If you remember this fun, quirky, and often brutally honest show on ABC called Don’t Trust The B- in Apt 23, then you know exactly where this post gets its title.
The show aired from April 11, 2012 to May 11, 2013. It only lasted for a short two seasons, but it packed a lot into that one year.
For those unfamiliar with the show let me bring you up to speed.
June’s (Dreama Walker) plans of moving to Manhattan for her dream job and perfect apartment are ruined when the company that hired her goes bust. Broke and homeless, her luck turns around when she finds a job at a coffee shop and a roommate, Chloe (Krysten Ritter). The show also starred James Van Der Beek (from Dawson’s Creek fame) as himself.
In one of the funniest pilot episodes I have ever seen of a television show, it really gives you a sense of how quickly one life can change within less than 24 hours.
https://www.dailymotion.com/video/x6kqr75
June loses her job and apartment within a few hours once the company she was hired to work for goes down in an FBI raid due to the head of the company embezzling billions from clients in an Enron type take down, which reminds you of the glory days of yesteryear of Wall Street darlings such as the likes of Bear Stearns and Lehman Brothers; the latter of which was in business for 150 years having started operations in 1850.
Some media outlets such as CNBC did an article on what happened to former Lehman Brothers employees after the collapse and some still had not recovered from the company shutting down in 2008 some 10 years later including those not being able to find full-time employment.
This show and the acquisitions or closures of places like Merrill Lynch, Bearn Stearns, which opened in 1923, and Lehman Brothers are reasons why you should be your own financial advisor.
Unlike how JP Morgan bailed out Bear Stearns in March 2008 or Bank of America did Merrill Lynch, you are on your own like Lehman’s when they filed for bankruptcy as no one came to save them because if you fail to manage your money, then no one is coming to bail you out.
Let’s go back to 2008. Banks were failing. Many were found to be a part of the subprime mortgage crisis, but like the scandal at Wells Fargo nobody went to jail. You think your money is locked up tight like Fort Knox until you realize it isn’t. That is why Roosevelt created the FDIC insurance for banks as without the $250,000 deposit insurance after the 1929 crash many no longer believed in the banking institution.
Just because someone is wearing a suit does not mean they know what they are doing. Many of the analysts and associates that start work for their prestigious firms such as Goldman Sachs are straight out of college and still wet behind the ears. Even though I once read that the average salary of a Goldman employee was around $622,000, that does not equate to financial smarts or riches. Many of these employees still blow money like you wouldn’t believe. Instead of saving stacks they are blowing them.
Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. – Warren Buffett
I have read enough accounts of high paying professionals and tons of the employees would blow off steam in a place called Scores in New York or buying million dollar homes, private school educations for the kiddies and exotic vacations costing $5,000 a pop.
Look, to each their own. Just understand that you are your best line of defense when it comes to your money. Read every book you can on the subject. Save as much as you can.
I even overheard a 2nd year law associate say that you can make a lot of money in New York, but it costs too much for too little. You have to be a millionaire to afford an apartment or buy a home.
Part of the reason so many people are bad with money is because they do not learn about how money works. Please do not be one of those people. You must learn how money works. Learn the rules of the money game. Here are a few things you can do to save yourself the commission fee and invest those dollars instead.
Use a three-part investing strategy.
Part I. Automate your savings and investments. Decide on a number you can live with, set it, and forget it.
Part II. Determine where to invest. Go with anyplace that offer fees that are less than one percent such as Trowe Price, Vanguard, Schwab or Fidelity.
Part III. Invest your money. I prefer to go with several index funds so I can be diversified in case one sector goes crashing down then others are usually going up. You could do a mix of 20 percent real estate or REIT’s, 15 percent in International Funds, 10 percent cash liquid savings in a high yield savings account, 10 percent in a bond fund and the remaining 45 percent in a stock equity fund like the VTSAX at Vanguard. This is similar to the Yale’s investment manager David Swensen’s model. He has been able to get a return on investment of billions into Yale’s coffers making them one of the larhgest college endowments on earth with $29.4 billion USD. Only Harvard has a bigger endowment war chest with $38 billion USD.
Who is David Swensen?
According to the Yale Daily News, “David Swensen of the Yale University endowment is the doyen of endowment investing. Imitation, of course, is the sincerest form of flattery. Today, the Stanford, MIT and the Princeton endowments all boast former Swensen deputies at their helm. Each also has adopted the “Yale model” of investing pioneered by Swensen in the 1980s.”
