In Monday’s post, I shared the things Mr. ThreeYear and I have done that I consider our best money moves. They were the habits or disciplines we adopted that have served us the best over our fifteen years of marriage. BUT, we’ve also made our share of bone-headed money moves, and today, you get to hear all about our very worst money moves of the past fifteen years.
Buying Expensive Cars to Repair
When I was pregnant with Junior ThreeYear, we had two cars–a Jeep Cherokee Mr. ThreeYear bought after we moved to the States (used, because with two exceptions, we’ve only bought used cars) and an Acura Integra. This was the car my parents gave me, brand new, because I got a scholarship to college. It was a two-door coupe, standard, leather seats and CD player (rare at the time). It was such a good car. But we thought that because I was pregnant, we needed to get rid of the Acura and get a bigger car for the baby. So we went car shopping, and found a used BMW X5. I remember being transfixed because it had built-in shades that you could pull down in the back.
Our neighbor, who had just traded in his Audi, warned us that foreign luxury cars were expensive to repair, but we brushed him off.
Related Reading: What Our Cars Really Cost
Instead of trading cars with Mr. ThreeYear, I sold the paid-for, gas-sipping Acura and bought this BMW for about $16,000 (financed). For the first few years, the car needed a few repairs, but nothing too terrible. BUT, three years in, just when we moved to New Hampshire, it started to fall apart.
Junior ThreeYear and I were on the interstate when all of a sudden, the car just slowed down. It wouldn’t respond to the gas. I managed to pull over on the side of the road before it completely died. We had it towed, and luckily, it wasn’t the engine, but it was something else that cost $1,000. Meanwhile it had stranded a pregnant me and my not-yet-three-year-old son on the side of the interstate!
We only had two mechanics in town, and the honest one didn’t work on BMWs, so we had to take it to the shady one (who was later incarcerated for dealing meth. Lovely guy). Long story short, the BMW cost us around $7,000 to repair that year before we wised up and traded it in.
I bet that if I had kept my Acura, it would have lasted me many more years without those expensive repairs. Yes, it was a foreign luxury car, but I’d bought it new and serviced it on schedule, and it had much less to break than the BMW.
After we sold the X5, it was nothing but Hondas and Toyotas from then out. Lesson: learned.
Living on the Edge
When Mr. ThreeYear and I moved from Santiago to the US in late 2004, we had used much of our savings from Chile to put down a down payment on the apartment we bought there. Mr. ThreeYear had the cash from the car he’d sold, but he used most of that to buy himself a used Jeep Cherokee.
That meant we started our married life in Atlanta with almost no cash. And despite our solid incomes and low expenses, we continued to save almost no cash for the next four years.
Related Reading: How to Save Money When You’re Not a Saver
We “lived on the edge,” using our credit cards to pay for any large expenses that we couldn’t cover. We were the classic paycheck-to-paycheck couple, and we got stuck in that cycle for years.
If we had lived a bit more frugally, we could have begun to save up a cash cushion so that we would have an emergency fund. But that never even occurred to us! At the time, we thought this was a normal way to live. And I was pretty hardheaded at the time (okay, always!) and thought I knew the best way to manage our finances. After all, I’d spent three years living in another continent, so nobody could tell me anything, right?
When Mr. ThreeYear got his first job in Atlanta (he was earning $50,000, what seemed like an enormous sum for us at that time), we moved to a two-bedroom apartment just ten minutes away from his work building. Then, I got a job shortly after making $30,000. Did we sit down and figure out how best to allocate our newfound largesse? Oh no. Like the young and cocky DINKS we were, we went out and spent everything we had on eating out, clothes, and electronics. We ate (and drank) out probably 3-5 nights per week. We bought so many electronics–top-of-the-line video cameras, MP3 players, Discman players (we’re old, y’all). At least we didn’t buy new cars!
