Tuesday, May 15, 2007

Thoughts from a former financial fool

CSMC at My Own Superhero's latest post has encouraged me to finally finish this financial post, which has been sitting in my draft box for several months.


I'm trying to think how far back in my life I should start this post. I want to be thorough, accurate, and honest, but I don't want to lose all of you after you quit reading halfway through an hour later.

It's just going to have to be a long one. Okay.

I grew up not really understanding money. I was a generous person; when I made money--and I did, starting a small part-time job at 14, and working every year since--I would often buy friends, boyfriends, and family elaborate gifts . . . as elaborate as gifts get when you're a teenager or college student working part-time, anyway. Beyond a few months, I never saved any money. I have nothing left from the money I made from the first eleven years that I worked. Eleven years! That's a long time to have no savings to show for it.

I grew up in a household where, theoretically, there should have been plenty of money. The household annual income was between US$100k and $140k, growing as I got older. My father made a good living as a judge. My mother did not make a good living as a private school teacher, but she was able to drive us kids all over town to activities and mostly avoid childcare. My parents did not drive expensive cars. Our house was modest for the income. But my parents never seemed to have a grasp of money--how to use it, how to save it. My father will be fine in retirement because of a (one of the last ones!) pension from the state for his years as a judge. My mother . . . well, she has not been in the best financial shape either, to put it mildly.

But I digress. As you can probably tell, I grew up in a family where money was not understood and not readily discussed. At one point, one of my sisters had a homework assignment of discussing with my parents their savings, their debt, and their credit ratings. They were absolutely appalled and refused to do the activity. I understand that some families believe children should not be embroiled in money problems, but children do need to understand money.

My father left my senior year of high school. I had applied to a prestigious, expensive college, and when I got in, I had no idea in my mind that I would not go there. But they expected my father to contribute to my education, and when he did not, I took on an enormous debtload to go to school there anyway. At the same time, I had developed no money skills. I knew (theoretically) how to balance my checkbook, but I didn't do it. I blew through money when I got it, and the lean times were very painful. My mother had no additional money to give me; she was foundering with a too-high house payment after the divorce. I remember one time when I went weeks without buying contact solution that I needed because I was overdrawn, completely broke. I messed up my credit by not paying the two credit cards I had gotten. I didn't realize it was okay to make only a minimum payment if you could afford nothing else. I was a smart kid who was really stupid about money, and I didn't see any way out of it. My dealings with money were a big source of shame for me, and I avoided anyone realizing how badly I was handling it.

The other thing is, I made one of the two prime mistakes that people tend to make about money: they think money is completely unimportant, or they think it's everything. I thought that if you were concerned with the good of the planet, the good of other people, the important things in life, money shouldn't matter to you. I was wrong . . . terribly wrong . . . but it took me a long time to realize that.

I did transfer to a less prestigious, less expensive school eventually--one that offered me more scholarships. I spent a lot of time doing volunteer work and was paid for part of it through a scholarship program, as well.

Six months before I was to graduate, I had surgery. It turned out to be ovarian cancer. I had tests and treatments; I had insurance, but I still had co-pays and had things the insurance wouldn't cover. My debt burden deepened.

I started full-time work with a non-profit organization the summer after graduation. I bought a new car right away--thought I was smart because I got a 0-interest loan through the dealer. I still bounced checks but not as many. My boyfriend lost his job and moved in with me when he couldn't pay rent at his apartment. His mom gave us Dave Ramsey's book The Total Money Makeover.

I got really excited about the steps in the book, and I worked toward step 1 of developing a baby emergency fund of $1000. The week after I got the money saved, we learned that my cancer had returned. More surgery, a long time out of work, more tests. More debt. The $1000 sure was handy, but it didn't come close to covering everything.

My boyfriend, who became my fiance in all of this--well, bless his heart . . . he did not help things. He was basically a loser in most aspects of his life. He seemed like such a great guy when it came to dealing with my cancer, although that faded in time. He could not keep a job to save his life. He needed someone to run his life (which he has, now, having joined the Navy). He smoked a lot of weed and hid it from me. He cheated on me and tried to hide it from me. Then I found out and the game was up. I don't put up with that shit.

So he moved out. I had stupidly (see a theme here?) agreed to sign a truck loan for him; his credit wasn't good enough for him to get one on his own. So I was left with his truck and its loan, my car and its loan, the rent for the apartment we'd just moved into, and all of my normal debt. I felt as though a house-load of bricks of debt were stacked on my back. I got behind on car payments. I bought stuff to try to make myself feel more normal. I paid my rent on time; I paid his truck on time. But other than that, I don't know if anything else got paid on time. I wanted to hide from money.

Oh, and in the midst of all that, I tried running a Mary Kay business on the side. Let me tell you, that doesn't work if you don't handle money well. When an order got messed up, I ended up owing several people money that I simply did not have.

