Our Financial Turnaround
This guest post from William is part of the “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity, and with all sorts of incomes.
My wife and I had some major awakenings in our lives at the end of 2008. In December, for example, as we approached our 7th anniversary, she was diagnosed with Multiple Sclerosis and one of our cats was diagnosed with lymphoma. Statistically, only 30% of individuals with MS are able to work, and my wife's symptoms made it immediately clear that there was no guarantee she could work until retirement.
At the time our financial situation was pretty dire. Our money management had been a comedy of errors; neither of us was happy about our finances. We didn't fight about money, but both of us worried about it so much that it constantly had a negative impact on every facet of our lives. Factoring in the medical concerns and the possibility we could lose nearly 35% of our income at any moment, it was clear we had to make changes.
The road to nowhere
To sum up the mistakes that got us in this situation:
- We had invested a massive amount of money into a failed business venture with some friends. We ended up supporting the company on credit cards for about 6 months before we finally pulled the plug. In hindsight, we should have stopped sooner, but the draw of working for ourselves and our perceived obligation to our friends clouded our vision and prevented us from making rational decisions about the business.
- While we were running this business, we were essentially supporting three other adults that were living with us, two of whom were partners in the business. The five of us lived together in a leased and very drafty house that we could barely afford, with utilities that skyrocketed beyond expectations. With only minimal support from one of our other business partners, we had a tough time to say the least.
- We were living paycheck to paycheck and our company paid us twice a month. Our employer then merged with another company that paid two weeks in arrears bi-weekly and on an alternate pay week. With a week's notice we switched to the other company's pay schedule leaving us with no paychecks for three weeks. We had to take the offered pay advances to make ends meet that month and the pay advances still did not add up to what our expected checks would have been.
- We financed brand new computers at about 5k for at least 21% APR (it may have been worse — I'm afraid to find out…)
- I wrecked our Toyota Camry, which we'd almost paid off. I ended up getting paid out from the insurance company about twice what it took to pay the car off. We made more money selling the car damaged than we would have if we had decided to repair it. We immediately squandered this good fortune by buying a new and more expensive car. (A decked-out 2006 Astro Black Mini Cooper — I figured J.D. would appreciate that!) Even though we made a hefty down payment, we were so excited that we were talked into almost every optional warranty their finance guy offered us, which quickly ballooned our payments.
- We did a lot of miscellaneous stupid things with money all the time, including eating out way too much (sometimes three times a day and snacks), buying stuff we didn't need (we played too much World of Warcraft, and I'm a toy-a-holic like J.D. is a comic-a-holic), buying tons of DVDs and CDs, and not saving a penny.
- To make matters worse, we bought a brand new house, upgraded every possible option during construction, and needed all new appliances (purchased with credit cards) since we had none of our own because we'd always been renters.
We had a great credit score and no savings. Before we knew it, we had racked up well over $40,000 in credit card debt, a $21,000 car loan, and a $180,000 mortgage. Every dime we made went towards credit card balances that were still slowly increasing. My wife and I sat down and decided we needed to fix our problems. We needed to get out of debt.
Turning things around
My wife and I came up with an aggressive plan that would require a lot of discipline. Fortunately, we both bring home a fair salary, so we thought it would be reasonable to expect that we could at least wipe out most of the credit card debt within two years.
Throughout 2009, we were hit with some major expenses, but we kept positive and, most importantly, kept hacking away at the mountain using the debt snowball method. We were able to put $10,000 towards our debt right away with tax returns, a bonus, and an extra paycheck in January. But that progress was immediately wiped out between doctor's bills for my wife and vet hospitalization bills for our sick cat.
My wife decided she was going to take advantage of the backlog at work and start working as much overtime as she could. For the rest of 2009, she worked 70-80 hour weeks, which kept us on top of the medical bills for her and the cat, and helped us make progress knocking out the debt. Since I'm salaried and couldn't help out with overtime, I decided I'd get rid of all of the crap we had accumulated with our bad finance habits that we didn't need or use. We ended up making over $2,000 off of eBay auctions and donated over $2,000 in items to charity.
I'd guess we paid $10,000 in her medical expenses and probably close to $30,000 for the cat over the course of the 2009. I'm sure some folks will find how much we spent on our cat a little nuts, but it all goes back to what you say about quality of life. We have no children and loved the cat. At the end of the day, the only reason we care about the money is to bring us happiness, and the memories we bought in the extra year we had with him were well worth the delay in meeting our goals.
In spite of everything, we're currently sitting at $10,000 in credit card debt, we both repaid our work advances, and our car is paid off. With any luck, we'll be completely debt-free except for our house in a few more months! Our company was purchased earlier this year, and of course their paydays are off from ours, resulting in a significant pay delay. I can't tell you how great it was to not have to take pay advances this time!
Pathway to the future
We have no plans to stop our progress! Last year when our company started matching 401(k) contributions, we put aside the minimum amounts to get full matches and opened an investors savings account to start saving toward an emergency fund.
When we finish saving the full amount in our emergency fund, our next goals are:
- Invest in several index funds.
- Start our maximum contributions to a Roth IRA.
- Establish a 5-year CD ladder.
- Start taking yearly vacations! We haven't had a real vacation to ourselves since our honeymoon over 9 years ago.
- Enjoy life debt-free!
I attribute a lot of our decisions and progress to the advice from Get Rich Slowly. When we finally realized something had to be done, we were totally lost. I asked around and searched for sound financial advice from people who had been in our situation. Finding this blog was a godsend. It really helped me to wrap my head around some simple concepts that have gotten us on the path to financial freedom. (And Mint got me the rest of the way!) We went from having no idea what to do, where to start, or even what our finances looked like to building a 10-year financial plan that is well underway.
Get Rich Slowly has made a huge impact in our lives. Thanks so much for sharing it with us, and thanks to the other readers for a great community.
So although you may disagree with his spending on his cat — I love my four cats, but don't think I'd spend $30,000 to keep one alive — disagree respectfully, not rudely.