I had no specific goals, either in the short term or the long term.

That’s not to say that Sarah and I never thought about the future – we certainly did. The problem is that it was always in the sense of vague things that would happen “someday” and didn’t require any sort of active response today.

We dreamed of having a house of our own. I had a dream of a different career. We had dreams of having a certain number of children and providing all sorts of wonderful things for them.

Those are certainly great goals to have, but they’re so unspecific that they don’t mean anything. Worst of all, they didn’t require us to do anything today to start moving towards them, which enabled us to keep wandering through life.

A good goal, no matter how big it is, gives you an exact target to shoot for, a way of measuring your progress towards that goal, and the possibility of activity today to move you towards that goal. None of our goals back then had any of these things, which is why they weren’t really goals at all, but pipe dreams.

What woke me up and made me realize that something was wrong with this type of goal-setting was the fact that we were actually moving further and further away from these goals as time went on. As we got more into debt, we moved further away from having a house of our own and further away from my dreams of being a writer. We certainly weren’t doing a good job of financially providing for our son.

As we grew into our late twenties, we began to see that our big “dreams” were slipping away from us. It was a very, very painful time, one that shook us into making some serious changes in our lives.

What changed? One big change is that we started talking about these kinds of things in more detail. What did we both really want from our lives together? What do we need to do to get there? What can we do today to start moving us there? Addressing these questions with seriousness helps you quickly figure out what things you really want from life and whether you’re willing to work hard to have them.

The lack of goals earlier on in our lives cost us dearly. If we had these types of specific goals with specific plans in mind when we graduated from college – or even earlier – I shudder to imagine where we would be at right now.

How can you avoid this trap?

First, set the kind of concrete, tangible goals I describe above. As I said, a good goal gives you an exact target to shoot for, a way of measuring your progress towards that goal, and something you can do today to move towards that goal. If you’re having difficulty coming up with these things, it might be a sign that this isn’t really a key goal in your life (which isn’t a bad thing at all – getting rid of goals that you’re not committed to makes room for the goals you are committed to).

Second, constantly remind yourself of that goal. No day should pass without at least a bit of reflection on what you can do today to move towards the goal – and actual action on that idea. Again, if you’re not willing to take the daily action, it’s time to reflect on whether or not those goals are really in line with what you want out of life.

Finally, be willing to share these goals with others. Support from those most important to you can really make a difference in terms of whether you can achieve the things you dream of. Talk to those people about your goals and how you plan on getting there. Don’t be afraid to ask for help, particularly through the rough spots. It’ll make more difference than you can imagine.

The post Ten Big Mistakes #10: Poor Goal Setting appeared first on The Simple Dollar.

I surrounded myself with friends who constantly encouraged poor financial choices.

Most of my social circle during my early professional years consisted of people who placed a great deal of social worth on consumption. Respect and friendship were doled out based on the elecronics you owned, the clothes you wore, the golf clubs you had, the places you ate at, and so on.

If you showed up to a social event with a new cell phone or a new driver, the gang would gather around you with high-fives and looks of awe and respect and envy for the items you had.

On the flip side, if you had an old cell phone or didn’t wear great clothes or used old golf clubs or hadn’t eaten at the best restaurants, you were gradually excluded from the conversation and, eventually, excluded from the social events as well.

I made a valiant effort for a few years to run with this crowd. I dressed wonderfully. Sarah and I ate at tons of nice restaurants. I had the latest gadgets, including piles of video games. I went out with the gang a few nights a week. The list went on and on.

It was just a giant game of oneupsmanship. Rather than building real relationships based on the realities of our lives, everyone just talked about stuff – and who had the best stuff. Why talk about long term goals when you could brag about your new golf club? Why discuss how to get ahead at work when we could trash talk someone for wearing slightly worn clothing?

In order to stick with this crowd, though, a person had to spend – and keep spending. Every single person in that group was living beyond their personal means. I suspect that some of them had parental help, but I’d be willing to bet all of us had some level of credit card debt.

What happened to this social circle when I finally got some sense about personal finance and realized I was driving my future into the ground? Almost universally, I was dropped from the group. They laughed at the idea of making a meal at home when you could be dropping $100 for a plate at a steakhouse. They stared at my beat-up cell phone. Soon, they stopped calling and inviting me to do anything with them.

Yeah, it hurt. What I realized from the experience, though, is that these people weren’t my friends. They cared about stuff, not about me. They only wanted people around them to reinforce the over-the-top spending decisions they were making.

