Maria’s Story: Learning from Past Mistakes
Posted by John | Filed under How I'm Doing
This post is all about learning from past mistakes. I was lucky enough to have made bad financial decisions early in life so that I wouldn’t repeat the same mistakes later on when they may have had more of a long-term impact.
The first big mistake, during high school, was having spent a hard earned $5K on a trip to New York City. The trip was great – only 4 days – but it was too big a splurge for someone who ended up with student loans during University. When I graduated from University I had over $25K of student loans. I was fortunate to be able to move back in with my parents after finishing school so I could focus on repaying my loans. Within less than 2 years the loans were paid off. I didn’t do anything that cost money during this 2-year period other than put gas in my car to get to work. Transit was not a viable option. I would still get together with friends but we would go for walks or visit free (or almost free) festivals instead of going out for dinner or the movies. Not everyone has the chance to move back in with their parents – nor would they want to – but if you do get the chance it’s a great way to pay off student loans quickly. You can ask to increase your loan payment for as much as you can afford in order to pay off your loan faster. Unlike a mortgage there is no restriction on increasing your payments.
The second big mistake was not keeping track of my bank account and having a check bounce. Not only did I have to pay NSF fees but it was embarrassing as the money was owed to my employer where I worked as a Financial Officer. I now keep track of everything in a spreadsheet – it’s the updated version of balancing the checkbook. It’s so quick and easy that can spend a few minutes each day to update and it means my bank account is reconciled in (almost) real time so no more NSF or overdrafts. This saves money as overdraft and NSF fees can really add up.
The last big mistake – the mother of all mistakes – was when my husband and I were getting married. We had no savings for the big day but our combined income was fairly good so as long as we were both working we should’ve been able to cover the $40K plus cost of our wedding/honeymoon plus an additional trip to Europe for my cousin’s wedding a few weeks before our own wedding. But of course weeks after booking our multiple trips and putting down deposits for wedding stuff my husband was laid off. It was truly a shock. I tried getting out of the European trip but the cancelation insurance didn’t cover people who were self-employed and as my husband was a consultant we weren’t eligible. We scaled down our honeymoon somewhat but we didn’t cut back on the wedding at all.
My husband didn’t end up finding work until 10 months after our wedding. We lived on one paycheck and managed to pay off the wedding within a year. We did this by living extremely frugally. We splurged on nothing for almost a full year. We never ate out – it’s much healthier cooking at home and we became experts at making our own homemade pizza. We didn’t have a television so we weren’t paying cable fees either. We didn’t go to the movies or even buy coffee while out. At Christmas time our account was nearing a zero balance but we still managed to purchase Christmas gifts without going into additional debt. We used points accumulated on our credit cards – primarily from the wedding – to buy gifts. We also had spent quite a bit on photography for the wedding and so we took family portraits from the wedding and framed them with inexpensive but beautiful frames from Homesense. Those were the best Christmas presents for both sides of the family as everyone looked great in the photos.
You don’t have to spend a lot of money to frame photos. There is a wide and inexpensive selection at Winner’s and Homesense. This is a tradition I’ve continued with my sister. I take photos of my sister, her hubby and their 3 kids during family events – Christmas, Easter and Birthdays – and then for her birthday I pick the best photos and frame them for her as her present. I try to co-ordinate the frame colours to match her house. She loves them and her house is full of beautiful photos of her family. A digital camera is also a great investment. It pays for itself in the cost you save on printing. You can print only the best photos and save the rest on computer.
Thankfully we both took the wedding debt seriously and we were able to pay it off within a year but since then we swore that we would never go through that kind of money stress again. We follow a budget, keep track of our expenses and are savers when it comes to money instead of spenders. We review the budget monthly to see where we’ve overspent to cut back or adjust if we’ve undervalued the estimate. We do occasionally splurge but only when we can afford it. For Christmas and Birthday presents we stick to a strict budget (including ourselves) to ensure these special events don’t become burdensome. We have no consumer debt and we should have our house paid off within 4 more years – for a total of nine years of mortgage. We increase our mortgage payments every year by the maximum allowed – in our case 20%. This way the money goes directly to the mortgage and there is no temptation to spend it. We also purchase only used vehicles and this has definitely saved us money. Of course you still need to do research and get the used car checked out so you don’t end up with expensive car repairs down the road. We have also had a baby in the past year and with the money we have saved I am able to take an additional year off after maternity leave. We have an emergency fund built up – approximately $30K – in case unexpected expenses occur while I’m off work for the additional year.
- Reduce bank fees to a minimum – we use PC Financial – and only withdraw money from your bank. Bank fees can really add up.
- Try to use a credit card with points you can really use. We use PC Financial and have automatic payments against it including cable, phone, insurance, donations, utilities, etc. You can then redeem your points on almost anything including clothing, furniture and of course groceries.
