By glblguy



Photograph: Learning The Hard Way by Alex @ Faraway

This article is part of an M-Network group writing project. We are all writing articles revealing our best and worst financial decisions. See the end of this article for links to other M-Network member articles!

I’ve made a number of good and bad financial decisions in my life. Unfortunately until about a year ago, the majority of them where bad. I could list far more than 6 decisions and frankly could probably write a whole book on the them. To keep from completely boring you though, I’ll only share 3 of each. My sincere hope is that you can learn a little something from my decisions and maybe avoid learning things the hard way like I did.

Our 3 Worst Financial Decisions

#1 – Purchasing an RV

About 6 years ago, we decided to buy an RV. We purchased a new 26′ travel trailer. It was incredibly nice and we enjoyed many wonderful times camping at the South Carolina beaches and the North Carolina mountains. Here’s where we went wrong though:

We paid too much for it when we bought it. We should have done more research on dealer price as we ended up paying about 10% too much.

We purchased new. RVs depreciate in value at an incredibly fast rate, purchasing a new one isn’t a smart decision and you will really take a beating. A much better option is to purchase a 1-2 years old used model, and let someone else take the hit. Many people purchase RVs only to find fairly quickly they don’t enjoy it. Finding opportunities like this will provide you with the best deal.

We folded our negative equity into a new trailer. Not only did we make the mistake of buying new once, we did it again not 2 years later. We upgraded to a larger RV and folded the negative equity from our first camper into the new one making a bad financial decision even worse.

We ended up selling our trailer for $9,000. The balance still owed was around $12,000. We paid about $19,000 for it new. Add to this the cost of insurance, storage, the camping supplies and the monthly payments for a vehicle to pull and you have the biggest money pit we’ve ever owned. Sure, the adventure was fun and we loved camping, but it just wasn’t worth it. We’ll wait until we’re retired and hit the road then.

#2 – Paying Too Much For Our Home

When we moved back to North Carolina, we had picked out two neighborhoods where we would consider living before we came down. We additionally picked out the specific model and floor plan we wanted. My wife and I both feel in love with a 2-story with a front porch.

The house we wanted was a high demand one. One of the neighborhoods wasn’t building anymore nor where there any for sale. The second neighborhood had one left, the model, which had just gone on sale. The model was about $20,000 higher than the standard home, but the sales person told us that was due to the all of the options: extra trim, higher quality carpet, larger A/C units, curtains, etc, etc.

Our real-estate agent (who was under a buyers broker agreement) agreed, and that based on her fair market analysis the house was a good buy. Given we were renting a one bed-room apartment on a short term lease at about $1500/month (with 2 kids I might add) we decided to buy it.

We later found out that being a model ads nothing to the value and when you go to sell, it makes no difference to the home value at all. Our real-estate agent lied about the fair market analysis. We should have paid $20,000-$30,000 less than we did, especially since the house was already 5-years old.

Only in the past year or two now that housing values in our area have started to increase significantly have we gone positive. We finally owe less than the home is worth. Hard lesson learned, but a valuable one for us in the future. In hindsight, we should have sued out buyer broker agent for misrepresentation and we should have done our own homework.

#3 – Doing an early withdrawal of our 401k to pay-off our debt

Some years back, we were deep in debt. We didn’t know about debt snowballs, didn’t know about living on less than you earn, or even how to live on a budget. We just knew we were in more debt than we could pay and had money in our 401k we could use to pay it off.

We decided to take an early withdrawal from our 401k to payoff all of our credit card debt. I paid the taxes and the the 10% penalty, and in hindsight ended up paying what equated to 40% interest for that money. We did pay-off the credit card debt, but failed to get rid of our credit cards. Not 5 years later, were right back in the same deep in debt situation.

Don’t withdrawal money from your 401k under any circumstance. It’s like taking out a loan at 40% interest to pay off your debt. Additionally, you basically kill any progress you’ve made on your 401k accounts compound interest, making it grow that much slower when and if you restart.

Our 3 Best Financial Decisions

#1 – Cutting Up Our Credit Cards

8 months ago we stood around the shredder and each of us, including our children put a credit card in the shredder. It was a life changing moment for all of us. A moment where we removed the temptation of having cards from our wallets, a moment we declared war on debt, and a valuable lesson for our children.

We had cut up our cards in the past, but always kept one “just in case”. The temptation to use that one card was just too strong, and we always did. Not this time, all of our cards are gone. The only credit card I carry in my wallet is my corporate card for work. We have been credit card free for 8 months, and haven’t even come close to needing one. We have a $1,500 emergency fund and use it to cover any unplanned expenses. We don’t miss those cards one bit and most likely will never have one again.

Do you struggle with using credit cards? Do you find yourself always coming up with a reason to use them? Get your cards out, call the family down (if you have one) and shred them, blend them, scissor them, burn them, whatever but remove them from your life, you won’t regret it.

#2 – Getting Control of Our Finances

At the same time we removed credit cards from our life, we also decided to get control of our finances. This involved establishing an emergency fund, creating a budget, living on less than we earned, and aggressively paying off our debt using a debt snowball.

Prior to doing this, it was a like a dark financial cloud followed us everyday. We worried about our finances all the time. We lived paycheck to paycheck, paid bills late, and overdrafted our accounts far too frequently. It was a constant strain that caused money fights and frequent lack of sleep.

Since we gotten control of our finances, the dark cloud is gone. We don’t worry about money, we know where our money goes and how it is being spent. We feel more in control and see significant progress being made on paying off our debt. We aren’t out of debt, but because we have a plan and see our debt slowly going away we feel so much better. Controlling your finances doesn’t take much time, it’s easy to do, and will dramatically change your life.

Unfortunately it took something pretty major happening in our lives to make us realize our finances where out of control, but I’m glad it happened. Don’t learn this the hard way, get control of your finances and see what a difference it makes.

#3 – Buying Used Cars

Not long ago we had two new cars. I had a new Dodge diesel pickup (to pull the camper) and my wife a new full size Dodge conversion van. The van was sold and a 2-year old Dodge Durango purchased. When we sold our RV, I sold my truck and used the positive equity to purchase a $4,000 2001 Nissan Sentra.

This wasn’t too difficult for us as we had put a significant amount of money down on both of the new vehicles so we weren’t upside down. The equity in the van was used as a down payment on the Durango, and the equity in my truck used to pay cash for the Sentra and the remainder to pay for the negative equity on our camper.

Cars depreciate almost as fast as RVs. The average new car loses $2,000 – $3,000 dollars as soon as you drive it off the lot. To make matters worse, most people finance them for 5-7 years. Financing and paying on a vehicle that is constantly losing value is probably one of the worst financial decisions you can make.

Instead, find a well kept car that is 2 or more years old and pay cash for it. Let someone else take the initial large depreciation hit. Cars 2 years old are almost always still under warrenty and very reliable. If you can’t afford a car that new, do some research and find out what cars are the most reliable that meet your needs to buy an older one like I did. Mine has 120,000 miles on it and runs great. It’s amazing how nice a car drives and runs when it’s paid for!

oo00OO00oo

Sadly, when I wrote this article I really had to think hard to come up with the best financial decisions I’ve made. The worst came to mind far too quickly. 3 is only a very small portion of the mistakes I’ve made. You can see a few more by reading another article I wrote.

Make sure you read about the other M-Network bloggers best and worst:

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