Think about it this way. It’s a lot easier to spend $3,000 on a handbag if you have a circle of friends that talk reverently about said handbag and will ooh and ahh over it if you buy it, compared to, say, a circle of friends that wonders why on earth you would spend $3,000 on a handbag.

My current circle of friends is much, much different. We get together for regular potluck dinners. We play board games around the kitchen table. We have conversations about life goals and about ways we can maximize our bucks and our time. We share clipped coupons with each other. We laugh together and goof off together.

In short, it’s an environment that supports a healthy flavor of personal finance management. We don’t socially reward over-the-top consumption. Instead, we socially reward insightful discussion, good humor, and good life choices.

Having such a circle makes it so much easier to be in financial control. There is no social expectation of spending. Instead, there is a social expectation of rational use of money and time, of investing for the future and thinking about the future, of exploring the handful of hobbies that are actually important to each of us.

My biggest mistake was not investing the time to find a social circle that matched these values to begin with. Instead, I simply started hanging out with the first people that I had even the smallest interest overlap with and I wound up adopting that group’s values for a while rather than seeking out others that may have matched my own.

How can you avoid this trap?

First, don’t believe you have to change who you are or what you value just to match what your social circle wants. If you’re buying things or doing things that mostly only serve to impress your social circle, it’s a great sign that you’re perhaps not in the right circle of people.

Second, seek new friendships in the right way. Let your own true values and interests lead you to these people. Engage in groups that match the things you want to do – don’t engage in activities just because that’s where you think people are. The bar/club scene come to mind – I’ve met so many people who basically can’t stand going there, but they continue to do so simply out of a desire for social interaction. Broaden your horizons and start seeking people based on what you value, not based on what you think they value.

Finally, don’t hide who you are. This doesn’t mean you have to hang out all of your dirty laundry, but it does mean that you shouldn’t have to hide some significant aspect of what you value or who you are. If you’re in a group that won’t like you because of some aspect of who you are, it’s time to find a different group. If you’re in a group that won’t respect you because you’re goal oriented or in charge of your finances, then it’s time to find new friends.

The post Ten Big Mistakes #9: Bad Influences appeared first on The Simple Dollar.

I treated my credit card as my emergency fund.

In late 2004, the brakes failed (in a nearly catastrophic fashion) on my 1997 Ford F150. For whatever reason, the brake cylinders chose to collapse as I was attempting to stop at a stoplight. I nearly caused a very large accident, but I managed to get stopped after swerving into another lane and running a red light.

The repair bill was pretty significant – about $300 more than I currently had in my checking account. I remember standing there flipping through the four or five credit cards I had at the time, trying to figure out which one had enough available credit to cover that bill.

Personal finance 101 would have kept me out of this situation, but I didn’t have enough sense to have planned a bit for this brake problem. Instead, I believed that having some credit available on a credit card was just as good as an emergency fund.

That’s just horrible, horrible planning. Here’s why.

Let’s say, on average, I have a major emergency that costs $1,000 once a year in my life. A car breaks down. A job is lost. A family member is ill and you need a plane ticket. There are countless emergencies that can happen in life, so I’m just using that $1,000 once a year emergency as an example.

If you sock away $20 a week into a savings account earning 1% interest, you’ll have that $1,000 once a year when you need it. The brakes aren’t a concern, nor is that emergency flight you have to take. Plus, you’ll earn a small amount of interest on that money – $5 to $10.

If you just spend that $20 a week on something unnecessary – and that’s what you will spend it on, because almost everyone has $20 worth of fat in their weekly budget – when the emergency comes, you’re putting that $1,000 on a credit card. At that point, you’re now making $80 a month payments on that credit card instead of socking it away. Even worse, you’re paying 20% interest or so on that credit card, meaning that over the course of the year, you’ll have to make two or three extra $80 payments just to cover the interest. And while you’re making those $80 payments, you’re not socking away $20 a week for the next emergency, so when that next one hits, you repeat the cycle. You’re giving away $200 a year to the credit card companies and forgoing some savings account interest as well.

We’re not even talking about the extra risks of relying on credit cards. What happens if the emergency hits and you’ve already got a hefty balance on your cards? What if the bank lowers your credit limit and then suddenly your transmission falls apart?

None of these risks – and countless others – apply if you simply have a cash emergency fund.0

My first mistake was not having a cash emergency fund, of course. This put me up for all kinds of risks, ones that came to a head with my own financial meltdown in early 2006 when I could no longer pay my bills.

