Why Do People Do Stupid Things with Money?I have been asking myself this question for over 20 years. Back when I was in college, I was what we like to refer to as an idiot. Even before I left for college, I was an idiot. Intellectually speaking, I was actually pretty smart, but when it came to money, I had a hole in my pocket about the size of the Grand Canyon. Any amount of money I got my hands on burned its way right though. And quickly! I could hardly hold on to a red cent. I'm not sure why this was the case with me. Perhaps there was just too much temptation out there. There was, and still is, a lot of great stuff to buy.
My spending habits back then didn't do me any favors for the next few years. It actually took a wake up call to set me straight. After college and after I managed to somehow rent my own apartment, I called my mother to see if she could help me out financially. It didn't take long for her to tell me that I was fully on my own and for me to "figure it out." That was hard to hear. That meant that I'd have to grow up and begin paying off my student debt and $7,000 worth of credit card bills. I didn't like the situation at all. With only a few hundred dollars to my name and groceries, rent, gasoline, car insurance, and all the rest to pay for, I'd say I was screwed.
Luckily a friend of mine came to the rescue and moved in to my apartment with me. He paid for the next month's rent, which gave me the wiggle room to focus on getting a job. I did manage to land a job and for the next year, I worked my butt off. I paid off all my bills and walked away from that experience $15,000 in the black. And that was the last time in my life that I had no money. If it wasn't for my friend who needed an apartment, I would have been thrown out. It's pretty pathetic when a healthy and college educated young person become homeless. There's no reason for it.
Today, I am as frugal as frugal can be. I am so careful with my money that it actually makes friends and family angry. When they ask me to do things, I tell them that I'm too busy working. In truth, I am. I work a lot. I work with the goal of financial freedom and independence in mind. I've achieved those two things long ago, but I keep my foot on the gas just to make sure I stay that way. My attitude toward money annoys people and I don't know why. Perhaps it's because every time they think of how secure I am, it forces them to look in the mirror. They most likely don't like what they see.
I think it takes going broke to wake up and see the financial light. Many people just don't get it. Young people certainly don't get it, but I can't really blame them. They see the world through rose colored glasses. What they don't understand is that "stuff" can happen. Getting married can happen and having kids can happen. Getting sick can happen and wanting to buy something large and important can happen. There are many emergencies that can suck up your meager savings faster than a Hoover. To me, the biggest financial mistakes someone can make in their life are as follows:
- Getting married to the wrong person.
- Having children.
- Expensive pets.
- Buying a house that's too large for your needs.
- Living in an expensive area.
- Keeping up with the Joneses.
- Starting a business with no experience.
- Student debt.
- Stupid business idea.
- Buying a brand new car.
- Smart phone, cable, HBO, gym memberships, etc...
- Credit cards.
- Home equity loans.
- Lack of saving.
- Lack of investing.
- Not having financial goals.
You might look at that list and say, "Yeah, but those are the things most of us do every day. It's called living." And I'd respond, "Sure, go ahead then. Enjoy. Just make sure to look around once in a while to see how screwed most of society is." When you plop yourself in a group of like minded individuals, you can easily become just as irresponsible as they are. If that makes you feel better, then so be it.
I was watching Dave Ramsey on YouTube the other day when a high school student called in for advice. He mentioned that he had recently been accepted into the University of California at Santa Barbara and that he had managed to save just about $40,000 for college already. Dave congratulated him and asked why he was calling. The kid wanted to know if it was a good idea to take out loans for the remaining cost of his education. Dave asked if California had community colleges. The kid said yes. "Well then, there's your answer." The kid had no idea what Dave was talking about.
Basically, here's how it goes. If you don't have the full amount for college saved in cash, you don't go. It really is that simple. You don't take out loans to go to college. I took out loans back when I was younger and it was the dumbest thing I ever did. My loans weren't large and if I had simply worked a bit harder at a local job, I could have avoided them altogether.
If you've got a rich grandfather who wants to pay for your education, then go ahead and enjoy. Just don't get used to the lifestyle because it's deceiving. Otherwise, work and save your money for a year after high school and then enroll in your local community college. Go there for two years. There's no sense in spending thousands of dollars on a basic Algebra class and the like when it only costs a few hundred at a local school. While you're commuting, keep saving your money. When you've got enough to transfer into a four year school, that's when you go. Not a day before. This is such a simple concept, but hardly anyone adheres to it. They act as if going to college is some sort of a right. It's not. There are plenty of people who are just taking up space across the various universities we have in the United States. They shouldn't be there. They've got no business being there. And if your reply is, "But what about the college experience?" Grow up.
Another great tip is to stop looking at schools you can't afford. Just because some fool will give another fool a loan to buy a Mercedes, doesn't mean the Mercedes should be purchased. If you've got parents who aren't wealthy, guess what? You're going to a state school. Even if your parents have some money, you should still go to a state school. Those schools are subsidized. Take full advantage of the cost savings.
If I were hiring for my business and someone sent in a resume and cover letter that explained how frugal they were by following the advice I just laid out above, I'd hire them in a snap. I'd definitely hire them over someone who went to a fancy university. When I look at people, I look at how grounded they are. I don't care if you're a genius, if I can't identify with your spending habits and your outlook on the world, I don't want to identify with you at all. You have to have shown some sort of struggle and some sort of win. I like those sorts of things. My mother used to call that "grit."
