This guest post from the Frugal Jerk is part of the “reader stories” feature at Money Boss. Some stories contain general advice; others are examples of how an MB reader achieved financial success — or failure. These stories feature folks from all stages of financial freedom. Today, the Frugal Jerk — who has asked to remain anonymous for now — shares the first half of his story about going from internet entrepreneur to busted and broke.
You might know me. I’m a blogger and entrepreneur. I’ve had tens of thousands of customers during the last decade, so it’s very possible that you’ve purchased something from me in the past.
I’ve been read by millions of readers on my own sites and I’ve appeared as a guest writer on popular websites you’ve surely heard of. I’ve also been featured in New York Times bestselling books that may sit on your shelf. At my peak, my income was $300,000 per year. By many accounts I would be considered successful. But I’ve made many dumb mistakes with money.
We’re not going to bury the lede: At a certain point, because of a perfect storm of mistakes and problems, the smartest move was to foreclose my home. This move may have even saved my life. This is that story.
What’s interesting about all of this is that I grew up fairly poor and conservative with money. If I couldn’t pay for something in cash then I didn’t buy it. I didn’t make stupid financial decisions. Those decisions were for idiots. I was no idiot! (Reality check: Everyone is an idiot sometimes.)
Buying the Hype
When I bought my home, everything was going great. In the run-up to the U.S. recession, houses wouldn’t stay on the market for long. If you remember those days, you know that you could go to a first open house and the house would often be sold before you got there. It got to the point where houses were regularly selling for more than asking price. Bidding battles were not uncommon.
This should have been a warning. But I was young and dumb and flush with cash. I had a business generating almost $1,000 in profit per day. Mostly automated. All online. What to do with all that money? Home values always go up, right? It’s always smart to “Buy! Buy! Buy!” isn’t it? We all heard it daily. (You might still hear it regularly since the economy has improved lately.) Plus, it’s the alleged American Dream. Quite literally everybody around me told me to buy, particularly those who knew my income. Parents, friends, the echo chamber in the media. I didn’t hear a single dissenting opinion. (Besides my own, which I steadfastly ignored.)
So I bought a home.
Considering my income, I thought I was making a smart choice. I settled — and I do mean settled because I didn’t even like the home — on a $300,000 four-bedroom three-bath two-car-garage home. I was a young single guy with a huge family home. I know what you’re probably thinking. But it was “only” one year’s income and I put 20% down. What could possibly go wrong?
If you’ve been a working adult over the past decade, you know the answer.
Nearly everything went wrong.
The stock market tanked. The housing market tanked. And, most relevant to my eventual foreclosure decision, my income tanked. The year I bought my home, I made about $300,000. The year after, I made less than $50,000. The year after that? Less than $20,000.
It was a massive blow to not only my finances but also my ego.
In the Beginning
My beginnings probably aren’t atypical of folks who read sites like Money Boss.
I started working and saving at around age 13. I had a checking account and kept it balanced all through high school. I graduated from a four-year university with a science degree and not a single dollar in debt. Actually, because of the business I started while in school I graduated college with over $50,000 in savings, including $10,000 in a Roth IRA. Who starts a Roth IRA in college? The Frugal Jerk, that’s who.
Even though I had all this savings, I still felt poor. What’s $50,000 when others folks are millionaires and billionaires? Some call this a scarcity mindset, and maybe it’s a result of growing up “not rich”. We always had electricity and food and went on the occasional vacation (often camping). But I was an LA Gear child with Nike Air tastes. Maybe you can relate?
Like many folks in similar situations, I was raised with a faulty money blueprint. I wasn’t taught the value of money or the thought process behind saving and spending. But I was taught that rich people were to be venerated and poor people disparaged. There was nothing worse than to be poor or in debt or to ask for help. (The ultimate sin was getting any help from the government.)
I was told things like, “No, too expensive. You’ll end up like one of those poor people.”
I was taught to buy the cheapest, even if the more expensive is in the budget, better quality, and more useful. (Now I know a simple cost-benefit analysis can go a long way to helping decide whether to buy something that’s cheap versus something more costly.) The point is that as I became an adult, even though I was debt free and had a significant savings account, I felt poor, was terrified of actually being poor, and I wanted a lot more. And I got it. For a while anyhow.
