When a sports team loses, they analyse the game tape to pinpoint their poor decisions and determine how to improve. That’s exactly what I did after I lost everything and ended up broke. During my financial collapse, I was so overwhelmed with emotions that the thought of self-examination didn’t even enter my mind.
Once the dust settled, I rewinded the tape to determine what exactly I did to cause my poverty. It became evident to me that I engaged in certain spending behaviour that got completely out of control. I also pinpointed the unnecessary expenses that led to my demise.
This exercise was important for me to do because I didn’t want to make the same mistakes again after paying my debt. Without knowing where I went astray, I was bound to end up at the same place—square one with no money and plenty of debt.
Vehicle Finance
So many of us have an obsession with owning fancy vehicles. I did. Back when I was a student, I drove a 1986 Opel Monza. It was old but in great condition, and it ended up being the best vehicle that I ever owned.
After graduating and earning more money while working in finance, I wanted to reward myself for all my hard work. I saw a sports BMW, and I wanted it. There was one big problem: I didn’t have the cash to buy it.
But that didn’t stop me. I felt I deserved that car, so I took out vehicle finance. Finally, I drove a cool car that everyone was impressed by. At least, that’s what I thought. What wasn’t cool was making the monthly payments. After I added up all the vehicle expenses and the monthly payment, I was gobsmacked to discover that I spent 30% of my salary on a vehicle. That’s nuts.
After driving the sports BMW for about three years, I sold it and upgraded to a luxury BMW, which was more expensive. Once again, I took out vehicle finance.
I had paid that car every month for over four years and had about nine months to go before I owned it. But then, I ran into financial problems and started defaulting on the payments. Eventually, the bank repossessed the car.
That experience taught me never to take out vehicle finance again. There’s nothing wrong with wanting to own a fancy vehicle but only if you can pay for it with cash. Now, I’ll only buy reliable cars that cost a few thousand dollars.
Credit Card
It’s nice to have a resource that pays for all the things you want but can’t afford. That’s exactly what a credit card does. It’s a handy tool that requires a mere swipe to make some of your dreams come true.
One of the main problems of paying for expenses with a card is that you don’t see the money leave your hands. Worse yet, you don’t believe it’s your money that you’re spending, so there’s less pain involved.
When you see cash leave your hands for an item you probably don’t need, you may feel an emotional pain because you worked hard for that money. That, usually, doesn’t happen with a credit card swipe, making the purchase much easier.
The absence of emotional pain resulted in me charging whatever I wanted to my credit card. I funded my tuition, vacation, clothes and other things with my credit card. Eventually, I maxed it out and needed to pay it back with 20% interest. Not nice.
I cut up the card, paid it off and swore never to have one again. It’s been years since I last had a credit card.
Eating Out
I never enjoyed cooking, nor was I a good cook. It was much easier for me to go to a restaurant and order my favourite meal. While I watched people walk past, the chef made my food. It was a really convenient experience.
I enjoyed it so much that I went out to restaurants often. Sometimes, I would charge the bill to my credit card. Not only was I paying quite a bit for that meal, but I used the bank’s money to fund it. That was a bad idea.
After I scrutinised my expenses for eating out, I discovered that one meal at a restaurant cost me the same as groceries to prepare three meals. Restaurant food was three times more expensive than buying groceries. Actually, it was even more expensive because I had to pay back the credit card with interest.
I stopped going to restaurants and ordering takeouts. Besides reducing my food bill, I also ate healthier food by buying groceries.
Phones and Gadgets
If we’re not obsessing over fancy cars, we’re ogling the latest phone. Much like many people, I wanted to have the latest model. It’s what you need to hang out with the cool kids. I discovered that the cool kids were just as broke as I was. Partially due to buying new phones.
When a new model came out, I had to have it. Then, I thought that having a tablet linked to that phone would be even better. I could carry the tablet with me wherever I went, and it would make me look like I was an important businessman.
The problem with wanting the latest phone model is that a new one comes out every year. The latest model costs in excess of $1,000. Over five years, you’re spending more than $5,000 just on phones and gadgets. That might not sound like a lot of money, but you could’ve used it to pay off debt.
Since you’ve conditioned yourself to have new models, you’re going to repeat that habit every single year.
My current phone costs $150, and it can phone, email, message and take photos just like the latest model. It even has a 50-megapixel camera. I’ve had that phone for years, and I have no plans of changing it for a new model because it works well.
Debt
The problem with taking out one debt is that you see the value that it adds to your life. When I took out vehicle finance, I drove a sports vehicle with leather seats and a fancy design. That made me feel more successful than I was. I enjoyed that feeling. I really enjoyed that feeling.
And I thought, ‘Since a vehicle loan improved my life, then other debt will improve my life even more.’ That’s when I took out a personal loan, overdraft and other silly loans that I shouldn’t have.
Taking out one loan usually leads to another one. And before you know it, you’re in quicksand, being sucked underground until you’re in way over your head. That’s exactly what happened to me.
I stopped receiving an income and couldn’t pay any of my debts. My car was repossessed and all my loans were handed over to lawyers, who called me daily, threatening to sue and blacklist me. I was constantly stressed. I saw that debt was bad. It provided me with short-term satisfaction and long-term headaches.
To get out of my rut, I stopped taking out more debt. I knew that I would never get out of a hole by digging it deeper. Once I paid off my debt, I swore to never take out debt again. My last debt repayment was in November 2022.
Being debt-free is one of the best things that ever happened to me, and I can never imagine owing anyone money ever again.
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