Drunk on Credit

A few months ago I wrote a couple of posts about how we go about teaching our kids about work and money. Those posts caught the attention of a little company called My Job Chart. Now I don’t know about you, but when I do business with a company I like to know that they share the same values that I have. While chore charts are not something we use, I was very impressed with their goal of teaching children the value of hard work and fiscal responsibility. My Job Chart was kind enough to sponsor a post about some of the lessons I have learned about money. Awesome, right? Let’s begin, shall we?

Let me tell you the story of how I learned that the world has no idea what it’s talking about.

Once upon a time, I was a 25-year-old young mother of two. My husband was on the cusp of graduating from dental school and we had two beautiful little girls. Being the forward thinkers that we were, we hopped on an airplane to visit the magical land of Maine for a few job interviews. Maine was the promised land. The land flowing with milk and honey and the place that we would spend the rest of our lives. You see, I grew up in the northeast, Matt loved the water, and we both wanted to live in a small town. Maine was the perfect spot to fill all of that criteria.

In the middle of a cold winter, while Matt spent a few days shadowing his future employer, I drove all around the island with realtor looking for a perfect house. After seeing a few dreamy homes that were a bit out of our price range we decided to be responsible and buy the least expensive home we had looked at: a 3 bedroom condo. It wasn’t as inexpensive as a house in the next town would have been, but we wanted to be close to nature and Matt’s office was only 2 miles away! It was perfection. We didn’t need anything big after all, just a starter home since we would have plenty of time to upgrade later after we had more children.

We did everything we were supposed to. We had lived like students and now that Matt was no longer a student it was time to be a grown up, complete with a student loan and mortgage. Adulthood could now commence. We even got a 5-year ARM so we could get a lower interest rate. Perfection! It was so convenient for us that the bank offered that kind of program!

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We closed on our house in July of 2006. A few months later the housing bubble burst. The “responsible” house we had purchased lost far more value than other homes in the area because it was a condo, and was in the middle of nowhere. But that was okay, right? I mean, we hadn’t really lost any money because we hadn’t sold the house. We just pulled ourselves up from our bootstraps and figured we could hunker down in our “starter home” for a little bit longer than we had been planning on. No problem. The market would bounce back.

Except the market didn’t bounce back. And Matt’s job wasn’t paying as much as we had hoped. And we weren’t liking Maine as much as we thought we would. And homeownership turned out to be much more work (and money) than we had anticipated. In a very short amount of time we found ourselves stuck in the wrong house, the wrong job, and wrong town. And we couldn’t change any of it because we were stuck with the house. Life pretty much sucked at that point.

Then we started to hear some financial advice that we had never heard before. Things like “debt is dumb”, “interest is powerful, you can either RUN from it or make it work for you”, and probably the phrase that made the biggest impression is “don’t be normal because normal is broke”. Over the course of the next year or so we listened to more and more of this kind of financial advice and realized that we had been spending money we didn’t have to buy things we didn’t need to impress people we didn’t even know or care about! Matt and I decided we needed to change.

In general that was a big year for our family. We started homeschooling, we joined the Air Force, we moved across the country, and we learned the world has NO business giving people advice.

After three years of frustration in Maine, we joined the Air Force and put our house on the market for FAR less than we bought it for. After six months with zero prospects, Matt and I decided to become landlords. We could hold on to the house and maybe end up retiring there. Maybe Maine wouldn’t be so bad if Matt didn’t have to go to work every day and we didn’t have little kids at home. A year and a half later I was more than happy to put our house on the market again. Our plans didn’t quite pan out because I discovered that I HATE being a landlord. Since we had left Maine, we had snowballed some of our debt and ended up getting a raise so we could afford to have the house vacant for a while. It took another year before we got our first and only offer on the house. We closed a few months ago.

It was a very bitter-sweet moment for us. Sweet because we could finally wash our hands of everything that had to do with Maine. Bitter because we lost $90,000 (far more than that if you count the interest paid and the improvements we made). Sweet because we were no longer paying for a house we weren’t living in. Bitter because we had to take out a $27,000 loan to cover the balance of our mortgage.

Now, when anyone asks my advice on buying a home I say “DON’T DO IT!”. In fact, whenever Matt mentions the prospect I start to panic a little bit. We have been talking a lot lately about buying land somewhere to build our dream house when we retire, but the idea of borrowing money to do it makes me hyperventilate. So our plan is to buy our land and build our house only when we have the CASH to do it. We are now happily RENTING a home and when we leave New Jersey we won’t have to worry about filling the house we leave behind.

Just look at what the world tells everyone to do. As soon as you graduate high school you are bombarded with stores and banks pushing their credit cards on you. In your naiveté, you think I’ll just get one, I need to build my credit after all. Then the world tells you that the only way you will ever be able to get a job is with a four year degree from an expensive university and you think I’ll just get some student loans, the interest rates are so low. Then when you start your family the world tells you that renting a home is a waste of money and you should invest in a home and you think I’ll just get a starter home, we can always upgrade later when we have more money.

