I've been thinking, I can't be the only one with ridiculous money mistakes in my past. What if we all shared (anonymously, of course) our stories so we could help each other learn from our goofs? After all, we're all friends here, right? I'll get us warmed up...
If you walk out of your office, or the mall, or your house, to find your car missing, you're probably cursing like a sailor and immediately dialing 911 to track down the theives. When that happened to me this past summer, I was totally swearing up a storm, but knew immediately I was the only one to blame. I had been five months behind on car payments, and my '93 Corolla had been respossessed. The worst part may have been when my coworker mentioned she had driven behind my car on the tow truck and wondered what had broken down. Ummm, my finances? I couldn't tell her the truth.
A year-and-a-half before, I got a new job that nearly doubled my salary – and required a car for the half-hour drive to the 'burbs. Feeling flush, I acted impulsively and bought the first car I test drove, going above my set budget, and with already damaged credit, qualifying for only an obscene 30% loan. I'd never bought a car on my own before, and when I drove off knowing it would cost me nearly $600 a month for the loan payment and insurance, I was sure I could handle it.
Thing is, that expense pretty much wiped out my raise – poof! And with other credit card and student loan payments, I was already living beyond my means. The car put me over the edge, and within a year, I was getting behind on payments. Every month, I thought I'd get it back on track, but playing catchup with those kind of fees and interest rates was nearly impossible. I was getting daily calls from the loan company, which I ignored, too embarrassed to explain myself. I started researching how to voluntarily give back the car, but put off actually doing it. Avoidance, ladies, is not the answer.
And sure enough, they took care of it for me. I was both scared and happy, humiliated to have to pick up my stuff from the tow yard in trash bags, but exhilarated to be free of those burdensome payments. Not that I got off scot-free – they sold the car at auction for less than my loan, so I'm still on the hook for five grand with no wheels to show for it. I think this was something that had to happen to me – a smack in the face to finally take care of my finances, if you will – but I certainly don't recommend it! So what can we all learn from it?
• Stick to your budget. And have one in the first place! I had no grasp of all my expenses and how that compared to my income. Turns out, I was shelling out way more than I was bringing in. Any time you're thinking of adding a new monthly expense, go over your existing obligations and make sure you know what you can realistically cover.
• It's worth the effort to shop around. Don't rush your purchase. This should be easy – we all love shopping, don't we? But this isn't the gossip mag you impulsively throw on top of your groceries at the check out. Research what you want online, know what you can pay, walk away and think about it before signing anything. They make you think it's the last car of its kind, but you can always find another.
• If you have bad credit, you're better off saving or borrowing from family for a cheap used car. I could have been patient and saved for three months to buy an older car outright, which I would still have, along with a cleaner credit record. Financing offers instant gratification, but unless you can score one of the awesome 0% or cash back deals (and there are lots these days), you're gonna pay through the nose and probably only do more damage.
• Answer those creditor's calls. They want to get paid, so they're actually willing to work with you to settle debts for lesser amounts, lower interest rates and work out payment plans that fit your budget. Getting at least some of the money back from you is better than none. Ultimately, I probably would have still lost the car, but I could have saved hundreds in fees – not to mention some dignity! – if I had dealt with it sooner. Even now, they're willing to settle the remainder for half the price if I pay in a lump sum. I'm working on it.
Now it's your turn! What money mistakes have you made that we could learn from? How have you turned around a financial crisis? Any advice you've learned the hard way? Embarrassing, funny, inspiring, unbelievable stories – let's hear 'em all!
Showing posts with label money mistakes. Show all posts
Showing posts with label money mistakes. Show all posts
Tuesday, February 17, 2009
Tax Refunds: Bonus or Bogus?
It's that time again! My friends are announcing the thousands they're getting back from their taxes and what they plan to spend it on. Vacations and new gadgets mostly, less often paying off bills, but all of them look forward to this every year, cashing in on what feels like free money. It's about as close as most of us will get to what it feels like to win the lottery!
But someone told me a few years ago that getting back a huge tax refund is not such a good thing. You feel like you're getting one over on the feds, but they're really taking advantage of you: In effect, you're loaning that money to the government for a year without getting any interest back on your investment. I'm just learning about this big girl money stuff, but even I know that a 0% return is no good! Sure, it may not be much: A 5% return on $1,500 after one year is only $75. But if there's one thing I keep reading over and over again in my quest to become a money maven, it's that the small amounts add up.
Still, some of my friends make a good point: If that money was included in their paychecks throughout the year, they probably wouldn't save a dime. Ooooh, yes, don't I know it! If the money's there, I spend it. If it's deducted before I get my hot little hands on the dough, I never know it's missing. So even though my friends aren't earning interest, they're using federal withholding as an automatic savings account, socking away more money than they would on their own.
I think the best option is to open a high-yield savings account online – E*TRADE offers a 2.51% interest rate and no minimum balance – and set up automatic transfers when your direct deposit hits your checking account. With the money put away before you even notice, you won't know what you're missing. And revamp your withholding so you're not giving up more than your fair share.
As for me? Well, I'm following the tried and true advice to pay off my debts before seriously investing in savings – getting rid of 25% interest charges is a bigger priority. And since I owe a bit to the IRS, any refund goes directly to them – good thing, because I don't need the temptation to spend!
What about you? What will you be doing with your refund? What's your savings plan?
But someone told me a few years ago that getting back a huge tax refund is not such a good thing. You feel like you're getting one over on the feds, but they're really taking advantage of you: In effect, you're loaning that money to the government for a year without getting any interest back on your investment. I'm just learning about this big girl money stuff, but even I know that a 0% return is no good! Sure, it may not be much: A 5% return on $1,500 after one year is only $75. But if there's one thing I keep reading over and over again in my quest to become a money maven, it's that the small amounts add up.
