In a single year, I got divorced and lost over half of my household income. I also was forced to take a job with a measly salary and found myself paying out of pocket for remodeling fees for my house in order to put it on the market and cash out my over $40,000 in equity. However, during this very difficult year, I found myself flirting with financial disaster at several points, and had to make a pointed effort to stop it. If you are like me, you might find yourself flirting with financial disaster, desperate for a way out. That is, until I figured out what it was really costing me, and began digging my way out.
#1: I was paying late fees and juggling bills…and it was costing me.
I have never been an advocate of living paycheck to paycheck, but I found myself there as I was working on rebuilding my life and in my income. Despite the fact that I knew the steps to take to generate more personal income, I found myself lacking the time (and the will to do it). So I found myself letting bills slip through the cracks and when I did the math, discovered that I was losing over $200 a month in late fees.
How I fixed it: That was enough motivation for me to begin boosting my income again. I took on blogging and consulting work to help me get caught up and stay ahead, saving me over $200 a month, while earning over $6,000 a month in the process.
#2: I was robbing Peter to pay Paul
I found myself regularly juggling credit card payments, using one card to cover another or even to cover my bills. At 24 percent APR, that was not a smart move on my part, and I was hamstringing myself from getting ahead.
How I fixed it: Using my supplemental income, I made sure to pay more on my cards than the minimum balance, until (eventually) I was at ground zero on my statements. Eliminating the fees and interest for
#3: I stopped saving
A longtime advocate of having a savings account, I found myself so over extended that I had to clear out what little I had just to cover expenses for a while, and this did not feel good at all. For a year, I wasn’t able to save a single cent, setting me backwards on my financial goals.
How I fixed it: I chopped as many of my expenses as possible, until I got myself down to only needing $2,000 a month to cover my bills. From here, I set up an automatic draft each pay day to take out 20 percent of my check off the top. If I didn’t see it, I wasn’t going to spend it, and I forced myself back into good saving habits. In addition, I began depositing over 30 percent of my supplemental income into a high yield savings account, which I then rolled over into an ever higher yield CD.
#4: I cashed out my 401k
For me, this was an all time low. I had over $4,000 I had saved in a 401k plan over the course of a year, and when I cashed it out, I took a $1,000 hit on it, but I needed the liquid funds to pay for the repairs to my house. The way I saw it, spending $4,000 to cash out over $40,000 (which I am planning to re-invest) was a small price to pay, but it still wasn’t the best move on my part.
What I’m doing about it: Once my house sells and I cash out my equity, I am using the remaining funds to invest in real estate, netting (from what I have personally witnessed) a 30 percent return year over year. This way, I can fund an early retirement as well as create a stream of passive income that will outlive me.
Yes, it was a rough year and I certainly made my share of financial mistakes while trying to get ahead, but I learned that if you leverage your skillset, don’t rely on a job to fund your life and begin building a business of your own, the monetary sky is truly the limit and you are much more apt to set yourself up for financial success now and in the future, as long as you are willing to own up to your mistakes of the past.
More from this Contributor:
First Person: My 5 Year Retirement Plan
How I Monetize (Almost) My Entire Life
How I Stumbled on Four Prong Money Making Magnet