Just a couple years ago, we were wasting thousands of dollars every year and had no idea how to make things better. Now, we’re riding a financial high; our spending is at an all-time low and our net worth is up 25% over the last twelve months. What changed? What allowed us to get where we’re at today?
For the answer, you’ll have to suffer through a bit of back story…
For Richer or Poorer
When my wife and I got engaged, she was finishing up college and I was working full-time.
We were living separately, renting apartments and living fairly frugally as we saved for our wedding and for a down-payment on a house.
Then, in a short span, my wife graduated, got a full-time job, we bought a house, and we got married. One of the big things we needed to figure out with all this change was how to manage our finances.
I’d been doing most of the earning (and spending), so I proposed that I be responsible for all the “necessities”, with my wife working on furnishing our newly purchased home.
So, we went on our merry way with split finances and everything worked well…for a little while at least
My wife made enough to purchase some beautiful furniture - well beyond the quality of any of the stuff we had used in college. It all seemed so responsible, so adult.
In the meantime, I paid for groceries, the mortgage, utilities, and put a bit of money into savings - but there was a problem. I was just barely able to cover my end and, as a natural saver, I felt like we were balancing on the financial edge.
I remember standing in line at Target one time and getting into a big argument about the cost of a decorative tray that my wife wanted to buy. The price tag was probably less than $25 but I was so stressed about how tight things were that I just about lost it.
To add to the stress, we had always wanted to go on vacation but told ourselves that we couldn’t afford it - we needed to get set up in our house.
We put our money where our mouth was but our mouth was only focused on necessities and furniture.
We spent thousands of dollars on high-end furnishings that didn’t make us happy. To compound matters, our cats put deep scratches into just about every piece. We might as well have flushed money down the drain.
How did we get here? What did we miss?
Setting Our Financial Compass
In the end, every financial misstep has one thing in common.
A financial misstep is any decision that causes your money to unnecessarily go toward anything other than your true goals
Our biggest money mistake when we got married was not developing a vision for our life and ensuring all our financial decisions supported that dream.
That’s why the first thing you should do in managing your money has nothing to do with the numbers; step one is to figure out what your goals are and write them down! With defined goals, every financial decision brings you closer to or further away from those goals.
I gave the act of identifying these goals a name: setting your financial compass
After all, if you don’t know where you want to go, how will you know if you’re headed in the wrong direction?
Thankfully, we finally figured this out. We talked and dreamed of the life we wanted and got on the same page about how to get there. We set our financial compass and the results have been phenomenal.
Our financial compass includes:
- Maximizing the time we can spend together and the quality of that time
- Making time to pursue the work that brings us joy
- Living a life that reflects God’s calling for us
Any money that doesn’t go toward our necessities or our goals is a waste and a misstep.
Blooper Reel - Other Financial Missteps
Now that we’ve got our compass set, its easy to look back and see all the missteps we’ve made over the years. We’ve wasted tens of thousands of dollars on things that didn’t get us closer to our goals.
Buying Cars New (Twice!)
With my wife’s car on its last legs and a newborn in tow, we bought a brand-new Toyota Prius for about $25,000 cash in early 2011.
Just 13 months later with twins on the way, we bought a brand-new Dodge Grand Caravan for about $25,000, most of which was through a 0% APR loan.
We spent fifty-thousand dollars on cars in just 13 months.
We had lots of “good” reasons for buying new - safety, reliability, gas mileage, and features. But those reasons probably cost us a lot more than they were worth. Buying a new car is a pretty wobbly financial decision based on depreciation alone.
According to Edmunds.com, the average new car loses 11% of it’s value the second you drive it off the lot. From there, values drop by 15-25% each successive year; at the 5-year mark, that leaves a car at about 37% of its original value.
While our Prius fared slightly better (we sold it this year at half the purchase price), our minivan has likely kept on-pace with those numbers.
While we didn’t pay a cent in interest for either car, we lost our pants in depreciation.
Had we picked from Mr. Money Mustache’s Top 10 Cars for Smart People list, we could have snagged a used Prius for $7500 and a Mazda 5 for $6800 back in 2012.
We could have met our transportation needs for $14,300 instead of $50,000! Sure, used cars likely need more maintenance, but an extra $35,700 certainly would have been able to cover that.
We have an intermediate goal of paying off our mortgage as fast as we can, knowing that having zero debt will give us a lot of freedom in how we live our life. With an extra $35,700 today, we’d be about a year and a half closer to paying off our debt.
Worth it? Only your financial compass can decide.
Fancy Diamond Engagement Ring
No, this wasn’t a misstep in that way - we definitely don’t regret getting engaged :)
Back in 2006, I bought a $6,000 engagement ring - a significant portion of my salary that year. It was a beautiful, custom ring from a store with lots of TV commercials and it did the job - she said yes :)
After we got married, however, the ring spent most of its time in a box in our closet. Not wanting the ring to get damaged, my wife just wore her much less-expensive wedding band.
After a few years and a shift in our family mindset toward minimalism, we took a big step earlier this year. We went to a jewelry shop and sold the ring…for $1900.
In the 9 years we had it, the ring lost $4100 in value.
Four thousand dollars could go a long way in supporting the causes we believe in.
The diamond industry has done a great job convincing people that if you really love someone, you’re going to buy a new, big, natural diamond ring worth three months salary.
The reality? They’re wrong and this couple got it right.
There’s nothing wrong with a small ring. There’s nothing wrong with a used ring. There’s nothing wrong with an artificial ring. There’s nothing wrong with a non-diamond ring.
You can have love with or without money. Don’t confuse one as necessary for the other
Wasteful Food & Soda spending
Earlier in our relationship, we spent a significant amount of money eating out and on my soda addiction. All told, we probably spent $5,000 a year (for just the two of us) on eating out and $1000 a year on soda. At more than 10% of my salary, we were wasting a ton of money.
Eating out less could have paid for a yearly vacation. Would you rather have a trip to Mexico or weekly plates plates of nachos?
These days, our family of 5 spends less eating out than what we spent as a couple and my soda addiction has been replaced by a healthier and cheaper option - coffee.
Don’t Live in Financial Regret
I don’t advocate sulking about the mistakes we’ve made. The past is the past and we have no ability to change it.
When we made those mistakes, we weren’t emotionally or intellectually equipped in the way we are now.
We either weren’t aware of the mistakes we were making or we weren’t able to see them as choices going away from our true goals. Each of these missteps was an important learning opportunity in our lives that helped us get where we are today.
These missteps helped us build financial discipline so we can tenaciously pursue our dreams
Whatever your financial mistakes have been, don’t get down about them. Use them to build your knowledge and your financial fortitude so you don’t make the same mistake again.
Finding Steady Financial Footing
If you want to improve your finances, you need to set your financial compass.
If you haven’t already, take some time to chart out what you want your life to look like. Think of your ideal day, your ideal month, and your ideal year.
What would you spend your time on? Who would you spend your time with? What would you accomplish? Who would you help? If you need some inspiration or ideas, check out the first money challenge over on Rockstar Finance.
Once you answer why you want to improve your finances and how you want to live, you’ll find it’s a whole lot easier to decide what to do to aim every step in the right direction.
What are your goals and dreams? What missteps have you made that have slowed your progress on achieving those goals? Has a financial compass saved you from making money mistakes?