So what is Yale’s “secret sauce”?
“Until 1985, Yale had invested in mainstream U.S. stocks and bonds with a smidgen of foreign stocks and real estate.”
“Swensen was the first to apply modern portfolio theory to sizeable multi-billion-dollar endowments. He understood that “asset allocation” explains over 90% of a portfolio’s investment returns.”
“The decision whether to invest in specific asset classes matters much more than picking the right stocks. Over the past 30 years, Yale has shifted the bulk of its investments into “alternative assets” like natural resources, venture capital, real estate and foreign stocks.”
When the market goes down, buy more. That is where the bargains are. That is how Sir Templeton made his millions. Sir John Marks Templeton was an American-born British investor, banker, fund manager, and philanthropist. In 1954, he entered the mutual fund market and created the Templeton Growth Fund. In 1999, Money magazine named him “arguably the greatest global stock picker of the century.” He purchased tons of stocks during the stock market crash when everyone else was getting out.
So do not let fear take over how you manage and invest your money.
Could you imagine what it would feel like to go to bed with $100 bucks in your bank account only to wake up and find $120,000 in your checking account? Well, guess what? One Pennsylvania couple actually did! A bank error deposited $120,000 into their account overnight. You can pretty much guess what happens next.
They went on a spending spree buying a camper, a Chevy and a racecar. In addition, they gave about $15,000 to friends and family. They blew through $100,000 in about 2 weeks. Whew!
This Monopoly style bank error in your favor was over almost as soon as it began. They were of course caught and now are facing federal felony charges.
These people got a few dollars in their hands and went crazy with Gold Fever. The likes of which that have not been seen since the California gold rush in the 1800’s.
However, in their case it was more like behavior of a gambler’s addition or lottery ticket winner.
Instead of holding on to money people are prone to spend. Why is that exactly? Are trinkets really how people value self-worth? It would be different if the money was theirs, but it wasn’t. In what world does money magically appear?
This couple had over $100,000 just show up out of the blue in their BB&T account. Who do they think they are?! Joshua Jackson’s character in The Skulls! Where he wakes up, goes to the ATM and sees that his account is now filled with money. Around $20,198.98 to be exact.
And also in that case, the money was not his. He had to join a corrupt secret society, get into an Ivy League college, go through hazing and get impeccable grades and an incredible SAT score to do it. He had to go through a heck of a lot to get access to that kind of cash. Don’t remember the film? No problem. I pulled the trailer for your viewing pleasure.
However, in this couple’s case they did NOTHING! Since, when in life do you get something for nothing? I’ll tell you when; never that’s when.
Are these people binge watching The Rich Kids of Beverly Hills or The Housewives shows or something? Where the housewives love to take PJ’s (short for private jet) all over the world just to spend more money. And by the way… a PJ costs upward of $25,000 a flight or trip. Maybe that’s why so many housewives are in debt, getting divorced, and on shows where they refer to private jets as a PJ.
Regardless, why is spending instead of saving money so important? It becomes a race to see who can have the most toys. Forget it. When you focus on saving and investing your money it transforms your life. You have more control. See why it pays to save.
If you read any story about the self-made millionaires of today, you will rarely see anyone who had a mysterious windfall come out of the sky. And even if a relative left them some money, they invested it in some way such as by going to college, learning a trade, buying stocks, or starting a business.
You have to focus less on spending money and more on holding on to what you already have. It may not be sexy, but hey like I Will Teach You To Be Rich author Ramit Sethi says, “would you rather be rich or sexy?”
In a perfect world, you would of course choose both. In reality, I am sure many of you will choose to be rich. Just understand that it doesn’t matter if it takes you three years or 20 years to get rich. The point is you complete the journey. Legally.
“Life is a cruel teacher. She loves to give you the test first and the lesson later.” ― Daymond John star of “Shark Tank”
They say hindsight is 20/20. That just means It’s easy to know the right thing to do after something has happened, but it’s hard to predict the future. Hindsight means thinking about things after they’ve happened.
When I was younger and got my first credit card, I did not realize all the little nuances that come along with carrying a little square piece of plastic. Those lessons came later.
For instance, the bank likes to play a game called name that fee: Deposit fees. Transaction fees. Insufficient funds fees. ATM Withdrawal fees. Annual fees. Inactivity fees. Checking account fees. Mortgage fees. Credit card fees.
