My Best and worst financial decisions

As promised, the rest of the M-Network and I are posting our best and worst financial decisions. I suspect that we all have more to say about our failures, than our successes. I guess that is why we are interested in helping others avoid some of the challenges that we have faced.

My worst financial decision

I decided that I was going to narrow this down to the single worst decision. If I was to make a list, there would be quite a few, and I am sure I will touch on them over time. But, for now my worst decision or group of decisions was:

The way I paid for college

At the time I had just about no concept of money or debt. I would have cared no more about having $80,000 or $10,000 of student loan debt. They were merely meaningless numbers to me that I didn’t face up to, because I figured I would take care of it later, when I was making the “big bucks” as a 22 year old college grad. Well, 22 came and my first “job” actually paid “small bucks” (about half of what I had assumed I should be making). Over the next couple years, I slowly began to get a grasp of the $30,000 student loan debt that I owed. The numbers were finally starting to sink in.

I was like many college kids, switching majors a few times, and finally settling on a business degree, because, “you can do anything with a business degree.” Or so I thought. The lesson I learned is that MORE doors will be opened with a basic degree, but since it is so unspecialized the job will most likely pay LESS.

Because I didn’t have a concept of what debt was, I didn’t care how much I was accumulating. Rather than going to a community college to get my general education classes out of the way, I preferred to have my ego stroked by saying that I was attending a 4 year college. What I was not realizing was:

• I was wasting a lot of money on a 4 year college as I was still trying to figure out what I wanted to do.
• When you graduate, your resume doesn’t show what college you started at. It lists where you graduate from.
• From the few classes I did take at the community college I was surprised to find that they actually required some work. In fact, some of them were more difficult than some of my 4 year college classes.

What I finally figured out is that I could have gotten the same degree, with an equivalent (if not better) education for a fraction of the cost.

My little sister took a smarter approach and began at a community college as she was searching for a major. She then settled on a specialized business degree and took as many classes at the local community college as she could, before transferring her credit hours to the 4 year college. She also chose to go the local state school (this was considerably cheaper than the private college that I attended) that had a reputable business program.

Two years later she graduated with a fraction of my $30,000 debt, a solid education, and a similar degree to mine from a better business school.

My Best Financial Decision

The challenge with the good financial decisions is that often times you will not see the fruit of it until years later. But, I think there is one financial principle that is foundation for just about all good financial decisions. It is repeated incessantly in the personal finance world, but that only increases its validity.

It is cliche, but needs to be repeated. It is simple, but not easy. It is what everyone who has money does, and what everyone who doesn’t have money wishes they could do. The best financial decision I have made was to:

Spend less than I earn

It doesn’t matter if you make $10,000 or $1,000,000 a year, if you spend more than you make you are in debt. Many people who are spending more than they earn will say that, “if I could just make a little more money, I would be fine.” Rarely, if ever, is this true. Overspending is not a money problem, it is a behavior problem.

I had a behavior problem in this area. I think I was no different than most Americans. I spent my money and wondered where it went. I was frustrated that I was falling deeper and deeper into debt. I wanted to be able to save and invest money, but I always said, “someday when I have more money I will do that.”

I finally decided that I needed to take action and work towards my goal of spending less than I made. I started a budget and learned how to quit spending too much money because, I knew it was not going to happen automatically.

It took me a couple of years to go from spending 115% of what I made to 85%, but only a few years later, I have already seen many benefits because of it. The good thing is that I know the best rewards from making this decision are still to come.