How did we get here?

One important aspect of getting out of a pickle in knowing how you got there in the first place.  Generally when people come into a lot of money (inheritance, lottery, bonus, etc) it leaves their wallet as fast as it got there.  Why?  The reason is they never learned to manage their money.  That’s why they were in debt and why they’ll get back there as quickly as they got out.  Much like losing weight too quickly is unhealthy, so too is trying to get rich quick.  There are a lot of fads making extreme promises but in the end they hurt more than they help.  Take a look at each debt, why it’s there and what can you do to prevent it happening again.
A few of mine are easy:
  1. Student loan.  My largest and most persistent debt.  I had to take out loans to get both my bachelor’s and master’s degrees. They help get me in the career I have now, so it seems like money well spent, however, I was living above my means and so lived off part of that money.  If I’d been more careful back then, I likely would not have near as much left as I do now.
  2. 401k Loan. Next up is the 401k.  I took this out to combine two high interest credit card debts. I normally would not advise doing this since it’s just rearranging the problem, and you miss out on potential growth of the funds that are not in your account. However, I was barely able to make the minimum payments so doing this has allowed me to actually start paying down principal. But how did those two credit cards get so out of hand?  One I used for an attorney to get an amended divorce decree.  I was spending an enormous amount of time on the road just to see my daughters.  Their mom was not working with me at all, so I needed to get it in writing. It was difficult and messy, but now I spend way less time getting them, bringing them, to my place and taking them back.  The other credit card was mostly due to renovating our house.  The house had smelly old carpet, no closet space and no bathroom space. My wife was moving in with me and we needed to get the changes done soon.  I could not get a home equity or other better financing so I used a personal loan and credit cards.
  3. Auto loan.  After 17 years, I needed a new vehicle.  I wanted something that could haul the entire family, go on road trips, go camping, etc.  I chose a used vehicle, but did get an extended warranty.  All financed on a four year note. 
  4. Personal loan. Home improvement, see #2.
  5. Personal loan. Taxes, after my divorce, I forgot to update my W-4 with my employer. As a result, I way underpaid my federal income tax.  I’d rather owe a bank than the IRS.
  6. Credit cards…more taxes from my wife doing what I did, a vacation that I bought impulsively, road trip with my girls for spring break, camping equipment, trying to get more points putting my expenses on a card and failing miserably to pay them off each month.  Clearly I need to reign in my spending.
Now that I know my weaknesses I am now able to ask myself if I really need a thing more than I want to see that damn debt gone.  It helps to have a visual to remind me what’s important.

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