003 | Nineteen Years of School, Zero Financial Clue

Introduction

Remember in Blog Post 002 when I said my childhood left me with visions of owning a big house, fancy cars, etc.? Well, the vision I LIVED for, that I DREAMED of, the carrot on my stick, was a fast car. For years, my dad had subscriptions to: Motor Trend, Car & Driver, and Hot Rod magazines. I used to drool over the pictures, the horsepower & torque numbers, the 0-60 & ¼ mile times, and just the pure art & engineering that goes into a well-refined sports car. The one thing that kept me going to finish college was the thought of owning a killer sports car someday. I had the dream car in mind, but no one ever gave me the instruction manual on how to actually afford it.

College Degree and No Financial Education

While high school was relatively easy for me, college turned out to be much more difficult. It took me eight years to get a four-year degree. I changed majors, wrecked a motorcycle requiring multiple surgeries and 9 months in a leg cast, dropped out, got involved w/drugs & alcohol, and about every other distraction a young man can find. When I finally graduated, I realized how lost our educational system is, at least where practical life skills are involved. I didn’t know how to find a job or even put together a resumé (I literally thought it was pronounced reh-zoom, lol).

The biggest failure though, was that after 12 years of public school plus 7 years of college, I didn’t have a single clue at all about how to manage money. Driven by financial ignorance and impulse, the first thing I did once I found employment was buy a shiny sports car on credit. *facepalm*

That bright white, all-wheel drive, turbo-charged, 1992 Eagle Talon cost me $15,000 on a $31,000 salary.

Truth Learned Outside the Classroom

It quickly became clear to me that I was never going to get ahead with my existing money framework. So, I took on my own education. Back then (early 90’s), there was no internet, no Amazon shopping, no YouTube, etc. So, my self-education started the hard way: in the self-help aisles of physical bookstores.

I devoured books on job hunting, relationships, growth/success, and personal finance. My biggest epiphany: after 19 years of formal education, I learned about interest rates, how to calculate the real cost of borrowing money, and to pay off your highest interest rate debt first. The way I thought about money and spending began to shift. For example, if you pay an extra $100 on a 20% credit card balance, that’s the equivalent of a $20/year TAX-FREE raise. And I could give myself that raise every single month!!!

The Drastic Steps That Became My Early Financial Education

As my financial self-education unfolded, I immediately took some drastic steps:

• I traded the sports car in on a used, fuel-efficient, small truck with a much smaller loan payment.
• I moved into a modest apartment VERY close to work to save time & commuting costs.
• I began paying off all my debt starting with the highest interest rate first: credit cards, auto loan, followed by student loans.
• Weekly, I’d use a calculator to motivate myself to pay off more debt: back to my example of paying an extra $100 on an 20% credit card – if I did that all 12 months, I had literally given myself a recurring $240/year tax-free raise. The more I trained myself to think this way, the more I was motivated to pay off debt, and the faster my net wealth grew. I got totally debt-free, which laid the foundation for the rest of my financial journey and life in general.

Clarity and Actionable Advice

The lessons I learned and actioned are learnable and actionable by you too:

• Don’t let sunk costs dictate your financial path. You can always change course. For me, I bought a shiny sports car on credit. Sure, selling it was going to be a loss. But I already had that loss; I can only move forward. Keeping it, and the debt accompanying, was a worse choice.
• Determine your debt with the highest interest rate. If you have credit card debt, it’s probably that. If you have multiple credit cards (or other unsecured debt), figure out which one has the highest interest rate. After that it’s probably any automobiles, student loans, and home in that order.
• Start giving yourself TAX FREE raises right now by paying extra on the debt with the highest interest rate at every opportunity. Don’t think of it as paying a bill, think of it as free money. If I told you about an investment with 0 risk and guaranteed 20%+ returns, would you buy it? Of course you would! Well, that is EXACTLY what paying down a 20% credit card balance is!
• Shift your mentality. Spend some time with a spreadsheet or a calculator and try some of the following exercises:
  • Big Picture: calculate the total annual interest amount you’re paying. For each debt, take the outstanding balance x the annual interest rate. Add all those together for your total. Example:
    • Credit Cards: $10,000 x 20% = $2,000
    • Automobiles: $50,000 x 8% = $4,000
    • Student Loans: $50,000 x 7% = $3,500
    • Home: $200,000 x 8% = $16,000
    • TOTAL: $25,500
  • Right-Now Picture: calculate how much an extra principal payment of $X would save you right now, this month. Same example as earlier. Knocking an extra $100 off a 20% revolving credit card balance would save you $20 per year / 12 months = $1.67 per month FOR LIFE.

What could you do with an extra $25k / year?