Long time readers know that we were not in a good place before we got serious about turning our financial life around. But I don’t think I have shared all the parts that contributed to our situation or “Financial Dumpster Fire” as I like to call it.
The story is a little on the long side, but I hope you can relate to the message. Maybe it will even save someone from making a few of the same boneheaded decisions I did.
If you are curious about the usage of the Dumpster Fire phrase, it is what we use at work when a team or project is trending in the wrong direction. Basically, it means a collection or sequence of shitty events finally burst into a unforgivable disaster.
Lack of Financial Education
I have written about the lack of financial education before so I wont go to far into my disappointing Grade School Money Lessons, but I want to focus on the conditioning that contributed to some poor money choices down the road.
Successful people go to college – Skipping college and pursuing a different career or entrepreneurship was not on my radar. College or bust was the only message.
Consumerism is normal, acceptable behavior – All my friends and their parents had new cars, huge houses, and Nokia cell phones (anyone remember Snake?). No one talked about saving money, or even money in general. The only thing I knew was spending.
Ultimately I am responsible for the upcoming decisions, but these are contributing factors. You don’t know what you don’t know.
An all to familiar beginning to “adulthood”
After turning 18 and officially becoming an “adult” I decided that I was going to be successful, and we already learned that college was the only answer.
Being a super genius throughout high school, I decided that applying for scholarships was a waste of time, so there wasn’t any “free” money to cover tuition. A combination of FAFSA and private loans were the ticket to an education. A little debt wont hurt, there is a sweet job waiting once that diploma is signed.
Fast forward 4.5 years, and there was an impressively terrible pile of student loan debt built up. Normally this is where that high paying jobs comes to save the day……..
Unfortunately, I graduated when people with experience (of which I had very little) were getting laid off instead of hired. I didn’t want to take a job that was “below” my education level at the time (terrible I know). So I settled on the next best thing……. If no one was going to pay me to stop going to school, I will just keep on going.
Another 1.5 years of building student loan debt* (over $85,000 in total) ended with a shiny new MBA that would surely land a high paying job. This was about to get fun – bring on the cash!
*Building student loan debt defined: Using loans to pay for tuition, books, housing, groceries, beer and vacation
Cue Post Graduation Money Mistakes
Long story short, the whole “high paying job” theory didn’t work out to well. I was lucky to find a job at a growing company starting at $36,000 a year. Paying rent at my friends house and my monthly student loan payment took the bulk of my take home pay. I was to cool to live at home for free.
Bright Spot: Mrs AE graduates and moves into my friends house! It was a tight fit but we were happy to be in the same city again. Up until this point, the dumpster fire was a solo effort – from here I can start using we.
We did not last long being cramped up with all our crap in a small bedroom. We were over the “roommate phase” of our lives and ready for our own space.
Based on the sound financial advice of friends and family we decided to buy a house. Don’t buy a new car until you get your mortgage, I have seen people make that mistake before.
We didn’t have a
20 10 5% down payment saved up and decided to go with an FHA Loan. For a 3.5% down payment we were able to buy a house at the top end of our price range. It came with this thing called Property Mortgage Insurance and a $4,000 property tax bill. You know, things adults pay for.
Completing the consumerism mindset:
- Adopt a dog (love him, but puppies are expensive)
- Sprinkle in some credit card debt – “only” $2,000
- Throw in a lot of Happy Hours, some new furniture and an engagement ring
The American Way
We were on the path to be one of those statistics that gets thrown around when talking about the American population:
- Saving next to nothing for retirement
- Couldn’t cover a $400 expense
- Drowning in Debt
Check, check and check.
The part that I spend hours thinking about, is we were on a socially acceptable path. Some would even say that we were a successful young couple. From the outside looking in, we were college educated, owned our own home, and were making enough money to fund a typical lifestyle.
If you actually looked behind to curtain. We were flat broke with a shitty debt to income ratio that was compounding in the wrong direction. We needed a wake up call, and thankfully one came.
Anyone seen a Fire Extinguisher
A FIRE Pursuant is Born
It came from an unlikely place, a year end Student Loan tax slip that said we had paid over $5,000 in interest over the last 12 months. When you are struggling to pay all your bills every month and had to “find” money to pay for a random expense – The thought of wasting $5,000 on interest will make you sick.
I still didn’t know what FIRE was, and definetely was not thinking about it being a possibility for us. But looking back that was the first step in the right direction. We started paying off the highest interest debt by cutting out some of the stupid things we were spending money on.
The progress was incredibly slow, almost painfully at first. Our incomes started growing, we got better at prioritizing our spending and everything started looking up.
Shortly after this point I became addicted to improving our position and started reading a ton of personal finance books and blogs. Mrs. AE is not as into the actual research and execution as I am, but we share the same end goals so there is not a disconnect in our household.
The dumpster fire is contained for the most part, we still have some debt, but its dropping rapidly as our investment accounts grow.
We don’t have end dates or figures yet, but right now, knowing we are moving in the right direction for FIRE is good enough. We will fill in the details as we go.
Some products that can help you:
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time!
Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They are great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.