The second mistake, tied directly into this mess, was carrying a balance on my credit cards. Credit cards are a great tool, but they’re really only useful if you don’t carry a balance forward from month to month on them. If you start carrying a balance, you’re going to pay dearly for that balance in the form of very, very high interest rates.

Add the two together and you’re running on pure borrowed time, hoping that you don’t ever have more than one or two emergencies at once. Because when that happens, you’re going to find yourself in a bad place, with damaged credit, banks harassing you for their money, and a big helping of added stress in your life.

How can you avoid this trap?

The answers are really found in the mistakes I mentioned above.

First, don’t carry a credit card balance. I think credit cards are a fine tool to have if you can use them responsibly, and responsible credit card use means never carrying a balance. How do you do that? Never put anything on that card that you don’t have the money in your checking or savings account to cover.

Second, start building a cash emergency fund. The easiest way to do that is to set up an automatic savings plan. Open a savings account at a particular bank of your choice, then set up an automatic transfer from your checking account to that savings account. $20 a week is a healthy place to start because after a year, you’ll have $1,040 in your account (plus some more thanks to interest). Use that cash when something unexpected gobsmacks you.

The biggest thing, though, is to recognize that emergencies happen – and they happen more often than most people think. Our minds do a fantastic job of making our crazy disorderly lives seem pleasant and ordered. The biggest crisis in the world seems like nothing more than a speed bump after a little bit of time. Allowing yourself to be comforted by this and thus using that comfort as a reason not to build an emergency fund is one of the biggest personal finance mistakes that people make.

The post Ten Big Mistakes #8: Credit Card as Emergency Fund appeared first on The Simple Dollar.

I bought many expensive (and inexpensive) items without adequate time to enjoy them.

One of the most cathartic things I did in the immediate aftermath of the choice to turn my financial life around was to simply go through our apartment in order to collect stuff to sell in order to give a big initial boost to our debt repayment.

What shocked me wasn’t so much the amount of accumulated stuff, but the amount of stuff that I owned that I had invested virtually no time or energy in. Piles of unplayed video games, some still in shrink wrap. Mountains of nearly-new paperbacks, many with just some sunlight exposure, most of them unread or barely-started. Piles of CDs listened to maybe once or twice. Multiple sets of golf clubs – and piles of golf balls. A large trading card collection and a large vintage baseball card collection, neither of which had been touched in years. A closet full of nearly-new clothes. Pieces of computer hardware uninstalled.

Simply put, there were tons of things that I had purchased and barely used. Why? I had so many things that I could be using that I didn’t have nearly enough time for them all.

Obviously, my situation is a bit extreme, but over the last few years, I’ve been repeatedly shocked to find how many of my friends and family members have done similar things on a much smaller scale. Unused exercise equipment. Unused DVDs. Barely-worn clothes jammed in the back of an overstuffed closet. Video game consoles played for about five hours and then stuck into a closet. One friend had a never-used Dyson vacuum cleaner in the closet that had been sitting there for more than a year.

These experiences reveal several very vital personal finance mistakes.

First, I used shopping as a substitute for actual entertainment and other experiences. Instead of enjoying the things I already had, I devoted time and energy into the acquisition of more things. A much more worthwhile use of that energy would have simply been directed towards enjoying the already-acquired items.

Second, those purchased items, left unused, are an incredible waste of an investment. As soon as most of the items were purchased, they became much less valuable, passing from “new” to “used” in terms of resale value. They then sat around for a long time, doing nothing more than taking up space, not even repaying some of their value in terms of the entertainment or joy they could provide. Even if I had just mindlessly bought a new game when I defeated the previous one or bought a new book when I finished the one I was on or bought a new CD when I had listened to the one I previously purchased a few times or bought a new DVD when I watched the last one I bought, I would have been in much better financial shape. This doesn’t even touch on the fact that I would have been even better off wisely using rental strategies and other techniques to still get all the enjoyment I would ever want with even less financial investment.

Finally, the clutter of unused stuff takes up time, space, and energy. How do you keep 500 DVDs organized? It’s much, much easier to keep ten organized. It takes less time and space. It takes less maintenance to dust them and keep them clean and presentable. The same is true for everything else in your home. The more you have of something, the more time it takes to maintain it – and the more it costs to maintain it, too.

What can you do to avoid this trap?

The first step is to get your shopping habits under control. Eliminate the purchases you’re making that don’t directly address needs. If you’re buying something that you’re not going to go home and use immediately, reconsider the purchase. Consider instituting a “one in, one out” policy for your non-essential items. In other words, if you buy something new, you have to swap out or sell something old to make room for it.

