PeerFinance101 is about helping each other out with personal finances. From peer lending to sharing stories about managing debt, investing and anything related to meeting your financial goals. That’s why I’m excited about our first PeerStory.
Every week, I am going to post the story of one of our readers. Read the PeerStories and you’ll see that your own personal finance challenges are not so unique but you might just find some unique ways of dealing with them.
Our first story is from a long-time friend from college. Debbie moved out to the west coast to work in publishing after we graduated from Iowa State University. She faced an expensive lifestyle but it didn’t take long to get on the right track and now she’s done extremely well by most counts.
But I’ll let her finish the story.
Debbie’s PeerStory: Growing up Financially Naïve and Where it Led Me
Debbie: I can totally relate to you talking about the financial equivalent of yo-yo dieting. After we graduated from college, I got a good job as a production assistant in Los Angeles. It wasn’t my dream job but I could see the path towards the career I wanted.
The money was ok, but life on the west coast is expensive and I wasn’t quite making ends meet. One of my biggest goals was to buy my own house by the time I turned 30 years old but I wasn’t getting there. I started budgets constantly, sometimes two or three times a year, but never lasted more than a month.
Going into my mid-20s¸I still had about $20,000 in student loan debt and was building a respectable mountain of credit card debt. The wake-up was when I checked my credit score one day. I had never been late on a payment but because of all the debt, I only had a 660 FICO score. Talking with banker friends, I knew it wouldn’t be good enough to get a loan on a house. (Houses in L.A. are crazy expensive!)
If I ever wanted to buy a house, I needed to work things out. I hadn’t even saved any money yet for a down payment!
Making a Commitment and Enlisting Others to Help
Knowing my track record for budgeting, I enlisted the help of a close girl friend. I had always thought she was doing really well financially but was actually kind of surprised that she was in the same situation I was. We wanted to get to pretty much the same place so we decided to help each other out with our budgets.
We dedicated a whole Saturday morning for working through our budgets. I decided to cut my budget down to the bare bones and stick with it for two months. If I could stick with it then I would add a little extra back every couple of months. It was tough and there were times that I really wanted to splurge but my friend was great about helping me keep on track. I mean, I was living on nothing practically. No cable, no eating out.
After six months, even after adding a few back a few goodies at two and four months, I was still keeping to my budget. Even better, I was still about 25% below what I was spending before I started and really didn’t miss a lot of the stuff that I used to buy.
I managed to pay off all my student debt and credit cards in a little over two years and my credit score jumped. Nine years later and I have my house and a ton of equity from making payments and not falling into the trap of refinancing whenever banks say is a good time.
I want to thank Debbie for our first great PeerStory and some great personal finance lessons. I plan on trying to do these each week so please write in with your own story of personal finance challenges. It can be about a specific topic or about finances in general. You don’t even need to have worked through it. I’ll post it on the blog and people can comment on how you can overcome your personal finance challenges.
Things I learned from Debbie’s PeerStory:
- I love the idea of a financial support system and recommend it to everyone I meet. Most of us go through similar financial challenges and no one should be ashamed of talking about finances with someone else. Your friends are there to help and they will be more than happy to lend an ear.
- Set goals for keeping your budget. I like Debbie’s reward-based idea of treating herself to a little extra if she keeps to her budget. The trick is to not go overboard and to set a maximum budget you are going to target.
- Notice that it took less than a year for Debbie to get comfortable with her good financial habits. As I pointed out in Monday’s post, it takes a little over two months to build a habit but those habits can then feel like second nature.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.