By this time, I'd started dating the guy who would become my husband--a guy who lived off of his very small student salary without accruing any debt: he paid off his credit card balance in full every month. I knew that I could trust him when, a month or two after we'd started dating, I broke down and, in sobbing, gasping tears, told him the state of my finances. The total amount of money I owed people and companies and corporations overwhelmed me; it was as much money as I made in a year, if I remember correctly. He responded by creating an Excel spreadsheet, inputting the different amounts I owed, and saying, "But they'll take payments, right?"

Oh, well, yes, I guess they will. I always thought of the big picture and didn't think of the little steps I could take to remedy things.

I started paying everything on time. I sold the truck. I moved to Atlanta and moved in with my husband when we got engaged. I paid off my annual-fee credit cards and left them paid off. Eventually, I got an offer for a credit card with no fee. I took it.

However . . . my husband-to-be had always lived where he put charges on his AmEx and then paid them off every month. Once he was dating me, though, his expenses for dates and sweet nothings increased. Suddenly he had a balance at the end of the month. And then we planned our wedding, and that balance grew. Helping me get the truck fixed (it had broken down) to sell it increased it, too. I went with him to visit Japan; we thought we had enough money for the trip, but we were wrong.

With all of that going on, we approached our wedding date with the realization that we had accrued $17,000 in credit card debt while we were dating. My husband was as close as his laid-back self gets to panic. I promised him that we would start working on it the week after we got married--that we would eliminate credit card usage, that I would match his thrifty spending habits. Still, the amount we owed astounded and appalled me.

I had my husband-to-be read The Total Money Makeover to see what I thought we should do. He agreed. Despite what some money gurus will tell you to do, TTMMO starts you paying off debts with your smallest bill first. Well, actually, first you create a budget, cut your lifestyle down some, and save a thousand dollars for emergencies. But then you pay the minimum on your other bills and throw all your extra money at your smallest bill until it's paid off. Then you roll the money you were using for that payment into a snowball for the next smallest bill. You pay off every bill--regardless of interest, regardless of who lent you the money--from smallest to largest. Some people will tell you to pay off your highest-interest bill first, or not to worry about loans (like personal loans) with no interest. TTMMO recognizes that money is a very emotional thing for many of us. Starting with the smallest bill and working your way up gives you bills to cross off your list pretty quickly as you go . . . and, as my husband discovered, at least for us, we were on track to pay off our debts in the same month as if we had paid off the highest-interest one first.

It took us a couple of months to get the hang of budgeting, but we did it. The credit cards were completely off-limits at first. (Now, we use them when we want special protection for a purchase, but we only use them if we can pay off the balance as soon as the charge shows up on our online statement three or four days later.)

And then we discovered that a friend of a friend needed expertise that happened to be part of what my husband is an expert in. He was hired by the guy to do some work, and other than the 1/3 of it that my husband set aside for taxes each pay day, we put every cent of that money into our debt. We did not let it touch our budget; we did not increase our lifestyle at all. All of the extra money--plus some from our normal work lives--went to our debts. Without that money, our income was around the average for American families--$45k a year total. (Remember, my husband is in school.) With that money . . . well, I don't even know, because I never considered it part of our income.

Between April and November of 2006, we paid off $12,000 in debt. I still bought plenty of stuff that I/we needed, but I stayed within my boundaries with buying things I just wanted. I began to realize that a) I had the skills to control my money, and b) I could trust myself with money.

In the meantime, realizing how important safety is when it comes to money, my husband and I began to pay $50/mo. for a $500,000 term life insurance policy for him for 35 years of coverage. No one would cover me due to my cancer history, but it was more important that I be covered anyway. My husband could leave school at any time and make a lot of money. It would be hard for me to make much more than twice what I make . . . and if I were pregnant and he died, well, it'd be a complicated thing. So we knew term life insurance was a good idea for us.

In early November, I messed around with our Excel sheets and realized that if we stayed "gazelle-intense" (a Dave Ramsey phrase), we could pay off all of our debt before our first anniversary. I was so terrifically excited that we would have paid off $17k in one year's time.

Then November 19 arrived. My husband was hit by a car that was going 35 mph. He was in the hospital for 10 days. I took off 12 days of work. My husband couldn't work. Having our emergency savings was a life-saver, and I felt pretty peaceful that things would work out financially (a huge change from a year earlier), but I couldn't see how we would end up paying off that consumer debt by March of 2007.

We dug our heels in a bit more, learned to sacrifice a bit more. We sold my car and learned to use one--that was the biggest change, and it saved us about $350/mo. in my car payment and insurance. We gave people homemade Christmas presents. We cut back here and there.