The second step is to seek out less expensive sources for the things that you do actually buy that fulfill needs and direct wants. If you’re a movie fanatic that buys four DVDs a week, subscribe to Netflix instead. If you’re an avid reader, hit the library to get your new release fix. If you’re a gamer, join GameFly. If you like music, use services like Pandora. Join community groups that focus on your particular hobby. Look for online groups that seek out bargains in your area of interest.

The next step? Thoroughly use items you acquire before you move on to another one. If you pick up a book, read it (or at least give it a fair shot) before getting another one. Even better, get rid of the items that you won’t pick up again. Make your collections consist of the ones that you truly love and intend to revisit with some frequency in the future.

Doing this for the things you accumulate will make a tremendous difference in your financial state as well as the space, time, and energy you have to devote solely to maintain your stuff.

The post Ten Big Mistakes #7: Stuff Without the Time to Enjoy It appeared first on The Simple Dollar.

I had a child without understanding the financial consequences of it.

When I was in college, one of my closest friends was a young woman whose parents had conceived her at pretty much the last possible moment from a biological standpoint. While she had a great relationship with her parents, I couldn’t help but see that she would be facing end-of-life issues with them at a much earlier point than I would be. Her parents wouldn’t be able to be involved grandparents. They wouldn’t be around to provide support to her during her early stages of adulthood and she’d be faced with helping them through their final years before she even had her own life completely in order.

Sarah and I decided, based on our experience with this friend, to have our children when we were young and to be completely finished with children by age thirty five.

We stuck with this plan, too. Eighteen months after getting married, Sarah was pregnant. Nine months later, we’re holding a baby boy. One that, unfortunately, we were completely unprepared for in a lot of ways.

First of all, our spending was completely out of control at that point. We spent $500 on a crib for the baby. We purchased almost every item you could imagine on the runup to his arrival, including lots of things that we never used. Huge piles of receiving blankets. Bottle warmers. Countless other frivolous things.

The real disaster, though, was our inability to forecast the big increase in weekly expenses. Daycare was a sledgehammer, adding $200 a week to our expenses. Add in diapers, some formula for supplementation, the cost of washing clothes and the cost of buying new clothes every few months or so as he outgrew them, and we found ourselves quickly in the hurt locker.

This situation was made even worse by the fact that we didn’t fully adjust our spending to account for this. Naturally, we ate at home more and we went out less, but even with those savings, we didn’t make up for the financial bomb that having a baby dropped on us.

Why did this happen? We simply didn’t think ahead. At the time of our decision to have a baby, we simply didn’t have the financial maturity to make it work. Rather than seeing the future arrival of our baby as a motivation for getting our financial house in order, we looked at it as merely another excuse to spend money on stuff we really didn’t need.

Children are more than that. Children deserve more than that. They come into the world helpless, reliant on your good judgment and ability to ensure that they’re safe and well cared for. If you’re caught up in other things and unwilling to put forth the effort to make your life stable, you’re not only putting your situation at risk, you’re putting that child’s situation at risk as well.

It was, in the end, my child that pushed me to begin my financial turnaround. I only wish I had made that revelation a year or two earlier.

What can you do to avoid this trap?

The first – and most obvious – choice is to think seriously about having children – and ask yourself seriously if now is the right time to have them. The choice to have children is not an easy one and shouldn’t be taken lightly, nor is the decision of when to have children. Spend some time seriously thinking about the costs – in terms of money, energy, time, and other factors – and whether or not the costs truly are outweighed by the benefits in your situation.

Second, plan ahead for children – and start that planning now if you think there is any chance of having them in a reasonable future timeframe. The sooner you begin to get your own financial house in order, the easier the arrival of children later in your life will be. Get an emergency fund started. Pay down your debts with a particular focus on maximizing your monthly cash flow (meaning pay off the smallest debts first). Invest your energy in building a sustainable career.

Third, use realistic, low-cost solutions for your child. Buy their clothes from consignment shops and Goodwill stores (that’s where we shop now for our children’s clothes for our four year old, two year old, and baby). Use cloth diapers. Buy a reasonable crib for the baby to sleep in. If at all possible, breastfeed and pump instead of relying on formula.

The post Ten Big Mistakes #6: Children Have Huge Financial Ramifications appeared first on The Simple Dollar.

I focused entirely too much on what other people thought of me.

Throughout my teen years and adult life, I bought many, many things with an eye almost exclusively on what others thought of me. My clothes. My education and career choices. My gadgets. My housing. My automobile. My golf clubs. My meals.

