How To Chose The Right Financial Path

overhead shot of desk with hands on a cell phone, and items including a calculator, coffee cup, newspaper, checkbook, clipboard and plant

I am at times, still baffled

by the enormous amount of debt that I have at this stage in my life.  This was not the plan.  I can look back and point to the paths that brought me to this place. The fact that I am here is no great mystery.

It’s hard to look at those paths without pointing fingers and assigning blame, but I have found that so far, that has not accomplished anything.

I’m not in debt because I’ve lived an extravagant lifestyle and indulged my every whim.  I don’t really have that many whims!  I am also not in debt because I don’t work enough or lack a decent income.  My income is not impressive nor is it feeble.   If I had no debt, it would be more than adequate to be very comfortable.

I started my Electrolysis business at age 23.

By the time I was 26, I had amassed what I thought was a small fortune, which was $30k.  Keeping in mind I started my business in 1987, socking away $30k required discipline.  There was office rent to pay, estimated taxes and all the other things that come with owning a business, and the introduction to adulthood.  I lived on basically nothing so I could put all my money in the bank.

My late husband and I met in 1990 on a blind date, and within 6 months we were married.  He was in college and not working. Conventional wisdom dictates that when you get married you buy a house.  I’d lived such a life of frugality up to that point, so the excitement of using that hard earned money to buy a house was more than I could resist.  It seemed like such a smart idea at the time.  In hindsight it was a terrible mistake.

brick wall with the words "until debt tear us apart" painted in black letters

That was fork #1 in the road and we chose the wrong path.

Though the house we had was nice, the neighborhood was going downhill, and the commute time was getting worse by the day.  By then my late husband had been working for a couple of years.  Since we were already accustomed to living in a house we clearly couldn’t afford, we decided to sell it and move up in property.  Everyone thinks property in Silicon Valley only goes up, and for a great deal of the time that is true.  We lived in our first home for 5 ½ years, and sold it for exactly what we paid for it.  There was no appreciation to help offset the cost of the new home, which was 40% more expensive than the home we sold.

Fork #2, we did it anyway.

Shortly after we moved, my late husband decided he couldn’t stand his job anymore, and was going to start his own business.  I was not against the idea of him running his own company, but I was already self-employed, so any security we had, like retirement matches and health insurance disappeared the day he quit.

Fork #3.  We were already heavily in debt,

and many months there was not enough money to cover the mortgage.  I would take cash advances against the credit card to pay the mortgage.  It is amazing how quickly you can rack up credit card debt when you are using it to make your house payment.  As much as he hated his job, we should have discussed it more maturely and made a plan to be debt free before taking the leap to a two person self-employed household.

desk with money, credit card, and demand for payment letter on it

It looks really ugly to have a large mortgage, and lots of little, but growing bills piling up.  The bills were always paid on time, but most of the time Peter was being robbed to pay Paul.  I became quite the expert on balance transfers, and moving money around like a shell game.  I hated it, and it was exhausting but I believed it would only be temporary.  Eventually we could out earn our financial blunders and get caught up.

Consolidating debt can feel like a relief, because there is only one big hairy monster coming after you each month, instead of a dozen monsters, but it is still a monster.  Since our home had appreciated in value, we decided to be brilliant and pull out the equity to pay off our debt.  It isn’t really paying off debt, its just encumbering the house as the total debt source, but it was nice not writing so many checks for a while.  The problem with that, is the sense of freedom from not feeling the overwhelming burden of the debt makes it easier to go back into debt.

Fork #4, we went back into debt.

dark stormy clouds over a dark ocean with a single hand reaching out of the waterNot only did we now have a really large mortgage, but there were car payments for new/leased cars we couldn’t afford, (break out the credit card to make those payments), and frequent boat upgrades, and expensive construction equipment.  At one point, we had 3 backhoes on the property.  I don’t live on a farm, it is a regular neighborhood, and the lot is a half-acre.  Even so, one backhoe is one backhoe too many.  We kept them at the house because we couldn’t afford to store them, and they were used for my late husband’s company.

He did well financially with one backhoe, so he decided to get two more to triple the profits.  It did not work out that way, and all 3 were sold at a great discount, and more debt left over.

In fairness from the finger pointing at the excessive costs of my late husband’s business, I do have to own up to one of the new cars.  He bought himself a very nice brand new Mercedes convertible.  My car was 10 years old, and was in need of repairs.  The repairs were going to be quite expensive (about $10k).  One day he came home with a new Mercedes S500 for me.  It was leased like his, which I always thought was stupid.  It never made sense to me to rent a car, and never be able to get away from having a car payment.  Having a new car was never as important as not having a car payment, but

Fork #5 got the best of me, and I kept the new, $83k car.

new silver Mercedes Benz four door sedan in a parking lotJust between the two new cars, the payments were about $3,300 a month.  Did I mention we were still borrowing money every month to make all these payments?