The Credit CARD Act of 2009 has tried to limit these fees and help consumers, but the banks can still create new fees.
There is no cap on fees. And no limit on how high they could go as there is no regulatory limit on what banks can charge for service fees on deposit accounts.
How do I know that?
I did my research.
However, there is a limit on what amount of interest a credit union can charge you to lend out their money to you. It’s an 18 percent rate cap.
How do I know all this?
I did my homework. I also work in lending.
Today, I share with you what you can do differently.
What it will cost you? $0
How much can it save you? Potentially, over $150,000.
Let’s begin.
FEES ARE EVERYWHERE
Your challenge, should you choose to accept it, is to avoid ALL fees!
ATM FEES
Service: Transaction at another bank’s ATM Average Fee: $2.00 Explanation: This is the fee that an average bank charges for using an ATM outside its network. Sometimes they will add on another $1.00 fee for your bank to process it!
Service: Non-customer ATM transaction Average Fee: $3.00 Explanation: This is what the average bank charges non-customers to use its ATMs. Combined with the ‘foreign’ ATM fee (yes, another fee) charged by your own bank (see above), you’re looking at $4.20 in service charges for using another bank’s ATM.
CHECKING AND SAVING ACCOUNTS FEES
Service: Monthly Fee for Checking Account Average Fee: $10.00 Explanation: This is the average monthly fee charged by the bank to house your money for a standard checking account . Fortunately, these fees are typically avoided by maintaining a minimum balance or meeting some other criteria. Usually a monthly direct deposit will allow you to avoid this fee. However, it usually requires a minimum of $500 or more per month. This can be difficult for part-time worker or student. If you are a student, usually there are student accounts that will waive this fee. You can also look for banks with free checking.
Service: Monthly Fee for Savings Account Average Fee: $5.00 Explanation: This is the average monthly charge for a standard savings account, which can usually be avoided by meeting certain criteria like establishing a regular direct deposit to the account or maintaining a minimum balance.
CREDIT CARD FEES
Service: Minimum Interest Fee Average Fee: $1.50 Explanation: This is the average monthly charge for holding a credit card in your wallet. Check your credit card agreements and statements to see if your bank charges this fee.
Service: Late Fee Average Fee: $38.00 Explanation: This is the fee charged for every late payment you make to your credit card. Which can obviously be avoided by paying on time, but what about when you forget. The only way to truly avoid this is to set up an automatic payment so that you never miss a payment again. This fee is egregious.
Service: Annual Fee Average Fee: $29.00 Explanation: This is the average annual fee a credit card company will charge you to say what’s in your wallet? Fees can go as high as $450.00 a year the more exclusive the card. This fee can usually be avoided only applying for credit cards with no annual fee.
Service: Return Check Fee Average Fee: $25.00 Explanation: This is the average charge for non-sufficient funds and being unable to cover a check. This can usually be avoided by making sure you only write checks when the funds are available in your account. You definitely don’t want to rack up too many of these fees. You will get put on the bad check writing list. It’s called ChexSystems. It can cause banks not to do business with you. Essentially, making you bankless. It is designed for people with bad credit or banking histories. Reported information usually is removed from your ChexSystems file after five years!
ALL THOSE FEES ADD UP
If you start adding up all these fees, you see how much it could cost you and how you could slowly drip (like a slow roast cup of coffee) a small fortune away out of your wallet.
ATM Fee: $3.00
Checking Account Fee: $10.00
Savings Account Fee: $5.00
Return Check Fee: $25.00
Late Payment Fee: $38
Annual Fee: $29.00
Total: $110.00 per month or $1,320 per year
You do this for 30 years and you spent $39,600.
If you invest this money instead, with an 8% return and you could have $161,000! Yes, that’s USD.
By no means will this turn you into an overnight millionaire, but it has the potential to give you the foundation to set you up pretty good for later in life.
The banks know what they are doing. You have to pay to play. In order for them to house your money, you have to pay for the convenience and service.
The problem is that they pay measly amounts of interest on their savings and checking accounts.
You receive a 0.10% return on the money you let them hold, which they ultimately can lend out and invest and make deals to increase their honeypot. On the other hand, when they lend you money it can cost upwards of 29.99%!
So, let’s break this down. We give you thousands of dollars to hold. You pay us less than 1%. You lend us thousands of dollars and we pay you 29%. Sure, that seems fair.