I believed that somehow I could create a more positive image of me through others by buying things or doing things that they approved of. If I lived in the right home, I thought others might think of me as successful or as a family-oriented person. If I owned the right gadgets, people might see me as tech savvy and affluent. If I spend money in front of people from my home town, they might see me as some sort of great success.

All of it was a gigantic waste of money.

The only people that put any stock in such frivolous things are the people that know you only in the most tenuous of fashions because that’s all they know about you. If you’re going to build any sort of relationship with someone, it’s going to be based on who you are, not what kind of stuff you own. If there are people out there who genuinely believe things like, “I won’t be friends with someone who doesn’t have a $3,000 golf club or a $750,000 home,” then their values are so warped and misplaced that you will never be able to please them. Don’t bother.

That’s not to say it isn’t worthwhile to think about others, but most people make up their mind about you based on other things. Are you kind to others? Do you engage them politely? Do you listen to what they say? Are you clean and not offensive to others? If you want to build a strong social network, those are the things to focus on, and those things don’t require an outlay of money.

This isn’t a call to ultra-frugality, either. Spend money on what you value, not what other people value. I buy automobiles based on reliability and gas mileage and safety, not how they look in our driveway or whether the neighbor will be impressed. If I want to build an actual relationship with my neighbor, I’ll go over there and say hello, not buy a car to impress. If I don’t want to build a relationship with my neighbor, why would I possibly care at all what he or she thinks of my car? Now, if I really got a lot of very personal value out of a luxury car purchase, I might choose to purchase one, but that’s not where my values lie. Neither side of that decision has anything to do with my neighbor.

“But what about your reputation?” Most of the things that can be said about you that can really hurt you or build a positive reputation about you are based on the actions you take, not on the stuff you own. You can own all of the nice cars and homes and boats you want, but if you hit your spouse, people won’t like you. You can live in a shack, but if you spend countless hours building a great community softball league (and keep yourself clean and somewhat presentable), people will love you. You can own a BMW and wear a $3,000 suit, but if you’re rude to your neighbors, they’ll help you build a bad reputation. You can drive a used Toyota and wear $2 Goodwill pants, but if you’re willing to lend a hand to help your neighbor re-shingle their roof, they’ll speak positively about you in the community.

What can you do to avoid this trap?

To put it simply, don’t waste a single, solitary dime on a purchase meant to impress others. Such purchases don’t pay off because they don’t improve who you are. Focus instead on building you into a great, friendly, happy person – and most of the methods of doing that don’t cost a dime.

Instead, spend your energies actually building real relationships with people. Instead of spending two hours picking the “perfect” handbag to drive the other women crazy with envy or spending three hours at the golf store trying to pick out the driver that will let you dominate the boys, spend that time helping out a neighbor, connecting deeply with someone important to you, or working on some project that will make your life less stressful or improve your life quality (which will make further interactions much easier and much more positive).

Stuff doesn’t make a person.

The post Ten Big Mistakes #5: Worrying About What Others Think appeared first on The Simple Dollar.

I blamed others for the challenges in my life.

If you want to find scapegoats in your life, almost everyone can find a lot of them.

I was born with legal blindness in my right eye, deafness in my left ear, and a nonfunctional thyroid. I spent much of my childhood with various sorts of surgeries, surgical recoveries, and illnesses, leading me to less cultural and social exposure than I might have otherwise had. I spent much of that illness time reading, so I skated through most of secondary school without learning any study habits, which made college rather challenging at times. I chose not to follow my dream career path in order to earn more money.

All of these things would be extremely easy to change into an excuse for not doing the best that I could do. For example: My childhood doctors exacerbated my health problems. My parents didn’t expose me to any sort of culture. My advisors in high school pointed me down a career path I should not have followed. My teachers didn’t teach me any study skills. My bosses created a work situation that I was unhappy with and ate up my time and energy so that I couldn’t follow my dreams or ideas.

Guess what? In every single case above, I was the key to solving the problem.

I spent an awful lot of time in my life blaming others for the fact that my good life wasn’t better than it already was. All that did was give me an easy excuse to not work my tail off to overcome the obstacles in front of me.

Take my medical conditions, for example. My lack of hearing in my left ear is the result of having a completely destroyed inner ear – there’s literally no bone structure in there. Sometimes, in social situations, I simply cannot hear people sitting on my left. For the longest time, I would dole out blame for that – it’s their fault for not talking louder, it’s my doctor’s fault for not diagnosing my ear problems.

