Ah, April Fool’s Day. Such a special day at Get Rich Slowly. Every year, I share a story of my own foolishness with money. And there are so many stories to choose from! Stories like The $1500 Frisbee and How to Turn $500 Into $7 the Hard Way. This year’s story is about my love for computers.
When I graduated from college and went to work for the family box company, I had no concept of setting financial goals or saving for the future. I spent each paycheck as it came in — and more. I liked the idea, though, of investing my money. In my naive little mind, I imagined that the stock market made people rich.
So, when my cousin Nick — who is five years older than I am — took the time to explain what he was doing with his money, I did my best to listen. (I didn’t listen well, though, and didn’t really understand what he was saying.)
Nick told me about mutual funds, pools of stocks and bonds that made it easy for small investors to own a lot of companies at once. He told me that he was investing his money with a company called Invesco, buying funds of medical stocks and technology stocks. “I’ll do that, too,” I said.
Investing made stupid
This was back in 1992. I had the beginnings of a credit-card problem (about $12,000 in debt), no savings, and was making $30,000 a year. I was also spending more than I earned. To find the initial contribution to my mutual funds I had to — no joke — take a cash advance on my credit cards. It never even occurred to the 23-year-old J.D. that he was paying roughly 20% to chase uncertain returns in the stock market. This just seemed like the thing to do.
I sent in my $1,000 initial deposit, and then signed up for $50 automatic monthly contributions.
Sometime soon after, my Apple Macintosh SE died. I can’t remember why, but I know that I was convinced I needed a computer, so I did the only thing I could. Because my credit cards were maxed out, I cashed out my mutual funds to get the cash I needed to buy a Macintosh Classic II. (Kris contributed half of the funds, which she simply pulled from her ample savings.)
Looking back, I weep at how stupid I was. But there was plenty more to come.
How not to spend a windfall
My father died on 21 July 1995, ten days shy of his fiftieth birthday. When he died, he left each of his sons $5,000 in life insurance and 10% of the box factory.
By this time, my credit-card debt had grown to just over $20,000. If I’d been smart, I would have taken the life-insurance proceeds and used them to immediately pay off $5,000 in debt. But I wasn’t smart. I’m sure you can guess what I did.
I used $1,000 to pay off debt (and patted myself on the back for it), but took the rest to purchase a Macintosh Performa 640CD DOS-compatible personal computer. The machine was awesome. And expensive. And because it ran both Windows and Mac OS, that meant I spent twice as much money on computer programs.
My father had gone to a lot of trouble to set aside a bit of life insurance for us (he didn’t obtain the policy until after he discovered he had cancer). He wanted to give each of us a little boost so that we wouldn’t make the same mistakes he had. It was a nice idea, but it didn’t work.
Cash is king
I could go on and on, of course. For instance, after I’d cut up my credit cards in order to avoid new debt, I still found a way to buy a new computer on credit. I applied for a consumer loan directly from Apple, which gladly gave me the rope to hang myself. In 2003, I borrowed $3,000 to buy a brand new Power Macintosh G5 tower.
But eventually, as I started my financial turnaround, I learned to resist the lure of the money-saving gadget. In fact, when Apple first released the iPhone, I was in full debt repayment mode. As much as I wanted one, I resisted. It wasn’t until I’d paid off the last of my consumer debt that I finally gave in. But when I bought the phone, I paid cash.
Now, of course, the Apple iPad is just days away from launch. And yes, I’ve ordered one to be delivered to my door on Saturday morning. Is this just as stupid as all of my other tech purchases? Perhaps. But there’s one key difference. This time, instead of cashing out my mutual funds or using a windfall to fund my purchase, I’m using money I’ve put in my savings account for this very purpose.
It may be that I’m paying a penalty for being an early adopter, but one thing’s for certain: Because I no longer finance these sorts of purchases on credit, there’s no compounding on my stupidity. What I pay is what I pay. Now if only I could learn to be satisfied with last year’s model…
Okay, it’s your turn. I know I’m not the only April fool out there. Tell us about the stupid things you’ve done with money. What’d it cost you. What’d you learn? How you turn things around?