In our Money Mic series, we hand over the podium to people with controversial views about money. These are their views, not ours, but we welcome your responses.
Today, a debt counselor and financial adviser shares how, while solving his clients’ financial problems, he mismanaged his own money to the point of bankruptcy.
There are certain times in your life you remember in stark detail. Your first kiss. The first time your heart was broken. Where you were on 9/11.
One of those days for me was the day I had to tell my wife that we needed to file for bankruptcy. That we would have to give up our three-bedroom home. That we had to break our lease with Infiniti. It wasn’t the actual moment when I filed for bankruptcy—that was just a jumble of papers, numbers and black-and-white print—that left an indelible imprint on my brain.
No, it was the expression on my wife’s face when I broke the news. Shock, disbelief, anger, panic all flitted across her face, before she paused, gave a little laugh, and said, “Dave. That’s not funny. There’s no way you would need to file for bankruptcy.”
Sadly, she was very, very wrong.
She completely trusted me with our financial dealings, as I, a professional debt counselor, was the “expert.” Surely, who would be better qualified to handle the family finances, than the resident finance manager, who has seen so many people on the brink of financial ruin and helped them back onto their feet?
And I was good at my job too. I knew the many pitfalls of taking on too much debt, spending beyond your means, becoming overwhelmed with interest, losing jobs.
It’s easier, however, to see other people’s shortcomings and how to fix their issues. I was blind to—or at least myopic about—our struggles in a way that I’m sure another financial adviser would have spotted immediately.
What Went Wrong
Jennifer and I got married young, right out of college, both of us with student loans—to the tune of $40,000 altogether. Because we were young, we made poor decisions in the beginning, opting to pay for most things with credit.
It didn’t matter if we didn’t have steady jobs, or had incomes that supported our lifestyles—at the time, my wife worked at a local restaurant as a server making roughly $11.50 an hour plus tips. We needed new furniture, as we were just starting out, and we didn’t want the regular IKEA stuff, so we wound up buying an overabundance of expensive furniture, calling it an “investment.” If we got tired of one car, we’d quickly go out and get another. Trips to New York, Hawaii and Europe were a part of our lifestyle.
Growing up, money and frugality were never topics that were widely discussed in my family. I think that lack of clarity may have had a slight influence on my career choice, to pursue something unknown. I also think it led to my eventual financial downfall, as I never grew up saving money—I only learned how to teach others.
In two years or so, we had amassed at least $20,000 in credit card debt to go with our solid $40,000 of student loans and thousands in car loans. In the meantime, I had been slowly making deals with bigger and more renowned clients and taking on more responsibility as a freelance financial adviser.
Then Jennifer got pregnant, which put a halt to our jet-setting ways.
But now we need a house for our growing family, so we bought a smallish two-bedroom house outside of Los Angeles. We didn’t think we would need to upgrade immediately, but shortly after Sara was born, Jennifer was pregnant again, with Zoe. We thought we needed a bigger house at the time, but in retrospect, perhaps we could have done without. This was right after the economic downturn of 2008, so we sold our house at a massive loss—around $100,000, and turned right around and secured a mortgage for a three-bedroom house in a good school district in Pasadena, California.
It’s obvious to me now that we were doing everything wrong, that I was doing exactly the opposite of what I counseled my clients. Instead of paying down as much as possible on existing debts, I was paying just the minimum and going out and accruing more debt. Rather than immediately putting income into savings or retirement accounts, I was spending every last bit of my income to keep us in our lifestyle.
How did I not see that we were headed for financial disaster? Part of it was that I never adjusted to the mentality that we wouldn’t always have two incomes. With my mind so focused on other people’s finances, it was easy to wind up neglecting my own. After the birth of the girls, Jessica decided to stay home full-time (which I fully supported—the girls needed their mother to take care of them and not anyone else). We went from a dual-income family with no children to a single-income family with two children in what seemed like a blink of an eye, with two more mouths to feed and care for on top of our existing expenses.
Part of it was hubris as well. I was doing well in my practice and had amassed a sizable client base, which I thought would bring in more income than it did. I hadn’t fallen behind on any payments (at first), and yes, I thought that nothing bad could happen to me because I knew better; I was financially invincible. I thought I knew how to save myself before things got too bad.