All those excuses are is a crutch to excuse me from solving the problem myself.

Today, if I want to participate in a conversation, I make a point to try to sit on the left side of that person. If I can’t hear what’s being said, I don’t blame the other person for speaking softly – I ask them to repeat it. If it’s in a noisy room, I apologize and simply say, “I’m sorry I can’t hear you. My hearing isn’t so good. Could we go over here where it’s quieter? I’m interested in hearing what you’re saying.” Guess what? Almost everyone I’ve ever met will happily accomodate these things.

Even more important, it’s not their responsibility to know that I can’t hear them. It’s my responsibility to make sure that I can hear them.

Let’s look at my teachers, for another example. In high school, I rarely had to put forth any effort at all. When I reached college and faced some of the more difficult classes, I was in trouble. I had no real idea how to study.

At that time, rather than simply saying, “I’ve got to learn how to study,” I would mostly just say things like, “No one ever taught me how to study.” I’d beg for grades and try to make an excuse out of my situation. Sometimes it would work – usually, it did not. I struggled mightily during my second and third years in college, permanently damaging my collegiate GPA. During my final years in college, especially my final one, I actually learned how to study and made dean’s list with a very difficult courseload. Yet, I still wanted to blame others for my poor GPA. It must have been the fault of my teachers.

Over and over again, my willingness to blame others for the challenges in my life delayed creating solutions to those problems. That blaming enabled me to keep on making the same mistakes as before and keep on repeating the actions that led to the things I was unhappy about to begin with.

What can you do to avoid this trap?

Here’s the real truth of the matter. No matter how unfair the situation, you are the solution. Using the cause of the problem as an excuse not to solve the problem doesn’t cut it. In fact, it usually just prolongs the problem and makes it worse.

Whenever things are not going the way you want in your life, ask yourself what you can do to make the situation better or change the context of the situation so that the problem isn’t as devastating. If you’re overweight, don’t blame the food companies and keep eating unhealthy stuff. Take action to toss out the unhealthy stuff and replace it with vegetables and fruits.

Whenever you hear yourself blaming someone or something else for a problem, stop. Blaming others for your problems is an incredibly pernicious habit. Yes, there are bad things in life. There are bad things in everyone’s life. The people that succeed are the people that don’t waste their time looking for someone or something to blame, but instead look to themselves for a solution to the problem.

The post Ten Big Mistakes #4: Blaming Others for Challenges appeared first on The Simple Dollar.

I spent more than I earned and made up for the difference with credit cards.

It started in college. The bookstore offered a discount on textbooks if you signed up for a card. I signed up. Later, I used that card to buy video games, starting with The Ocarina of Time.

When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.

Next came our honeymoon, a year later. I financed most of our honeymoon to London, Edinburgh, and Inverness on a credit card, nearly reaching the credit limit on that card.

When we returned, we furnished our new apartment with a new card. I bought some golf clubs and a bunch of electronics. I began to settle into a routine of buying books every week.

I remember buying a $500 crib for my son on credit in late 2005, going home, and attempting to pay bills. There was less than $500 in my checking account then and I really didn’t think anything of it until later on. I just kept rolling on.

The end result? By April 2006, I had accumulated around $20,000 in credit card debt. The monthly payments on that debt were actually higher than our rent. When you add car payments and student loan payments on top of that (as well as all the regular bills), we simply did not have enough money to continue to make ends meet.

The tricky part about this mistake is that it was actually just a series of small mistakes that I didn’t bother to fix. Every time I used credit to pay for something I couldn’t afford, I could have just said no. Every time I went through with buying something unnecessary, I could have been more frugal in other areas of my life and just paid for that indiscretion.

I didn’t do either one. Instead, I kept buying things that I couldn’t really afford. As the debt built up, I found that I could actually afford less and less because of the growing monthly bills, but it didn’t keep me from racking up more debt.

Why did I buy? There was a mix of things going on. Poor impulse control. Career-related anxieties. Lots of stress. All of these things were solvable on their own and buying things I couldn’t afford was merely a short-term salve for them. It was easy to forget that pain if I could go home and read a new book or play a new game for a while.

What can you do to avoid this trap?

The solution is simple: never, ever put a balance on a credit card that you can’t already afford to pay at the end of the month. The moment you do that is the moment you’re financing a lifestyle that’s beyond your means.

