Young AdultHood — Pre-Mrs. Dollarman
This is the last blog post of a three part series covering my financial backstory. In this post I will talk about my struggles paying back a whopping ~$63,725 in debt, and the poor decisions I made during my young adulthood. If you haven’t read the first two post of this series you can check them out here:
Finally free and on my own
I could feel the tension in my body easing as I let off a sigh of relief after seeing thousands of graduation caps fall from the sky. The sleepless nights and constant grinding finally culminated with me achieving the goals I set out for myself five years prior. A week later, I received my commission into the United States Air Force. My heart sunk when I received my orders authorizing me to move to a different state. I wish I was more prepared to leave the comfort and safety of home.
Now responsible for determining my own path I felt like I was on top of the world. The basic expenses needed to sustain an independent lifestyle were now pushed to the forefront. This was leaps and bounds away from only worrying about my cell phone bill, public transportation, and entertainment costs. No more school, free to do what I wanted, and steady paychecks rolling in made a deadly mix.
As mentioned in Part II, I made the mistake of taking on debt that I could’ve avoided. I was now was stuck paying back a loan of $25,000 @ 4.99% which came out to a total of $492.21 a month for the next five years after college. Failing to realize my mistake at the time, and falling victim to the “I’ve Earned It!” syndrome I financed a brand new car with the hefty price tag of $34,287.1. I only had enough to cover the the taxes of $2,523.1. This tacked on another $31,864 @ 3.99% for the next five years with payments totaling $587.14 a month.
How naive budgeting looks like?
At the time, I solely focused on how the payments impacted my budget versus how they affected my overall net worth potential. I thought just because I had enough money to make the payments each month ($1,079.35), that I could actually afford it. At the time my salary was $48,000 or roughly ~$4,000 a month (payments took up 25% of my pay!). Starting off my career with $56,864 in loan debt, I diligently made payments each month thinking it was the “normal” way people did things (see Chart 1 below). I was young, vibrant…why did I need to save my money (#YOLO)? If I had discovered Financial Independence at this point, I would have realized I was actually making many poor decisions. I was creating financial shackles which were bringing me further away from being able to choose how I wanted to lived my life. So what did I lose?
Keeping up with the Jones’s decisions
- Taking on debt I didn’t need of $25,000 and frivolously spending it all
- $25,000 principal + $4534.48 interest = $29,534 on possessions/spending/experiences that I could of done with out
- With payments of $492.21 + average interest payments over five years of $75, and a nominal return in the stock market of 7% over the past 9 years
- If I would’ve invested that money instead, I would’ve had an extra $56,686 dollars added to my net worth (2019).
- Choosing to go all out and buy a brand new car for $34,287
- $34,287 principal + $3,374 interest = $37,661 on a car whose sole purpose was to get me from point A to B
- With payments of $587.14 + average interest payments over five years of $56, and a nominal return in the stock market of 7% over the past 9 years. If I would’ve invested that money instead, I would’ve have an extra $60,872 dollars added to my net worth today.
- These two decisions cost me a grand total of $117,558 in today’s dollars which would of put me that much closer to achieving FIRE.
If it couldn’t get any worst, in come credit cards to the rescue!
To keep up the Jones’s I would often turn to credits cards as a means to flex the amount of income I had available. Not realizing that turning to credit cards was an indicator of me living a lifestyle above and beyond what I could technically afford I pressed ahead anyway. As my income increased from promotions, so did the balance on my credit cards. This was all due to the false sense of security of believing that money will continue to flow in because my job was “secure”. Over the course of six years prior to my engagement to Mrs. Dollarman I utilized my credit card naively & frequently (see Chart 3 & 4 below). I spent a total of $77,214.51 ($12,869/year on average) on these cards, and paid back a whopping $72,877.49.
What did I spend all this money on?
Time to get serious with my finances!
In the early part of 2016 I started to get a little bit more serious about my finances. I got tagged for a deployment so it was a perfect time for me get my stuff in order. During this time I focused my funds towards hacking away at my credit card debt, and building up my retirement funds (Chart 5). I also took advantage of the Saving’s Deposit Program (10% savings account) socking away $10,000 in there. Part of the reason for the sudden change was making the decision that I was going to propose to Mrs. Dollarman when I got back. My final net worth (bachelor) tally consisted of my checking/savings: $5,000, Investments: $20,000, Other Assets + Liabilities :$16,257.3, Home Equity: $2,300, Credit Cards: -$7,920.5; totaling: $35,636.8