If we had been just a bit more careful, we could have saved so much more of our incomes. I remember telling someone that we were saving 25% of our incomes in our retirement accounts, which was good, mind you. But I bet my math was off there, and we were only saving a fraction of that, or not consistently saving that! And if we’d tried, we could have easily saved the vast majority of our incomes. After all, our expenses should have been super low–under $1000 for rent, maybe $300 in gas (I had a long commute), $200ish in utilities, $400 for our apartment in Chile, and perhaps $600 to keep us well fed? We didn’t have car payments or debt payments! That’s about $2500, and we were bringing home more like $4,000. That’s a lot of money to dissolve into thin air.
Related Reading: Budgeting a Month Ahead
I’m so glad we started budgeting when we did, because it really changed our spending. And getting one month ahead in our budget, even though it took ten years, has radically changed how we view our monthly spending. Now, even if we make poor spending decisions, I have tracked them, and we know exactly where our money is going.
Buying a House with 5% Down and a 30-Year Mortgage
WHY were we in such a hurry to buy a house? We were renting a 2-bedroom apartment in Vinings, a region of Atlanta that was about 10 minutes from my husband’s job. Our rent had increased to about $950 per month and we wanted to get out of the apartment. In hindsight, this was a bad financial decision.
We bought our house at the peak of the housing bubble, in 2006. Credit was flowing like champagne in Vegas, and we easily qualified for a 30-year mortgage with 5% down, and a second mortgage with PMI to make up the other 15%. I sold my entire stock portfolio that I’d started with college graduation money. It was worth about $12,000. Note to Past Self: if you can’t save up at least a 10% down payment, you’re not ready to buy a house! NEVER, NEVER liquidate stock for a down payment! Arggh!
Related Reading: When You’re Considering a 30-Year Mortgage
When we moved to New Hampshire in 2010, we had to sell our house at a loss. Gone in a poof was the downpayment and four years of mortgage equity we thought we were accumulating. We very fortunately didn’t have to come up with cash at closing, because of the new company’s generous moving package. But we walked away with nothing, despite all the money we’d put into the house as a downpayment, mortgage payments, and improvements in the form of new appliances, landscaping, and time, sweat, and tears.
In hindsight, I would have kept renting that perfectly located apartment for a few more years until we’d saved up a 20% downpayment. But hindsight’s always 20/20.
Racking Up $10,000 in Credit Card Debt
After we bought our house, expenses started to pile up. We began to put bills on our credit card, and we didn’t pay it off each month, because we couldn’t. We weren’t budgeting, so we were spending way more than we were taking in each month.
On the way to work one day, I remember hearing on the radio, “The average American owes more than $10,000 in credit card debt.” I thought, “Oh no! That’s us! We have to do something about that!” Unfortunately, it wasn’t until July 2008 that we found The Total Money Makeover and got serious about paying off that debt.
How did we manage to put so much on our credit cards? It all started when we went on our honeymoon. We went to Greece, and instead of saving up for the trip, we put it all on our credit card. And we needed new luggage for our honeymoon, so we bought that, too. Plus, we needed new wedding clothes, took our family out to eat and sightseeing when they came for the wedding, etc. It all started to compound. Then, we were faced with a huge mountain of debt when we got back that we could never completely eliminate. I don’t regret the trip at all–it was fantastic–but I do regret financing it.
I wish we could reach back into the past and revise some of these dumb money moves. But the truth is, we’ve paid dearly for something priceless–wisdom. All of our money mistakes taught us lessons we’ll never forget.
Credit card debt? Never again. If we have a large expense, we plan for it and save, like our epic 12th anniversary trip to Asia. If we have an unexpectedly large expense we haven’t budgeted for? We have an ample emergency fund. We also tell ourselves “no” a lot more or are more strategic about purchases. Last year, we decided we needed new luggage, so we looked online for the best deals and asked for a 3-piece set from my parents, who were looking for gift ideas from us. Our money wisdom came dear, but it can never be taken from us.
Have you made any really bad money moves? What was your worst?