If you’re already in a situation where you’ve built up a large deal of consumer debt, start getting rid of it now. Yes, this means you’ll have to live quite a bit below your means for a while. The first place to start is by selling off all of the stuff in your closets and on your shelves that you never look at or use. If you have a CD or a DVD or a video game or another item that you’ve not looked at in more than a year, sell it. Use that money to hammer the debt. When you’ve done that, focus on minimizing your monthly spending – here are 100 such tactics – and roll the money you’re saving into a debt repayment plan.

Finally, deal with the other problems of your life head-on. Start wiping away the stress and the concerns. Focus on fixing broken relationships and moving on from ones that can’t be repaired. Deal directly with the things that are bothering you. Seek professional help if you cannot. Eliminate the stress and clear your mind to make better decisions with the resources you have.

Just remember that you can do this – and don’t beat yourself up over every mistake. Success isn’t perfect and it doesn’t come in an afternoon.

The post Ten Big Mistakes #3: Lifestyle Funded by Credit Cards appeared first on The Simple Dollar.

I chose a career path for the money instead of one that matched my passions and skills.

During my high school years, I felt fairly certain what I wanted to do with my life. I wanted to be writer, preferably a science fiction writer. I was absolutely enamored with the novels of Kim Stanley Robinson, Robert Heinlein, Philip K. Dick, Samuel Delany, and countless others who made a life out of meshing scientific progress with imagination. I dreamed of going to college, majoring in English literature, and minoring in mathematics and another science or two.

My high school English teacher encouraged this dream. Virtually everyone else looked at me as though I walked out of the insane asylum. They pointed to the low average income of an English teacher. They told me that was a waste of a perfectly good mind.

In short, I was convinced by everyone around me that the measure of a person’s worth and intelligence was how much they managed to earn.

By the time I actually went to college, I settled on a life sciences major, which led me to at least some lucrative opportunities. As time went on, I added computer science as well because I showed a knack for computer programming.

In short, because of the incessant drumbeat I heard for money, I chose an educational and career path that I knew directed me away from my passions. I did have some degree of talent, especially in the computer science classrooms, but I wouldn’t spend my odd hours writing code. I would spend my odd hours reading and writing, both fiction and non-fiction.

I did get a good-paying job out of college, but as that job became more and more consuming, I felt my life dreams of writing slipping further and further away. I slid into something of a personal malaise because I wasn’t chasing my big dreams any more. I tried very hard to put a bandage on that with material things.

Putting a bandage of material things on top of a personal wound doesn’t help in the long run.

What I wound up doing is spending an awful lot of my free time for years channeling my energy into what I felt was fruitless writing because the act of writing felt good to me. I’d share my writings, watch them fail, and become convinced that by my career choice – seeking the better paying job – I’d lost my chance to follow my real dream. That’d just make the malaise – and the spending – worse.

The long term effects of this showed up in my career and in my finances. I began to feel very burnt out on my actual career. At the same time, I would try to cure this feeling of failure and burning out by buying stuff that I didn’t really need or didn’t have time to really enjoy. This brought me deeper and deeper into credit card debt and deeper and deeper into a sense that I couldn’t escape.

The solutions were right in front of me, but I didn’t see them.

First of all, I could have just majored in what I wanted to in college. Yes, this might have meant foregoing income, but it would have also meant following my passions and dreams instead of walking away from them. Alternately, I could have double-majored in a way that allowed me to follow my dream and still follow a lucrative path, too, if the dream didn’t work out.

Later, I could have focused on actually trying to launch writing as a side career instead of just writing aimlessly and somehow stumbling onto the success of The Simple Dollar. I started The Simple Dollar not as some sort of aim of finding a new career, but because I loved to write and I knew I was going through the same financial issues that a lot of people my age were going through. My target audience at first was, quite literally, my friends who were also struggling financially. I stumbled into this, period, and it took me many years of wandering for it to happen. Putting some aim into that dream would have made all the difference.

I didn’t do either of these. The only reason I’m writing for a living right now is pure, simple luck, albeit luck that had a place to sprout because I actually was attempting to write in some fashion.

The real lesson here is that happiness doesn’t come from money. As long as your basic needs are met, additional money does not bring happiness. It brings some material luxuries, but it also usually brings additional problems, too. The only way additional money helps is if you use it wisely, enabling you to … well, frankly, chase those dreams and passions you have.

What can you do to avoid this trap?