The positive side of growing up the way I did is that I was taught debt was generally bad (except for a mortgage or car note, for whatever reason). I wasn’t taught why debt was bad, but the lesson mostly stuck. I never — not once in my life — carried a credit card balance. I never paid my bills late. I bought everything in cash, including a luxury automobile.
Wait, what? Frugal with a luxury automobile?
Well, I quickly fell into the classic spending trap once I started earning big. What’s $60,000 for a car when you’re earning that much in just two months? I wrote a check and paid extra to have the specific vehicle I wanted driven cross country and delivered to my door. (In case you’re wondering, that costs over a thousand bucks.) I couldn’t wait to show it off. To whom? To all the poor unsuccessful suckers around me. “Ha! I’m so smart. I bought this expensive car for cash! All these other idiots are using financing. So dumb.”
See? I was already a jerk — but no longer frugal. Obviously.
Things Fall Apart
So, the recession was in full swing although many of us were in denial. Me? Well, as I said, my income tanked and my home’s value tanked. My Roth IRA was worth about what I put into it. My mortgage and home-related expenses were eating close to $25,000 per year, so I was spending more than I was making. (My income fell to below $20,000, remember?) Things were not going well for me.
I decided to try to sell my home.
I listed it below my purchase price. It wouldn’t sell. I set an arbitrary limit to the hit I was willing to take on the home; I was hoping I wouldn’t lose more than $30,000 (or ten percent). In retrospect, I should have done whatever it took to sell. But that’s the thing about hindsight: It’s too easy to look back and judge. I didn’t think things would keep getting worse and I was using emotion instead of logic to make my decisions.
Did I say Frugal Jerk? Frugal Idiot is more like it, right?
But we’re still not to the point of foreclosure. I hustled hard, got some of my income back, and was once again earning nearly $10,000 per month. Not anywhere near what I made before, but a great income nonetheless. I could replenish some of my savings and maybe not worry so much about expenses anymore.
Unfortunately, we still hadn’t seen the worst of the recession. At this point houses like mine were still sometimes — rarely — selling for over $200,000. It wasn’t the $300,000 I bought mine for but it also wasn’t the $120,000 or less they’d eventually sell for. I was uneasy. I didn’t want to take a $100,000 hit on my home (which would take out the majority of my savings), and I didn’t feel like I had many options besides sticking it out and hoping for the best.
Then my income tanked again. Hope wouldn’t — couldn’t — save it. Because, in case you’re unaware, hope is a terrible strategy in business and in life. (Particularly in finance.)
Maybe I’ve left out something important: During this time I was also dealing with suicidal depression and debilitating anxiety. Not the result of financial troubles, but certainly exacerbated by them.
Getting out of bed or going grocery shopping was unbearable (and, frankly, a rare occurrence). I often went weeks without speaking to another human being. If I had to, I’d do my grocery shopping at 3 a.m. so I could avoid other people. If you’ve read Darkness Visible by William Styron or even Allie Brosh’s more accessible book Hyperbole and a Half, then you might have some understanding of what this kind of depression feels like. It’s something I’ve dealt with since a young age. And by “dealt with” I mean I shut myself off from the world and kept it all in.
It’s no wonder my chosen career path was to sit in front of a computer and not speak to people on a day-to-day basis. Some might say that career path was more curse than blessing. While it’s provided an interesting life, it hasn’t been without consequences.
Living with the proverbial dark cloud of depression is difficult enough. Doing it while also dealing with income uncertainty and a crashing economy? Yikes! Clearly I’m still here, but it was almost too much to handle. Thankfully, humans are resilient creatures. Even jerks like me.
My foreclosure process was long and grueling. From the time I missed my first payment until the day the house was actually foreclosed upon took three years. But, believe it or not, the experience was one of the most positive things to happen to me as an adult. It forced me to re-evaluate my relationship with money and with life itself. I also learned how to start over with nothing, from the bottom of the heap with a broken credit score.
For more on that, stay tuned for part two of my story sometime soon. And if you have more questions than answers leave them in the comments. I won’t answer them here because I’m a jerk — but I’ll cover them in the future.
Long-time readers remember that reader stories were a weekly feature when I ran Get Rich Slowly, and I’ve been eager to add them to Money Boss. This column may be irregular at first but will increase in frequency as I get more submissions. If you want to share your story, please drop a line.