I warned you that before Mr. MMM and I met and decided to light ourselves on FIRE (figuratively speaking, of course) we made all the financial mistakes in the book. Lucky for you, earlier today I was scrolling through my mental roladex (do they still exist?) and found the file categorized One of the Dumbest Mistakes Ever. I decided I had to share this story with my readers so I can prove to them that making mistakes is normal, and making big mistakes doesn’t mean you’re financial future is doomed.
Long, long ago in a life that somewhat resembles the one I currently live, I found myself as a single parent to a young child. That period was also marked by the death of my father and supporting my mother, financially. At the time, my parents were living in a home I had purchased as a rental property. However, when I purchased that rental property I was in a stable financial relationship and never expected to be a single parent. Times, they did change. Suddenly, I found myself in an apartment with a child and supporting my mother in my rental property to the tune of $800/mo. Needless to say, I was a little light on savings and even stopped 401(k) contributions for years. During those years, I also decided I needed to buy a second house so that my then very young daughter could have a backyard. Is there a more ridiculous reason than that for buying a second house? I think not. Let’s continue with the story…
Related: The Original Tiny House
Buying A Second House
I found one! It was a modest-sized 1300 SF rancher in the right school district (because I was thinking ahead) with a HUGE backyard. I stretched my budget until it was ready to rip apart. I justified this seriously stupid move by having plenty of money in retirement accounts to cover a catastrophic emergency. My other back up was the ability to move in with my mother in one of the houses and rent the other one out.
My decision was made. I was going to go for it. I planned to “afford” both places by using my annual bonus to subsidize my mother’s living expenses, so I could free up my normal monthly income to cover the new house living expenses. My annual bonus is somewhat reliable, but the amount is not. It was a gamble, but one I could “afford” if I didn’t go on vacations, buy new clothes, or shop at Whole Foods. I would be…house poor. But my daughter was only 1-year old and wouldn’t remember us being house poor. In time, my situation would turn around and my finances would become more fluid. So I rolled the dice and bet it all.
SIDE NOTE: I didn’t want to move into the house my mother was living in, even though it was MY house and I was subsidizing her living expenses.
Reasons for this include, but are not limited to:
-Not wanting to live with my mother as an adult with a child of my own
-Not wanting to move my daughter into a house in a poor school district
-I knew living with my mother would be stressful
-I wanted to “own” more than 1 house (I still do 😉
-I didn’t want to move in and spend all of my extra money on unnecessary improvements my mom might want to have done
This was 2010, so I’m not sure how strict the requirements were yet after the housing crash. I know that my FICO score was and always has been excellent, so thankfully I at least got a great interest rate with my FHA-approved loan. Did I mention PMI? Yeah. P.M.I.
Two days before settlement I was told there was an increase in the estimated costs for closing. The increase was a few hundred more dollars than I had originally planned to pay. Up until that point, I had been ready to close with money I moved into my checking account, based on the estimate. Because of the increase, I had to hurriedly transfer the extra from my savings account into my checking to cover the additional cost.
Settlement day came and I still couldn’t believe I was approved to buy this second house on my single income. I couldn’t check my checking account fast enough; I needed to make sure the extra few hundred dollars posted so I could write the check to close. I arrived. I signed all the papers in a flash. I wrote the check. And I walked out with the keys and $200 left in my cumulative bank accounts. I didn’t miss a zero. I actually meant to type 2-0-0. I had nothing. I had nothing except the money in my retirement accounts and angst in my gut. I knew it was stupid. But I did it anyway. I took a financial gamble.
How did the first year go, you ask. I had to buy a refrigerator on credit. I lived without a washer and dryer. I took my daughter to the beach to see friends and couldn’t afford to stay overnight; we drove 3 hours each way. I lived without cable and all other luxuries. I lived without extra money, period. I mowed my own lawn and did my own maintenance and repairs. Granted, it was a new house so maintenance and repairs were few, but not non-existent. I installed a fence for the backyard and couldn’t afford to have it stained. So, I rented a professional sprayer and did it myself. My finances did become more fluid, but only after a significant raise and super detailed money management, down to the cent.
Turning It Around
Meeting Mr. MMM was a huge relief. We dated for a year before we decided to move in together. He was mobile and so he moved in with me. For the first time since I bought the house 5 years earlier, I had some wiggle room. I could actually think about a vacation. It wasn’t immediate relief though. Mr. MMM had changed careers a few years before we met and now his income was variable and unpredictable. The first year we were together was still rough.
Thankfully, during those early years, I didn’t have a catastrophic event, nor did I need to move in with my mother. These days, we’re on track to pay off the rental home and our primary home within 3 years. Not too shabby for leaving the settlement table with $200 to my name. Naturally, I don’t recommend this route, nor would I do it again. But, for better or worse, it was the route I chose 7 years ago. Slowly but surely things have turned around and now we are super excited to have this small home that is now, dare I say, easily affordable.
So there you have it – yet another past financial disaster that
we I made so you don’t have to 🙂 Tell us your story. Have you made major money missteps in the past? We’d love to hear about them in the comments. Make us feel better!
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