If you have a dream so strong that you stay up all night involved with it, give chase to that dream. Passion like that makes up for a lot of ground in other areas, because so many people out there are just clocking their nine-to-five with little real passion at all. A lot of people get by on skill or on the fact that their job mostly just needs a warm body that can follow instructions. The people that succeed, though, are the ones that mix passion with a little natural talent – but the passion and the time are the biggest elements (just ask Malcolm Gladwell). This doesn’t necessarily mean you have to throw ambitions for a high-income career away – double major and balance the two, or get a degree in a profitable area, live lean for a while, then go back to school to focus on the less-profitable passion. Or, better yet, just try to get your foot in the door without the degree (if you can). Money will come to you because passion is one of the few things worth paying for in life.

If you’re already in a career that’s taking you away from your passion, spend your free time chasing that passion with all your… passsion! Toss off as many of your extra activities as you can and focus your energies in your free time on making a go of that passion. It might require taking classes or it might require just “woodshedding” for a while (in other words, practicing a skill you love until you’ve acquired a high degree of proficiency). Don’t abandon that dream just because the circumstances of your life aren’t helping you with it. Instead, create a flowerbed upon which it can grow, a flowerbed created out of the excess time and energy in your life when you’re not working at that job.

The post Ten Big Mistakes #2: Career Choices Based Solely on Earnings appeared first on The Simple Dollar.

I financed an unnecesary lifestyle in college with extra student loans.

My first few years in college were supported by a collection of scholarships that covered my tuition, room, and board. However, it was up to me to come up with the means of supporting myself over my final two years in school. As is the case for a lot of college students, that meant student loans.

Up to the start of that first “loan year,” I was very conservative with my money in college (for the most part). I had lived in the dorms most of the time and also spent a year living in an apartment with several other people, which reduced the rent for each of us down to a pittance.

So, when it came time to take out student loans for that first year, I took the advice of my financial aid adviser and did the calculations to see how much money I would need to live for that coming year. The number I came up with was pleasantly small and so I felt confident that I would be able to survive on the tiny living stipend I expected from my loan.

What surprised me was that one could easily take out a much larger stipend than I could ever possibly need. The financial aid office allowed me to apply for a loan that gave me a living stipend somewhere around five times what I actually needed to live on, which escalated the total of my student loan for that year by more than $10,000.

I thought about all the stuff I had done without over my years in college. I’d lived in some awful places. I’d held back on buying a lot of things that I wanted. And here, I thought, the college was practically giving me a bunch of money to do with what I pleased. I could have that stuff – I didn’t need to live hand-to-mouth any more.

So I took it all. I took out the maximum possible loan both years, adding somewhere around $25,000 to my total student loan bill.

The consequences of that were painful. My repayment period was ten years and the interest rate on the debt was around 7%, so my extra money alone caused me to have an extra $300 month payment every single month for the next ten years.

When you’re freshly out of college with your first post-college job (meaning that it’s fairly low salary) and considering marriage, an extra $300 per month out of your monthly cash flow quite simply hurts.

The long-term effects of this debt were painful. That unnecessary $300 a month coming out of my take-home pay meant that I was trying to do all of the things I wanted to do with even less money to work with. I was left with a choice of living fairly lean or to make a financial mistake that would compound this one, take out more debt to continue an expensive lifestyle (and I’ll discuss this mistake later on).

I really was offered two great solutions to fix this problem – and I failed to take on either of them.

First, I could have kept my spending within what I was used to in college. I could have taken out a much smaller living stipend when I was there and gotten by doing all of my shopping at Goodwill and Fareway. This would have worked just fine, as it took care of all of my actual needs as a college student.

Later, I could have kept my post-graduation spending in check and paid down that student loan debt. Again, this would not have impacted taking care of my needs or even many of my wants – after all, I did have a good full-time job. I could have easily become more picky about my clothes and my food and bought many other things that clearly fall under “want” instead of “need.”

In both cases, I chose to spend that money with reckless abandon, which eventually brought me to the brink of financial ruin.

What can you do to avoid this trap?

If you’re a student, take out the minimum amount you’ll possibly need on your student loans. Don’t be afraid to shop for clothes at Goodwill or buy your groceries at the low-end grocery store. Get your entertainment fix by participating in on-campus events and community events. Focus on the relationships you build, not the specific things you do or the stuff you accumulate.

If you’re out of school, focus on debt freedom as a very early goal in your life. Cash flow is so important with regards to achieving your goals and having a big monthly debt payment just clogs up opportunities. Pay it down as quickly as you can, even if it means delaying some of your goals. Your ability to easily achieve those goals will be amped up incredibly high through freedom from debt.

The post Ten Big Mistakes #1: Student Loans as Lifestyle Support appeared first on The Simple Dollar.