While I didn't necessairly follow trends, or just on the latest marketing bandwagon, I did feel that I needed to buy based on features and precieved quality, and would use that to justify my purchases. For example with my car, I wanted something fun to drive. Of course, the Germans make the best cars, so I started looking at Audi, BMW, etc. I was young, so of course it made sense to get a sports coupe. For just a few extra $$$, I could get 225HP, all wheel drive, etc., etc., etc., and before you know it, I was signing on to a $45K lease. If I was buying work clothes, of course the Italians make the best shirts, and of course you had to go to a nice store with the latest and best selection, etc., etc. While I still like buying nicer, higher quality items, I've added a heavy dose of pragmatism to my buying choices. Instead of buying shirts at Nordstorm or Saks, I check out Marshalls, and more ofthen than not find quality shirts at decent prices.
I ammassed a load of crap that took months to sell off on eBay, and that I didn't really need or want after a couple of weeks. I'd constantly feel buyer's remorse, and the things really didn't replace whatever voids I was feeling in my life at the time.
What is Money?
Another trap I fell into was equating money with the ability to buy things. While growing up, my parents constantly spoke of the value of savings, and while we were well off, they were careful not to just buy me stuff, insisting instead that I should work for it. Rather than learn savings strategies, I missed the excellent financial education my parents were trying to give me, and the lesson I took to heart was money = things (luckily I've finally realized the error of my ways). I worked for my $$, therefore I should get things with my $$ was my attitude. Combine that with a high-paying yet not particularly satisfying job, and you end up with a lot of things. I came home unsatisfied with work, so I tried to replace that lack of satisfaction with stuff. Of course that stuff forced me to keep working, lest I lose the ability to pay for it, a dangerous proposition. With low employee/employer loyalty, I think a lot of folks my age are falling into this trap.
I started in college. I kept hearing this strange dual message. On one had, you keep hearing how you need to work hard to accomplish your goals. On the other hand, you hear how bright and talented you are for having arrived at that great high school/college/job/grad school. If you've accomplished this goal, you must have worked hard, so you must be due some of these rewards. A quick hit on the CC was no problem, since you were "preordained" for greatness. If you let this BS get to your head, you get the perverted view that you actually "deserve" these things.
Now I see money as a tool to accomplish personal goals. I'm still less than enthuesastic with my line of work, but am half way through building a 6-month reserve to cover living expenses. Now I am captain of the ship. If I get canned, or chose to go, I can pick my profession carefully and interview around, start my own business, chase giant marlin, or whatever I want to do while I plan my next move. That power is way more valuable to me than any number of things. While trite, the comment that you buy stuff, and then stuff ends up owning you has a large element of truth.
Put Your Brain to Work
Like Forrest Gump, I'm not a smart man, but I tried to use my brain rather than my emotions when dealing with money. As I mentioned, the first step was to use cold, hard analytics to develop a plan. Even if it takes a lifetime, you can get out of debt, but you have to face it head on, not cower in fear and hope it goes away. Rather than kicking myself in the tail and wishing my debt away, I came up with a plan and did the best I could, with some faltering steps, to stick to it. I'd also give myself a morning pep talk in the shower, when I was doing well I'd give myself a mental high-five, when I slipped up, I'd analyze where I went wrong, and chalk it up as a $500 lesson. If you're a geek like me, put your computer to work in the battle against debt. Get MS Money/Quicken, setup auto-pays, etc., etc.
My biggest problem in terms of money managment was that I was using skills I learned as a 8 year old to manage my money. I'd put a few dollars in the piggy bank dreaming of buying a new toy, then go to the store and spend it. All of a sudden, my piggy bank was replaced by credit, and I was using the same strategy. I gave no through to retirement, investing, long-term planning, etc., save for some dabbling in tech stocks (which worked out as you would expect).
As I mentioned in my first posting, also get your family/spouse/trusted friends/dog/canary involved. I felt a lot of guilt that I was supposed to be this superstar young professional but was wallowing in debt, so I kept it all out of sight. When I came clean, after the inital shock, everyone wanted to know how they could help. My parents were very supportive and offered bailout assistance (which I refused) and advice/support. As I mentioned, people also don't think you're a tightwad if you decline the trip to the club, and stay at home drinking Miller Lite instead, when they know you're battling debt.
Pass Your Own Brady Bill
Another little trick that helped me was my own version of the Brady Bill, where you're required to wait several days before buying a handgun. In this case, anytime I contemplated a purchase above $100, I mandated a 5-day waiting period for myself. I would also write down how much the thing in question would actually cost me, with accessories, shipping, etc.
In the past, I would buy some $400 gadget. Of course it needed a couple of spare batteries at $50 a pop, then a case, then chrome pipeing, all shipped overnight. The $400 item became a $870 item. As part of my debt reduction, I'd do the research, go on amazon.com, fill my shopping cart up with the item I wanted and all the accessories, then tally up the order in a spreadsheet without actually placing it. Over my 5 day waiting period I would look for situations where I'd use the purchase, or where it might actually make my life better in some manner. More often than not, about 2 days into my 5-day waiting period I'd figure out I really didn't need the item. This just about eliminated buyer's remorse from my life.
What would it take to point out these pitfalls to smart, educated people before they ensnare and damage people?
Interesting question. I like to think of myself as smart and educated, but in terms of money, I was, as someone in another forums put it: as dumb as a salad bar. I wish someone had handed me a copy of Rich Dad, Poor Dad or something like that when I was 17.5 years old, right before the credit card applications started coming in the mail. My parents tried to do it, but I was waaaay too smart, and things like retirement, and buying a house were just too far off. The key for me was (and still is) coming to terms with the realization that money really is power. Those who know money, and realize and respect its power, are the ones who build more and more of it. Those who see money as money = things, are the ones who don't have it, no matter how many degrees, fancy titles, or 0's are in their salary.
For all my fancy book learnin', I failed money management 101. I think this country would do itself a huge service if Rich Dad or its ilk was required reading for every high school student.
Again, I'm on track to produce a diatribe reaching novella proportions. I'm happy to help anyone so they don't have to go to the $26K debt school like I have! I did manage to get my PhD through (Pretty high Debt)!
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