Financial Mistakes of the Worst Kind
The following is a contribution from Deb at Debt Debs. If you’d like to contribute to Frugal Rules, please contact us.
The way I handle our finances today is dramatically different than how I used to handle them. So much so, that I even have a hard time remembering some of the financial mistakes I’ve made. It’s probably because I push bad memories from my consciousness. Call it a coping mechanism, but I tend not to dwell on past mistakes.
So before I completely forget everything, I thought I would try to document the things I do remember about the worst financial mistakes we made that got us into $394,000 of debt.
You read that right folks! So now I would like to walk you through things we would do over, if we could go back and make different choices. Hang on for the ride!!
Worst Financial Mistakes – Not Tracking Spending
The worst of the financial mistakes we made, that probably snowballed into other mistakes, is that we did not have a budget. We did not track our spending via a spreadsheet, envelope system, or even chicken scratch on the back of a napkin. Nada. Zip. Zilch.
We would pay for things on credit cards, and if we didn’t have the money to pay off the balance, we would pay it with the line of credit. We could never figure out why we never had much money. I even wondered if someone was dipping into our account at the bank as it just didn’t make sense.
We didn’t spend extravagantly, but we weren’t being super frugal either. We ordered pizza on Friday nights, went out for a meal maybe once every two weeks, we bought things for the house, signed up for intramural sports activities for the kids, bought work clothes and purchased make-up for me. There was usually a family holiday most years, movies, Christmases, parties … you get the picture. Normal stuff, right?
In fact we were so busy just living life and working, there didn’t seem to be time to spend on scrutinizing our finances. Nor was there the motivation. That job would be boring and tedious and I wanted no part of it.
Refinancing Against our Home Equity (four times!)
Talk about wash, rinse, repeat! We took out our first refinancing loan to put an in-ground pool in our backyard. We justified it because our youngest had just turned 4 and our oldest was 14, and we wanted to have the pool when they were at the age that they could enjoy it. Of course, we had some line of credit spending built up so we rolled that onto the mortgage too.
Life keeps going at the same busy pace, and we continue with our previous habits, not changing a thing. My husband lost his job and the line of credit gradually built up again. We ‘solved’ the problem by rolling the line of credit and other mortgage debt onto the mortgage one more time and told ourselves, “We’re never doing this again,” we swear!
Unfortunately, because we made no changes to our spending habits and did not track our expenses, we ended up refinancing yet again. You could say we were on a five year cycle. Sure, we had family events that caused us to live a bit YOLO, but I really think that if we were more disciplined in managing our finances, the damage would not have been as severe.
So our last refinancing was needed because all forms of lines of credit and credit cards were tapped out. Our mortgage was coming down with each payment, but all the other forms of debt were increasing steadily. We took out a $235,000 mortgage and paid off all credit cards, HELOC and personal line of credit, all except for $9,000 on the personal line of credit. The bank could not advance us enough to wipe that out. Ouch!
How’s that for a wake-up call? Everything changed after that, some things quite dramatically almost overnight while other aspects of frugal spending have taken longer to evolve. Ultimately, we’ve paid off $121,000 over the course of two years and have four more years to go to eliminate our debt.
As an aside, if you’re considering refinancing against your home to get a lower interest rate, it’s really only advisable if you cut up your credit cards, cancel your line of credit and live within your means. Don’t be a dolt and do do-overs like we did.
Cashing in Retirement Savings to Finish Our Basement
During the above time periods, our children were obviously growing (we have four and a four bedroom house) and it came time for the younger two who were sharing a room to get their own rooms. At least that was the thinking I had at the time.
We also wanted an area of the house where they could hang out with their friends. So we decided to finish our basement so our son could have a room and bathroom down there and his sisters could each have a bedroom upstairs and share the family bathroom. During the time that my husband was unemployed, he did this work and we decided to dip into his retirement funds since he had low (no) income and was allowed to do this and taxes would be low.
Now that he is 61 and still needs to work, I see what a big financial mistake that was. Okay working at 61 is not the end of the world, but still, after raising a busy family it would be nice to have choices and we took some of those choices away from ourselves with our spending decisions.
Today I see how many of our financial mistakes stem from the first big one of not tracking spending. If we had a better handle on our outflows, we would have been better prepared to weather a layoff and would have made wiser spending decisions.
Have you ever refinanced your consumer debt on your mortgage? Have you cashed in some of your retirement savings for spending you now regret? If you could redo one financial decision, what would it be?
About the author: debtdebs is a fifty-something wife, mother and new grandmother, who admits to having her “head in the sand” about their financial situation until amassing $247,500 of consumer debt for a total debt of $393,500.
Photo courtesy of: BK