Embarrassed and afraid that I don’t understand much about my personal finances, that I can’t afford the things I need, and that I’ve felt ‘broke’ since I paid my first bill at 18, I’ve resolved to make some changes. At 33.
It began with the fear of not knowing, which is a deathly, cold, but somehow sweaty feeling that creeps in whenever I don’t understand something that I know I should. This fear, which set in most recently after a visit to the bank where I faked my way through figuring out how I was going to pay for graduate school, can at times drive me toward making good choices. Not always, but sometimes.
This time, it lead me to picking up Dave Chilton’ s The Wealthy Barber Returns out of a stack of someone else’s unwanted overflow.
This book taught me a lot, such as what a TFSA (US, Roth IRA) and RRSP (US, 401k) were, how (and why) to pay down my debts, and how to start saving for what I needed.
Some things, I already knew. This is a post about where I started.
After university, I had a boatload of student debt. No one’s fault really but my own. I worked throughout school and my parents helped me out generously, but I qualified for loans and so I took them. And spent them. Mostly on dial-a-beer, cds, concerts, pizza, a few vacations with my then girlfriend, a few new guitars and amps, and the occasional textbook. After five years and two undergrad degrees, this was about $28 000 worth of almost fruitless spending with borrowed money.
This was irresponsible.
And while I’m not defending myself, I knew that while I was in school the loans were interest free, and after school I would just pay them back with the money I received from the amazing job that was sure to come.
I didn’t see the loan as a tax on my future income; I saw it as part of life. Everyone had debt, right? My parents had debt, and they were smart people. I planned to enjoy university while I could and worry about it later. That was the plan.
When I graduated I had about $3000 in my bank account and a job making $18 dollars an hour (26 hours a week) as a Special Education Assistant in Vancouver, by far the most expensive city in the country. Almost broke, not making much more money than my expenses, including debt repayment, and with no intention of finding a second job, I did what any wise 22 year old would do. I bought a second hand scooter. I named him Cringer, because he feared hills and speed over 50.
It cost 2/3 of my savings, but it was super rad. It was a Yamaha BW50. It was also a poor decision.
Eventually I found a job teaching. It paid $37 500 and I felt like I hit the jackpot. But as my income increased, so did my spending. It wasn’t long before I upgraded to a new motorcycle and got out of the basement apartment and into a place with a pool, closer to the mall. I still never had more that a thousand dollars in the bank, but I was a teacher now. I was gilded. I was going to be OK.
I kept up this lifestyle for half a decade. Never having much savings, just trying to have fun and eat good sushi. I had never heard the term “Lifestyle Inflation”, but I was sure guilty of it.
But the debts didn’t go away. I never really checked the OSAP (Ontario Student Assistance Program, the lender) website which let me track my payments. I just assumed things were going well. After a few years, when I finally did check it, I was stunned by how much money I still owed. Where had all my money been going every month?
You already know – to interest. Ug. I felt sick.
The OSAP website included an interest calculator, and when I found out what my loan was costing me on my current repayment schedule, I was floored. It was well over 30 grand.
Immediately, I panicked and took the few thousand I did have in the bank and threw it at the loan. Then I upped the repayment schedule and stopped the daily sushi binge. For 2 years, between 24 and 26, I didn’t spend a lot of money. I ate primarily from the discount grocery store, didn’t go on any big trips, and gave every spare dime to the OSAP people.
One day, I got a letter in the mail. In a large, bold font it read: “Congratulations, you have paid your student loans in full”. It was a proud day, and that letter hung on my fridge for over two years.
I wish I knew the damage that interest repayments can have on my debt repayment. I just didn’t understand that paying the minimum was no way to pay down the debt. I know, it’s very naive, and I have no excuses.
But mistakes build character, and I know now. To this day I take on debt only when absolutely necessary, and even then it’s an extremely difficult decision. I’ll explain in future posts when and in what circumstances I’m comfortable with debt. For now, I just want to start my money story with the mistakes I’ve made that got me to where I am.
Very early I learned –
- Pay more than the minimum. Pay as much as you can, actually. Mr. Money Mustache calls debt an emergency. He feels that you should treat debt like your hair is on fire. While I don’t think I would resort to never paying for a coffee if I were in debt, I very much understand the sentiment.
- Just because you can pay your bills every month doesn’t mean your money situation is fine. I felt for a long time that if I could afford my monthly bills, then I was OK. But it just isn’t the case. Looking at your money month-to-month is like looking at your health day to day. “Well, I don’t have heart disease today, guess I can eat another six dozen donuts before bed.” Taking such a small view of your finances will hurt you in the long run.
Learn from my mistakes to avoid making your own.
Next time on my money story: Why even when I thought I had gotten my act together, I had not. A story of bank fees and consumer ignorance.