I am fairly hard headed, and in my 20s I was overly optimistic and thought that I knew it all. I had seen the money mistakes made by my mom and dad, and was convinced I would not repeat them. The excellent news is that I did not. The unfortunate news is that I made my own.
Debt is not your friend
Initially, I had a uncommonly nifty handle on this one. Throughout my childhood, I listened as the creditors would call mom and dad for late payments or missed payments. I learned that having excellent credit was tantamount to financial security, and for a long time I did just that. I kept my debt down, and bought a house when I was 25, but was always conservative with my spending. I continued building strong credit, and then made the mistakes I swore I would not.
Going from a 600-square-foot apartment to a 2,200-square-foot house meant I needed furniture. Instead of saving up and buying in cash as I knew I should have, I applied for credit and racked up $10,000 in debt filling my new house with the furniture I wanted. This was a terrible move.
After that, I decided to buy a car. Instead of purchasing something economical with a low monthly payment, I opted for a brand new, $23,000 Durango. Now, my debt had reached a ceiling of $33,000.
To make matters worse, I suddenly began using credit cards, and was making only the minimum monthly payment each month. I knew better, but I did not care because I was getting new “stuff” all the time and enjoying myself. Before I knew it, I had racked up another $10,000 in credit card debt, bringing my “grand total” to $43,000.
Even the best plans fail
In my career, at 27, I was on the upward climb. I was working for a proprietary school and making $100,000 per year. My debt did not seem to matter, since I was on top of the world and always had enough cash to pay the bills. I did not have a care in the world, and failed to plan for anything further than the next day.
Through a series of unfortunate events, however, I lost my job. I hit a low point. I stopped caring about being on time with credit card payments, and eventually stopped paying my bills all together. I was depressed, I was out of money, I had spent my savings, yet the creditors kept calling.
I could not find another job, because my job loss coincided with the worst of the recession in 2007. Eventually, I lost my car; was placed into collection for unpaid debts and nearly lost my house in that same year. All because I failed to plan for contingencies.
Credit is cyclical
Now, at 32 years old, I have begun rebuilding my credit and my life. I worked online from 2007 – 2010 and built several businesses doing so. Now, I have money in savings and my life is recession proof since I created multiple streams of income. I am focusing on my credit and rebuilding it, and while it will require time, it is slowly improving. The only debt I carry now is my mortgage and one secured credit card. By keeping my credit limit low, and paying off the card every month, my credit is improving by several ticks every month. Over time, I will regain my nearly 800 FICO score, and this time, I will keep it that way.
In your 20s you can be a jet setter, climbing the ladder of success without a care in the world. But falling off that ladder hurts, and it hurts a lot more if you haven’t planned for contingencies. Had I followed my gut and stayed out of debt, maintained my savings strategies and built several income streams throughout my 20s, losing my job would not have had such a severe impact on my life. By planning properly, you can weather any financial storm.
More from this Contributor:
The Color of Money: Or at Least How We Spend It
Creating Your Mad Money Budget
Why I Don’t Count on Social Security and Why You Shouldn’t Either