The economy took a downturn, and his business suffered tremendously.  He laid off 27 people, and eventually closed his doors.  He immediately got rid of his Mercedes, and wanted me to get rid of mine.  It cannot be stressed enough how most of my life has been spent being careful financially.  I am not a cheapskate, tightwad, or any of those things.  I’ve never believed in debt, or in having things I couldn’t afford.  My clothes are worn until they either fall apart or go out of style.  I shop on sale because I think paying full price is stupid.  Though I needed a better car, I never asked for a brand new car. I would have been happy with anything that would replace the pile of junk I was getting rid of.  But…..

Fork #6 happened.  It was like an alien took over my soul.

I did not want to get rid of my car.  I held onto it for months, and fought to keep it as if it was a beloved family member.  Eventually I gave it up, but not graciously or willingly.  It was ugly, and not one of my finer moments.  Looking back, it was just a car.  Things can be replaced.  I was just angry that we were losing everything when I felt I’d done nothing wrong.  Several things I did were wrong, but didn’t see it at the time.

man's hand holding a wooden stamper pressed against a notebook

I grew up believing you always pay your bills, and don’t get in over your head.  My late husband would argue that everyone has debt, and it is normal, though he always paid his bills.  I know most people have debt, and it is accepted and has become the norm. This was something I never wanted in my life.  He was actually a very generous guy, and liked to help people.  Money was just a thing to him, and said “you could always make more”, but we never had enough.  He felt we should file for bankruptcy, and I felt like I would rather leap off a cliff than go bankrupt.

I judge no one who has gone through bankruptcy.

pink piggy bank with black eyes facing forwardIt cannot be fun, or easy.  We had several meetings with the bankruptcy attorney, but every piece of me rejected the idea.  I just couldn’t go through with it.  I can’t say that this was a fork where we made a good or bad decision.  Would it have been better to have filed bankruptcy?  Financially it may have made more sense to do so, but emotionally I couldn’t do it.

Since we had been in our house for a while and it had appreciated, the logical thing to do was to pull out the equity, and pay off the business debt.  This enabled us to keep the house.  It also made the mortgage payment skyrocket.  So,

a $999,000 first mortgage was obtained,

and to take care of the pesky other debts, a $275,000 home equity line of credit was also granted.  This was back when you only needed a pulse and the ability to sign your name to get a loan.  We also had two rental properties that were both running a negative, so we were hemorrhaging debt.

Things continued pretty much the same financially speaking.  I spoke to him on 7/26/2012 and said I didn’t think we had enough life insurance.  I listened to financial advisers on the radio who said everyone should have 10-12 times their annual income in life insurance.  We argued about it.  The next day was a Friday, which would have been the only day I could have looked into increasing our coverage.  I did not, but even if I had, it would not have been increased in time.  He died of a heart attack on Sunday 7/29/2012.

This is a financial post, so I’ll skip over all the emotions wrapped around his demise.  Suffice to say,

I had a $200k life insurance policy and over $3 million in debt.

large pile of one and two cent Euro coins

One rental house was sold. I tossed the keys back to the bank from the other rental, which was under water.  The insurance money paid off 8 credit cards, back taxes to the IRS, back property taxes, a business line of credit and my car.  I had a flood in my home and what the insurance didn’t cover I paid out of pocket to repair the damage.  Unfortunately there was not enough insurance money to touch the mortgages on the house.  I sold a drill rig that was parked next to my garage, unused for years, the boat (I’m not a boater), his 1969 corvette and Acura.

Even though I have lived in my home for 21 years,

I owe more than double what I paid for it.

Since the house had been refinanced many times, I still have 17 years left on my loan.  Because of my age and the way property tax works in my area, I need to stay in my house until I’m 55 to keep my tax base.  The house does have a lot of equity in it because I live in a ridiculously expensive area.  I like where I live and would prefer to not move, but I probably will have to.

Despite the numerous wrong paths that were chosen along the way, since my husband’s demise, I’m proud to say I have stayed out of debt.  The only debt I have is the mortgage, which is finally under the $1 million mark.  I’ve tried for 5 years to refinance to a lower interest rate.  So far, as of the publish date of this post, this has not happened. However, I never quit, and I never give up.

I have learned more about the proper way to handle finances than I ever thought possible.  This is my story, and though it doesn’t sound like I’m winning, the amount of debt that has been reduced in the past 5 years is dramatic.  I’m moving in the right direction, it is just not as quickly as I’d like.

I would encourage any of you who are struggling with debt,

or a lack of focus on your finances to check back often as I add content and resources to help you make the best choices when you come to the financial forks on your path.  The consequences of your decisions can last a lifetime.

How about you?  What is the biggest financial mistake you’ve ever made? Let me know on my Facebook page at Elaine’s Lane

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