I guess in the law of supply and demand the customers are not always right.
Even though, they need us to make money.
But borrowing is borrowing. You have to pay to borrow. That’s just the way it is. The only way to get around this is not to borrow.
Yes, that last sentence is $161,000 advice I just gave you. Your welcome.
Til Debt Do Us Part is a Canadian television series that follows couples that are going through financial crisis and financial expert, Gail Vaz-Oxlade, comes in to help the couple find solutions.
The series ran for over 100 episodes from 2005-2011. It also had a spin-off called Princess. She teaches couples to go from red to black and gain control over their money.
The show would air right after the Suze Orman show during its run on CNBC. Read my post Dom Perignon Taste on a Budweiser Budget to see how it all went down on Suze’s show.
#1 REASON COUPLES BREAK UP
Money is the number #1 reason couples break up. She visits couples weekly and gives them challenges to help with their finances. Then at the end of each episode, after about 4 weeks, she awards the couple with up to $5,000 dollars to help them get out of debt.
CUT THE CHEQUE
By far the best part of the show, in my opinion, is when at the end of one month, Gail Vaz-Oxlade gives the couple a cheque for an amount up to $5,000, depending on their attitudes and how well they did during the challenges. Keep in mind, couples could get less and some have. One of the lowest amounts I have seen her give was $3,000, which is a 40% reduction of the prize money.
The show was so popular that a 52-Week Life Planner was released based on the television series and offers day-by-day, step-by-step strategies and tips for successfully managing household finances.
This reminds me of a Tom Holland interview he did for Spiderman talking about how Anthony Mackie always says, “cut the check.”
If you have never heard of the show Til Debt or can’t remember it, no worries, I will take you back down memory lane tonight.
WHO IS GAIL VAZ-OXLADE?
“We feel good when our homes are bright and shiny, put a little elbow grease into your money and it’ll glisten too.” – Gail Vaz-Oxlade
Gail Vaz-Oxlade is a financial writer and was a columnist for numerous publications as a freelancer including Yahoo! Canada Finance. She has helped people from high finance to low-income solve their money problems. Eventually, she became a television personality due to all of her work in finance and that is how the show Til Debt came into existence with her as the host.
She has written numerous books on the topic of finance. I have actually read one of her books called Debt-Free Forever.
Gail has a no-nonsense attitude when it comes to money. And that is what makes her so good at what she does.
FOR THE LOVE OF JARS
“You can have everything you want. All you need is a plan. And how do we spell plan? B-U-D-G-E-T!” – Gail Vaz-Oxlade
Watching the show was very interesting. One recurring theme was the jars. Gail advocated for couples to live on cash.
Every single episode, you got cash jars. You would put in a certain dollar amount. When you spend, you write it down in the budget binder cause cash slips through our fingers easier than that snail did with Julia Roberts in Pretty Woman.
Some couples were taking out cash at the ATM from their bank accounts or doing cash advances, which Gail said she could not track so we don’t know where the money went. When it’s gone, it’s gone. Without writing it down or keeping receipts, there is no other way to track cash. So, jars it is.
MONEY LESSONS FOR GAIL
Gai loves cash and hates banks. She thinks they are bleeding people dry slowly with their interest and fees. Gail says banks are wolves in sheep’s clothing. The only way this will change is to teach financial literacy in school. I say start in elementary when they are old enough to start asking for a $1 lollipop, it’s time to start the finance lessons.
This is the secret recipe to building wealth: You need to make more money and you need to spend less money.
Here are 3 lessons that Gail taught me: (1) both partners need to manage the money, (2) no retail therapy, and (3) debt repayment takes time.
LESSON ONE: GAIL ON COUPLES MANAGING MONEY
Do not have only one partner manage the finances.
“It’s not unusual for one person to assume the nitty-gritty of daily finances…. The problem is that when one person is excluded, or totally abdicates responsibility, it means the other can mess things up with no monitoring or grow resentful at always having to do the detail…. Taking turns managing the chequebook, and having regular conversations so that both of you are clear about what’s going on, means you’re both in the know and working to the same ends. It also means that one person doesn’t have to deal with all the crap, while the other merrily laughs off the stress and frustration with, ‘You’re managing the money, so this is your problem to deal with.’ (Yes, there are dopes who say this.)”
Always know what is happening with your money. I don’t care who signs the check and put it in the envelope. Just make sure you lick the stamp. Be involved. Ask questions. Don’t be in the dark.