As it turned out, thanks to a marvelous (really) attorney, we then managed to settle with the insurance company of the guy who hit my husband within a few months. (It's not uncommon for that stuff to drag out for years.) I had always felt that lawsuits to insurance companies were very often stupid, but an attorney friend explained to me that money was the only way for the insurance company--which was, after all, insuring the driver and his car--to pay for the permanent damages to my husband's body. My husband will live with those physical issues the rest of his life, and it was the least (and only) thing the company could do to provide some monetary compensation as we dealt with it. That made sense to me. And when we settled, we were able to pay off the rest of our consumer debt (we do still have student loans) and look toward beginning to save for retirement, finish fleshing out our emergency fund, etc.

These days, we live on a budget, which we spend a few hours reviewing and altering every month. We live within our means. We save for vacations; our anniversary trip to Oregon was paid completely in cash. (And there is something extra special about a vacation that incurs no debt, let me promise you.)

So . . . what does this have to do with weight loss? Well, I can't pin it down for you with any incredible precision, but I can tell you this: having peace about money--having dealth with that huge weight, that swirl of emotions--freed my mind up to be able to deal with other issues in my life. I'm losing weight in a way that feels measured and positive for the first time in my life. I'm relaxing into a new way of living instead of obsessing over calorie counts. Perhaps dealing with our money on a month-by-month and day-by-day basis helped teach me how much small changes over time add up to big ones. I'm not sure. But I think it's worth telling you all of this because I feel that changing my financial habits has been a large factor enabling me to lose weight, to keep my focus, to be stable enough to cope with the weight issue on a regular basis.

Occasionally a friend will lament to me having difficulty with weight loss or an exercise routine. But what I've realized is that sometimes it's not the right time to make big changes in those things. Sometimes life is overwhelming, and putting something else on your plate will just stuff you too and fill you with acidic worry. Sometimes you have to figure out what else in your life needs to change and work your ass off on that before you come back to giving your focus to food/weight/exercise issues. You can only focus on changing so much at once before everything starts to fall apart. For me, one issue I had to face was getting my finances into reasonable shape, whatever it took. (The peace of mind far outweighed not always being able to buy what I wanted at the moment I wanted it.) I know by the statistics about debt in the US that a lot of other people may be in financial holes similar to the one I was in. Other people may have other glaring issues in their lives. Don't get me wrong--I'm all for everyone gettin' healthy at any time they can manage it! But I think it's important to be honest with ourselves about what's going on in our lives and how we see or think it is affecting us.


ArleneWKW said...

I skimmed through the first part of what you wrote, then more thoroughly read your last 3 paragraphs. I think your conclusions about not overloading yourself with changes are right on. Sometimes you can only focus on one major thing at a time. I'm glad you've gotten past your financial difficulties. Many people who are a lot older than you never seem to learn how to deal with money.

csmc said...

Wow Veggie, First off thank you so much for posting on this topic. I always find your posts incredibly thought provoking and insightful.

We didn't have any understanding of money in my family either - it was just understood that we didn't have any of it and had to depend a lot on social services and the community to make ends meet. With that I think came a lot of denial and a refusal to live within our means.

OMG I totally relate to the feelings of shame... yeah most folks in my life don't actually have any real idea of what is going on for me in that department. A dynamic I completely perpetuate.

I hope I too come to the point where I feel I can *trust* myself w/ money. I realized as I read your post that I really don't. Maybe that is why I burn through it so fast - to get it away from me? So weird!

You have clearly made amazing change in your life. And you pointed out the interconnectedness between money and weight loss so perfectly!

Thank you so much again!

Sarah said...

This is such a great post. Thank you so much for sharing your experiences with money. It is a topic that all too often is never discussed among parents and their children.

I am so thankful that my parents kept me informed about money. While I didn't know the specifics about how much they made, they set an amazing example of paying their credit cards off each month, keeping cars for longer then 5 years and paying them off or even in some cases paying cash for them.

Often times I stress about money as does everyone. But I also realize that travel quite a bit and don't deny myself much as far as concerts are concerned. I do take advantage of my employee 401 k match program as well as a Roth IRA.

Thank you again for lettin your readers in on your experiences with monies. You are setting a great example!

Mal said...

I think you already know this, ut I have been waiting for this post from you for a few months. I'm so glad it finally hit, and must thank you for your level-headedness and honesty. It's wonderful, and I DO think the two arenas are linked. I've said all year that "this is the year of food and money" in my life.

Cory said...

I have to say, this was a great post for me to read today. My husband and I are having financial problems, and I'm definitely going to have to pick up this book you mentioned. That's for writing about this. Financial difficulties can be incredibly private, and we all appreciate you sharing it.

Salma Gundi said...

Your story is awesome and very empowering. I'm going to look for the book you mentioned. I have different issues with money, but I like very much how it doesn't seem to have power over you now - that it what it is.

Anonymous said...

wow, great post! thanks for sharing, you make a really valid great points! -gagirl

jen said...

This is an amazingly helpful post. I have been dealing with debt issues in the last few years myself. I will have to check into the Dave Ramsey book (at the library, it seems ironic to buy it, doesn't it?)