Archive for June, 2016

My dearest son Mason,

After my last post, I started thinking about how broke I used to be, and how much better our future looks because I have a better job. It also got me thinking about all the terrible financial decisions I’ve made in my life. However, it’s not what you think. Saying that I’ve made terrible financial decisions makes it seem like I was sitting at a desk and trying to decide where to put my money. I wasn’t sitting at a desk. I wasn’t making large, risky decisions. I wasn’t making decisions at all. I was eating fast food everyday. I was buying t-shirts off the internet. I was spending money I knew I’d never get back out of a piece of crap Suburban. Let me explain.

When you’re poor, every little decision has a big impact on your monthly budget. When I say poor, I mean making minimum wage. Let’s say that you are making $10 every hour and you work 40 hours per work. That’s $400 a week and $1600 every month. Trust me, I know this analogy pretty well. By the time you pay for a car payment and insurance, rent and food and gas, you’ve basically got nothing left. By the time 30 days in a month go by, you’ve spent many nights going to the movies, buying food at restaurants or buying clothes. So if you find yourself with $200 left over at the end of the month, you make the quick decision to spend $50 of it because its been about a month since you’ve bought something for yourself. That’s essentially the worst financial decision you can make in that situation. You’re savings account is $200, and you’re spending 25% of your savings.

It’s hard to explain how hard it is to save money when you’re broke. No matter how much money I made from the time I was 16 to 26, I stayed broke. Not to mention, I lied to myself constantly. When I got paid on Friday, I’d figure out how much money I needed to last me until my next paycheck. That’s how I rationalized spending $20 at the movies on Friday night. Then Saturday night, I’d go out to dinner or do some other activity and spend $20 more. Then two weeks would go by, and I’d be down to $50 left. I’d get paid again, and that’s how I lived for 10 years. I always thought I would be working, and I’d always get a paycheck. I never even attempted to save money. I was such an idiot.

Things got worse. As my friends spent money, I spent money I didn’t have. I got a credit card, and then I maxed it out. Then I called and got the limit raised. Then I maxed it out again. I made minimum payments on that credit card for a decade. Financially speaking, there isn’t anything more shameful or pitiful. How stupid and absentminded could I be? Now that I’m 32, I’m not shameless or prideful. I can admit that I’m still paying that credit card, and others, off. It’s terrible. I’ve increased my income more than three-fold. I’m making tons of money at my new job, and it is great. You know what I’m doing with the majority of my paychecks? Paying off more than $15,000 in credit card debt.

No matter how big my paycheck gets, it all disappears. Eventually, I’ll catch up with my debt, and I can start saving money. However, for the time being, I’m working 65 hours a week and spending nights away from you and your mom just so I can transfer most of my paycheck into a black hole. Instead of having $15,000 in my savings account to do magical things with, I have no money in my checking or savings and my balance on my credit cards is getting smaller. It’s extremely anticlimactic and depressing. You should avoid it at all cost. Basically, I’m trying to make this blog post as anticlimactic and depressing as possible so you’ll come to realize how anticlimactic and depressing it is paying off credit card debt. Let this be your first warning. Avoid it at all costs. Don’t open a credit card for emergencies. That’s ignorant. Your first step should be to hoard $1,000 as an emergency fund. Don’t buy things on credit cards because you think you’ll get cash back or frequent flyer miles. That’s possible to do, but it comes much later. That’s not something to get into immediately. It takes discipline and cash.

Your second step should fly right by. The second step is to snowball your debt. Seeing that you don’t have any debt yet, it should be really easy to fly right by this step. However, for the sake of other readers out there, let’s say that there is some debt. Maybe it is some credit card debt or student loans. The debt snowball is accomplished like this. You pay off the smallest credit card with the highest interest rate first. If there is a $2500 card, a $5000 card and a $10,000 student loan – pay off the $2500 card first, then the $5000 card and then the student loan.

The third step is to grow your emergency fund to 6-months of living expenses. Back in 2009 and 2010, I was collecting unemployment. I got laid off, and times were rough. I had no emergency fund, and I continued to live my life on credit cards. If you are single or married or have a kid or don’t, you need money to pay your bills. If your monthly bills are $1000, you need $6000 in reserves, etc.

These first three steps are crucial. It’ll be the difference between being broke when you’re trying to get married or buy a house and actually having money to spend on the most important things in your life.

That’s enough for now. I just saw that I started this post a long time ago and never published it. I’m really going to try harder to post more often.

Love,

Dad