Still, some of my friends make a good point: If that money was included in their paychecks throughout the year, they probably wouldn't save a dime. Ooooh, yes, don't I know it! If the money's there, I spend it. If it's deducted before I get my hot little hands on the dough, I never know it's missing. So even though my friends aren't earning interest, they're using federal withholding as an automatic savings account, socking away more money than they would on their own.
I think the best option is to open a high-yield savings account online – E*TRADE offers a 2.51% interest rate and no minimum balance – and set up automatic transfers when your direct deposit hits your checking account. With the money put away before you even notice, you won't know what you're missing. And revamp your withholding so you're not giving up more than your fair share.
As for me? Well, I'm following the tried and true advice to pay off my debts before seriously investing in savings – getting rid of 25% interest charges is a bigger priority. And since I owe a bit to the IRS, any refund goes directly to them – good thing, because I don't need the temptation to spend!
What about you? What will you be doing with your refund? What's your savings plan?
Wednesday, February 11, 2009
What Did Your Parents Teach You About Money?
When I was ten or so, I desperately wanted a new Caboodle for my burgeoning makeup collection. (And did you know that they're back and updated? I kind of want one now!) I was supposed to save half of my $2 weekly allowance, but I horded it all for the desired case; when it went on sale before I had collected enough, I carefully calculated the tax, raided the house for every bit of spare change to cover the expense, and rode my bike to the store to claim the Caboodle that made me feel soooo much cooler than my fourth grade status. Even if I did pay for it in coins!
And that's been the definition of my financial life ever since – big spend-ah, even when I don't have the money. When I spent a summer in New York during college and my new bank offered me a credit card, I looked at the $2,000 credit limit as cash in hand to shop, eat, drink and enjoy the city for the next three months. Dayum, those were the days! When I get a real job, I figured, I'll pay it all off. Ha ha. I had no concept of the consequences – the money would somehow work out like it always had in the past. I managed to put off reality for the next seven years, but when I was laid off in November and realized I was staring down close to $50k in credit cards and student loans, it was a HUGE wakeup call! Thank god for unemployment, but it's a struggle just to pay my all my bills on the drastically reduced income, let alone tackle my debt or save.
How did I end up living in this financial fantasy world? I didn't grow up rich in the least, so where did this sense of entitlement came from? Trying to revamp my attitude and habits toward money, I'm considering the lessons I learned – or didn't learn – from my parents. I was obviously a natural-born shopper at a young age – thanks, Mom! We bonded by going to the mall every weekend, and though she instilled in me a love of bargain hunting, I developed an insatiable need to buy, buy, buy. At the same time, my mom avoided talking about money like it was more taboo than sex, while my dad spent beyond his means to shield me from the financial stresses he was juggling. We never owned a house or had cable TV, but I never went without and had no idea how much debt we were in. Completely oblivious to managing and saving money, I only learned how to spend and grew up thinking that dire financial circumstances just couldn't happen to me, no matter how much I screwed up.
Well, it was fun while it lasted! Now it's time to grow up. Time to break from family tradition and find my own way. While it's not as carefree, it's much more satisfying to arm myself with new knowledge and take responsibility for climbing out to financial stability on my own terms . I'm excited to have all of you fabulous recessionistas along for the ride, to share the tips, news, deals and insights I learn along the way. And I can't wait to hear your stories and advice as well...
Are you carrying on a financial legacy that you'd rather not? What have you picked up from your parents about money? Are you learning from their mistakes? Or following their lessons? When did you grow up and face the bottom line?
And that's been the definition of my financial life ever since – big spend-ah, even when I don't have the money. When I spent a summer in New York during college and my new bank offered me a credit card, I looked at the $2,000 credit limit as cash in hand to shop, eat, drink and enjoy the city for the next three months. Dayum, those were the days! When I get a real job, I figured, I'll pay it all off. Ha ha. I had no concept of the consequences – the money would somehow work out like it always had in the past. I managed to put off reality for the next seven years, but when I was laid off in November and realized I was staring down close to $50k in credit cards and student loans, it was a HUGE wakeup call! Thank god for unemployment, but it's a struggle just to pay my all my bills on the drastically reduced income, let alone tackle my debt or save.
How did I end up living in this financial fantasy world? I didn't grow up rich in the least, so where did this sense of entitlement came from? Trying to revamp my attitude and habits toward money, I'm considering the lessons I learned – or didn't learn – from my parents. I was obviously a natural-born shopper at a young age – thanks, Mom! We bonded by going to the mall every weekend, and though she instilled in me a love of bargain hunting, I developed an insatiable need to buy, buy, buy. At the same time, my mom avoided talking about money like it was more taboo than sex, while my dad spent beyond his means to shield me from the financial stresses he was juggling. We never owned a house or had cable TV, but I never went without and had no idea how much debt we were in. Completely oblivious to managing and saving money, I only learned how to spend and grew up thinking that dire financial circumstances just couldn't happen to me, no matter how much I screwed up.
Well, it was fun while it lasted! Now it's time to grow up. Time to break from family tradition and find my own way. While it's not as carefree, it's much more satisfying to arm myself with new knowledge and take responsibility for climbing out to financial stability on my own terms . I'm excited to have all of you fabulous recessionistas along for the ride, to share the tips, news, deals and insights I learn along the way. And I can't wait to hear your stories and advice as well...
Are you carrying on a financial legacy that you'd rather not? What have you picked up from your parents about money? Are you learning from their mistakes? Or following their lessons? When did you grow up and face the bottom line?
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