It’s kind of like that scene in Charmed in the episode Be Careful What You Witch For. Remember that scene in the beginning, after the opening credits. I want you to be skeptical like Phoebe. Always know who you owe and how much. Nothing is for free.
The conversation went like this:
Phoebe: I don’t get it you’ve been stuck in that bottle for two hundred years then someone finally sends you to us and you’ve no idea who licked the stamp? I find that very hard to believe.
Genie:What? I don’t get it you win the lotto and you’re asking for explanations?
Piper:Actually we’d like to know who to send the thank you note to.
“Plastic is anesthetic — it dulls the pain, and then what happens is you just keep waiting for the next fake high.”
And don’t I know it. I had a huge shopping problem for years. It was done as a way to dull the pain of the things going on around me – low-income, working full-time, going to college – I was a mess!
I had some pretty terrible managers when I was younger too. All the stress was getting to me. I had to find a way to cope, but shopping was not it. As I got more mature, I found ways to de-stress that were cheaper or free.
I have said it before that credit is seductive and addictive. It should not be used to replace your emergency fund (liquid cash). However, if you do, be strategic and use credit wisely and sparingly.
“A goal without a deadline is just a dream.” – Gail Vaz-Oxlade
Slow and steady is the way to repay debt.
“One step at a time. You are on your way. Expect challenges. Keep your goal where you can see it.”
You better believe it. If it took you 8 years to accumulate the debt, thinking you can pay it off in 3 months is delusional. See my post Getting out of debt one step at a time.
The good news is that once you recognize you have a problem with debt, then you can work on solutions. I have noticed that generally 2-3 years of cutting back and attacking debt is usually enough time to pay off most if not all of your consumer debt except the mortgage and student loans. After 5-7 years, the only debt left is usually the mortgage. That is a small price to pay for freedom.
Money can’t buy you love. But keeping love alive without money can be pretty tough. In fact, ninety percent of marriage breakups are due to money problems. And to get advice on how to manage money usually costs money! Til Debt Do Us Part, is a series that offers tough-love solutions to those willing to face their financial troubles head on. In each episode we meet a couple in crisis. Some are on the verge of bankruptcy, hounded by creditors or facing eviction. Others are just getting by, but in the midst of a personal meltdown or relationship breakdown because of money issues. With the sensitivity of a therapist and the toughness of a CFO, our host, renowned financial author and columnist, Gail Vaz-Oxlade reveals what she’s found in a couple’s finances – and then she’ll dig a little deeper. She asks some tough questions and then they’ll be forced to face reality. Where will it end if they continue on this rocky road? To get things back on track, Gail takes control of their finances …
This show was very eye-opening in how people managed their finances. Many did not have a clue what was coming in and going out. Gail would come in with her screen shots of the couples bank accounts and spending and give it to them straight.
Many times the wives would burst out in tears after seeing how much debt the family was actually in. Lots of couples were in over their heads. Some so deep in debt they had to consider selling their house, or worse, bankruptcy!
Some couples did not want to make any changes. Even though they were debt up to their eyeballs. These people needed to get their priorities straight. Much like Hermione, in Harry Potter.
Here is the show’s Intro and theme song along with a promo. This is just a taste, a light sampling, of what you are in store for with this show.
There are 2 episodes that stand out for me. They were called The Worst Family Ever and Love Affair with Luxury.
MONEY WORRIES CAN CAUSE SLEEPLESS NIGHTS
In the S03E13 entitled, “The worst family ever?” One couple were living in the wife’s family basement for about a couple of years. They spent with reckless abandon. Oh, the couple popped bottles night and day. Especially, after moving out and buying their own home for about $225,000. That’s not bad. What is bad is that they saved zero dollars while sponging off her parents.
Then, to make matters worse, they threw non-stop parties at their house for friends and family. This was obviously all to make themselves look good to friends and family. In Yoda speak, so concerned with appearances they are.
“Happy people don’t worry about what other people think about them.” – Gail Vaz-Oxlade
OUT OF CONTROL SHOPPING FOR BABY BUT THE KIDS ARE ALRIGHT
In addition, they expanded their family and had a son, but financially were unprepared for this. At one point, the wife was spending $1200 a month outfitting junior! I couldn’t believe it. What is she buying Versace onesies? Get real. A baby doesn’t care. They just want to be warm, feed, and dry.