Here are a few more pieces of advice. I know I can be sort of unrealistic at times, but if you're in the hole right now, some of these things may help. Yes, you won't like any of them because none of them are fun, but then again, you aren't reading this post because you're looking for a good time.
Getting Married to the Wrong Person
Probably the worst thing you can do in your entire life. I've got example after example of spouses taking half of what was never theirs after they divorce their unsuspecting tool. The divorce lawyers take the other half. Ladies and gentlemen, be very careful out there. Run a credit report on the person you intend to marry and ask for references. Find ex-girlfriends and ex-boyfriends. Interrogate them. You think I'm kidding. If your future spouse fights you on this, you have to wonder why. Also, date them for 10-15 years before marrying them. If they can't handle that, then they just did you a favor. And if you discover they're getting married because they want to have children immediately, don't walk, run the other way. They're using you. Nothing else. You can't expect them to stick around for very long.
Which brings me to my next point. If you don't have any money, don't have kids. Again, this isn't a difficult concept to grasp. A few years ago, I spoke with one of the poorest friends I have. I asked why they decided to have children when they clearly weren't ready for them. Do you want to know their response? "When is anyone ever really ready for kids?" I nearly fell out of my chair. I'll tell you when you're ready. When you've been married to the person you love for at least five years. When you've saved up enough money to deal with almost any eventuality. When you've purchased and paid off a house. When you have stable jobs. When you're completely sane and have no mental issues. When you're a good person. Otherwise, do the world a favor and don't breed.
This one is easy. If you're in debt even a smidge, you can't have a pet. Not even a gold fish. Sorry.
Buying a House You Can't Afford
If you enjoy the prospect of being foreclosed on and divorced, go ahead and buy yourself a nice big house. All the neighbors will be thoroughly impressed by your financial prowess. And by all means, if you want to find yourself in a mental hospital for stress related symptoms as well as driving around in search for the nearest cliff to jump off of, listen to your spouse when he or she says, "But we need this house because it has enough bedrooms for our children." Ever hear of bunk beds?
Living in an Expensive Area
It's up to you, if you enjoy paying taxes for other people's children to go to school. Not my cup of tea, but hey, to each their own.
Keeping Up With the Joneses
Don't be an idiot. The Joneses don't even like you. They never will.
No Business Experience/Stupid Business Ideas
I'll lump these two together because they're similar to one another. Let me ask you something; is the prospect of money leaking out of your bank account like it's leaking through a sieve attractive to you? Do you want to take a loan from a bank and have no idea how to pay that loan back? If either of these things excite you, then you should definitely start a business that you don't know the least about. And by all means, open another coffee shop. Downtown needs one of those. No, wait - a used book store. Even better, a smoothie shop.
I talk to people about business all the time. I tell them these negative things and depress them beyond belief. When they ask when they should start a business then, I tell them after they've worked in the industry for at least five years. After they've watched their bosses make good money. After they've climbed the ranks. After they've approached their boss to ask about how to become a partner or if they can buy him or her out. The last thing a person needs to do is to start a bad and unnecessary business when they have no experience in that line of work. There's a reason pretty much ALL businesses go out of business. Because people dream too much. Business isn't attractive. It's not a way to get out of working a real job. It's labor and it can be ugly.
I discussed this above.
Buying a New Car
Who are you, Mr. Got Rocks? Have you been working all your life and have you finally retired with way too much money in the bank? Are you a careful spender? Do you have investment accounts that are bursting at the seams? Are you completely out of debt? Have you paid off your mortgage? If so, splurge on a new car. If not, start looking through the papers. Buying a brand new car is one of the biggest wastes of money there is. Everyone knows this and has known this forever.
Overspending on Things You Don't Need
You know, there was a time in this world when people didn't have a $500 device in their pocket that cost them $80 per month to keep active. And when people didn't have access to 79 channels on TV. And when they didn't have the internet. There was a time when people did push-ups in their basements. When they went jogging out on the road for free. People today spend far too much money on frivolous items and they know it. If you're one of those people who justify your spending by claiming that you need this or you need that, stop it. I suppose you could say that to someone who is younger than 25 years old, but as for the rest of us, we know better.
Cut them up. Right now. Go in your wallet, pull them out, and cut them up. Pay them off and never apply for another credit card as long as you live. No matter how attractive these companies make their offers.
Really? What ever happened to summer vacations that took an hour long car ride to get to? Disney World? Every year? The Bahamas? It's like people want to be poor. They just can't help themselves. Have you ever seen how many one year olds people drag to Disney World? It's unnerving. Like the kid is ever going to have any recollection of going there. C'mon.
I think I'll stop there. My fingers are getting tired. I'm sure you get what I'm trying to say here. Basically, don't succumb to the temptations and don't start telling yourself that you've got more money than you actually have. You don't have the money. Yes, someone may be willing to lend you the money, but that's not yours. It never was and it never will be. Think about it. A credit card company is willing to hand their money directly to a retailer for something you really don't need. You never even saw the money! And now you've got to pay it back with some crazy interest attached. That could likely take decades.
The last thing you want to do is find yourself in a situation where you're being forced to spend money you don't have.
- I married him so now I have to go on a honeymoon we can't afford.
- I had the children, so now we need a house that has four bedrooms.
- I started the business, so now I'm forced to pay the loan back.
These are all horrible situations that a bit of foresight and prudence could have avoided. But really, watch out for that marriage thing. It can ruin and bankrupt an otherwise good person.