- Increase your mortgage payment for as much as you can afford. Try increasing it when you get a raise so you can keep living on the same income as before but still be paying off more of your mortgage. Of course if you have consumer debt you should focus on paying this off first.
- Allow yourself some splurges but keep it within your budget and make sure you can afford it.
- Buy used vehicles instead of new or lease. In the long run, if you do your homework and get the car checked out, buying used saves you money.
- Be conscious when you spend money and beware of sales. Are you really saving money if you have to spend money on something you don’t need?
- Budget, budget, budget…I’m not sure what else I can say. Some people hate the word but whether you use money jars, a spreadsheet or some other way to keep track of your money it’s better than just spending and not knowing when the money will run out or what you’re spending your money on.
Thanks Gail for a great show and a great website. We look forward to your new show Princess. I’m sure we all have a little ‘princess’ inside us.
February 22, 2010 at 2:12 pm
Good for you for actually learning the lessons you were presented with asap. So many people make the same mistakes over and over again, while increasing the debt with each repeat.
February 22, 2010 at 2:20 pm
What a great post, Maria!
You drew knowledge from personal, real-life examples that many of us experience and learned from them in order to create a bevy of healthy habits as well as multiple tips (in which I agree with all of them) in order to maximize your dollars when spending them, and to “do your best to converve the rest.”
Congratulations!
February 22, 2010 at 5:38 pm
Congratulations Maria! you’re definately a success story.
I am interested in knowing what your approx net salary was when you were living on one salary to have paid off the 40K so quickly? And mortgage in 9? awesome!
February 22, 2010 at 9:28 pm
Hello Kat,
Believe it or not I still have my budget sheets from when I was married so I can give you a great approximate of what I was making/spending to pay off the wedding so fast.
My net income per month was approx $3,200. Our mortgage payment was fairly low at $354, condo fees of $133 and property tax was $100 (each per month). The real estate market was – fortunately for us – in a downturn when we bought the condo. Our other costs were as follows (monthly): phone $35, heat $60; bus pass $60; groceries $500, insurance house/car $190 (I was driving a 94 and my husband was driving an even older car so car insurance was cheap as well both cars were paid for before the marriage); miscellaneous $150. This gave us approx. $1,600 to pay towards out wedding debt.
The total wedding cost approx $48K (includes honeymoon) plus the cost of the European trip $3K for a total of $51K. There was also a $4K credit card balance my husband was carrying from before the wedding so this was also paid off as soon as we were married – so we’re up to $55K. I must admit though that most guests gave cash at the wedding so this paid for $26K plus I had savings of $10K so we really only had $19K to pay off. Sorry I didn’t go into those details in the post. But I guess the point I was trying to make was that when planning the wedding except for the $10K in savings we truly had no idea how much – if any – would be covered from cash gifts. Also there was a family feud at the time so we couldn’t rely on parents to help us out either. So our assumption was that 2 incomes would pay for the wedding instead of just one so we did splurge when we shouldn’t have.
Just to give you an idea of how tight money was we were married mid-2001 and after our last wedding payment – December 2001 – our January 2002 closing bank balance was $361. This was all the money we had to our names.
I know you didn’t ask for this much detail but I wanted to give full details because I had not done so in the original post.
Hope this answers your question.
February 23, 2010 at 3:44 am
What a great post – thank you! I really do like your suggestions about taking lots of pictures & framing the best ones for gifts. A really personal gift, and good on the budget. You gave some good specific advice and tips.
February 23, 2010 at 8:42 am
Thanks for sharing your story, and your tips for saving money. Congratulations!
It wasn’t until my mid-forties that I realized how much money I had wasted since my teenage years with silly spending and impulse buying. Luckily, we also bought our home during a market downturn and about 2 years before interest rates started to really tumble in the late 1990s. So the smartest thing we ever did then was reamortize the mortgage when it was up for renewal to a shorter amortization period instead of taking advantage of the lower mortgage payment because of the much lower interest rates. We paid about $40 more per mortgage payment but shaved 5 years off the mortgage and well over $100,000 didn’t end up in our bank’s profit as a result.
We’ve been mortgage free since October 2008 and instead of going on a spending spree, we have a plan for household upkeep (like that roof that needed to be done last year and paid cash instead of credit), and we have like you a solid plan to get us to a decent emergency fund of $30,000 by year end in the event one of us loses our job. I’m planning to build that to $45,000 by end of next year, then will tackle putting a lot more into my retirement every month than I am doing right now.
February 23, 2010 at 1:34 pm
Thanks Maria!
I appreciate greatly the additional detail, and think it’s amazing what you accomplished (regardless of the wedding gift $). I was curious about your income on one salary because I have a close to similar amount from RSP loans, and balance transfers to maximize RSP contributions, that I haven’t been able to get off the debt wheel to contribute to the RSP monthly as I would like to.
And just the fact that you *have* that information at your fingertips tells me that you’re a financial success story — keep track of the pennies, and the dollars will manage themselves.