Before you know it you are juggling credit card balances, paying off a six figure student loan, and praying you can change your ARM to a 30 year fixed without having to get the house reappraised.

We lost 90k because we tried to do what everyone said we were “supposed” to do. Our experience was based on one big lie that has been told to us since we were kids. A lie that encourages you to “build your credit”, and “own a home”. You know what all of this is? Slavery! You don’t OWN your house! The BANK owns the house and they LET you live there. When you buy a house on credit you are renting a house from a bank yet you are on your own when something breaks, when the tax bill comes, or when you get transferred out of state. Don’t think so? Stop paying your mortgage or property taxes for a while and see what happens. Sure, you might be able to get away with squatting there for a while but sooner or later you WILL get kicked out.

When you are unwilling to do the work and have the patience necessary to save for things you are putting yourself at the mercy of the banks and the federal government. And if you don’t think the government has it’s hands ALL in the housing and student loan market you are blind.

We saw exactly what happened when the government got in to the housing business. Inflated home prices, massive loans to people who couldn’t afford it, everyone buying homes and flipping them thinking it’s a “sure thing”, and companies building new homes before they had people to fill them. That’s an absolute recipe for disaster. Now we have empty houses and people living on the street.

Now the federal government is trying to get it’s fingers even deeper in to the educational pie. Did you know that federal student loans didn’t even exist until 1988? Since then student tuition rates have risen THREE times faster than regular inflation. How about that student loans have now been nationalized? You may NO longer go to a bank for a student loan. You may ONLY borrow money from Uncle Sam if you want to use it for education. Even the rising costs of medicine and housing (pre-bubble burst) pale in comparison to rising tuition rates. Lets be honest here; the Federal government has NO idea what it is doing!

Just listen to what Dennis Miller (also sponsored by My Job Chart.com) has to say about it (you remember Dennis Miller, of SNL fame?)

So how do we stop it? How do we stop the craziness? Well it’s not easy. We have to START by paying for things. Don’t ask “how much a month” ask “how much”. Now before anyone gets mad at me, I’m not saying that owning a home isn’t something to aspire to or that you shouldn’t get a mortgage in order to do it. What I AM saying is when the world pressures you to do something (especially with regards to money), take a long hard look at it with a critical eye BEFORE you commit. You don’t want to get caught in the tidal wave of conformity only to drown in a sea of debt.

Teach your kids about money and be a good example to them!

One look at the stats tells me we aren’t the only ones to fall for this lie.

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Matt and I are still working on it. We’ve pretty much learned our lessons with the big stuff but have a harder time with the day to day things like groceries, gas, or eating out. It’s a lot easier to justify putting $50 on the credit card to fill up the car because I spent that $50 on books for my home library. My books aren’t bad, my priorities are. Those little things add up and before you know it your credit card balance is overwhelming and keeping you up at night. It’s not a fun way to live.

I’ll give you another nasty little side effect to overspending on credit that is not often talked about. I am in the process of going through our stuff and trying to get rid of things that we don’t use anymore. As I am sorting through our books, clothing, and other knick-knacks I am finding a depressing number of these things in unused condition. Instead of seeing a book that we don’t use and would easily be able to bless another family, I see a dollar amount that I can’t un-spend. Instead of happily purging an unused item and reclaiming that space on my bookshelf I see hundreds of $5, $10, or $15 purchases that could have gotten us out of debt a lot sooner. It would be so nice to be able to just give away or sell something without wondering about how much I was losing.

Why is this important? Once we start paying careful attention to exactly where our money goes, then our State and Federal governments will be forced to do the same. We have to get our own house in order before we can expect the White House to follow suit.

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2 Comments Add yours

  1. MeliaS says:

    Thank you for your post. We too “bought” into the teachings of the world. I had been brought up to think that renting was only what you did for housing when you couldn’t afford to buy a house. We have owned homes for 15 years, but moved many times because of work or not being able to afford the house anymore. Our most recent home was purchased 5 years ago. We found a buyer for our other home and right at closing time they told us they needed to do a lease option instead. We decided to do it because they were good friends and we were head over heels in love with our new home. We wanted it to work out.

    Two months after closing, they couldn’t make a rent payment. There were problems for a couple more months and every time we talked to them about it they liked to make us feel guilty for being so greedy. I know that we were pushovers and we caused a lot of our financial problems ourselves, but they backed out of the deal and we lost $8,000+. They, on the other hand can afford yearly passes to Disneyland and just bought a house in LA while we are living VERY frugally hoping to eventually get out from the debt we got in.

    Like

  2. Heather B. says:

    Great post!

    Like

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