This couple were overspending by the tune of $4,100 a month! Holy spending gone bonkers, Batman!
Fun Fact: For those of you unfamiliar with that Batman line, here is where it comes from. The Batman television series from the 1960’s. Batman was American live action television series, based on the DC comic book. It starred Adam West as the titular character and hero Batman and Burt Ward as his sidekick Robin.
It was also turned into a cartoon series. Here is Robin at his finest with his sayings. Hilarious!
I decided to post it so you won’t ever have to get the tongue lashing that Penny got from Sheldon on an episode of The Big Bang Theory about Batman at 2:48 into the video.
It was about The Lord of the Rings. Even Raj used a Holy Robin saying in there!
In this next video, Sheldon gives a fun fact to Raj. Now, you know where I get it from.
Now, back to the story.
The way the couple on the show were able to overspend like that, drumroll please…the credit cards!
When Gail comes along they are so bad she tells them they have to sell the house. They flat out said they could not sell the house. Even though they are on the path to $1.3 million in debt and possible bankruptcy! Gail, at one point in the show, tells them they are the worst couple she has had on the show and that she had a few sleepless nights worrying about how to help them out of this situation. Coming from Gail, that’s scary.
The way it went down, it reminded me of that scene in The Chipmunk Adventure, when Jeanette and Eleanor was telling the Arabian prince that Brittany spends money like a drunken sailor and Brittany got mad. Hilarious. I just so happened to find the footage of that particular scene and the movie on YouTube. Hope you have fun watching! No need to thank me. Like Dean Winchester says, “You’re Welcome.”
SHOULD YOU FINANCE A $100,000 CAR?
“Change brings challenges, learning, and a sense of New. Change is full of promise.”- Gail Vaz-Oxlade
In the S04E03 entitled, “Love Affair with Luxury,” which aired March 6, 2008, is the gold standard of delusions of grandeur when it comes to money management. The wife, Simone, is a champion shopper and a spendthrift who manages to make 53 shopping trips in a single month! That’s nuts. Even though she’s on maternity leave, a luxury car is next on her shopping list.
The only reason the couple is able to afford such luxuries is because they have each other’s incomes. The minute one person’s income is gone or reduced, i.e. disability or divorce, the whole house of cards comes tumbling down faster than the stock market has in the last 30 days.
Frank and Simone’s combined $110,000 annual income is currently curbed by Simone being on maternity leave. Simone is addicted to what she believes she needs to keep up appearances in every respect, which includes working out at the gym, and spending money on “stuff” for herself, such as clothes, getting beauty treatments of various kinds, and having a beautifully appointed house. A $125,000 new car is next on the list. Simone, however, states that she would never do anything that would place her family at risk. But Frank doesn’t realize he is just as guilty, spending money on his electronics, which includes six large television sets in their house of four people, including one infant. This spending has resulted in $55,000 in consumer debt so far. They constantly fight about money, something having to give if their marriage can overcome this issue. As such, Gail issues them challenges largely focusing on dealing with their root problem, namely their addiction to luxury, this focus which not only entails them doing the challenges, but understanding why she has issued these challenges.
At one point in the show she says, “we can finance $100,000 can’t we.” For a car no less! If you have ever read this blog, you know I can’t stand cars for the simple reason that they can keep you in debt forever. You could spend a couple hundred grand on cars in a lifetime. You know how much interest you could earn on $200,000! Here are just a few on my posts on my beef with car loans below.
Money is a tool we use in the present to create the reality we want in the future. Learning about finance is a good start. Practicing good money habits and teaching your kids to understand the concepts of money – budgeting, saving, and spending – you help create their reality.
So, I want to always stay in control of your…I will now end this post in the last words of the Til Debt Do Us Part theme song, money, money, money, money, money, money, moneyyyy!
Although, student loans are a different financial beast, mortgage debt can be just as damaging to a family’s finances because, like student loans, bankruptcy does not absolve you from the debt. You still owe the money.
I read this article in the Washington Post several years ago entitled, “Swamped by an underwater home.” The Boatengs had no debt in 1997 and by 2006 owed over $951,000. By 2013, their debt had gone up to $1,011,176.
In Fairwood, dreams of black wealth foundered amid the mortgage meltdown https://t.co/r4w5chO2Ng When buying a home goes wrong.
When this article was published in 2015, the Boatengs had not made a mortgage payment in 6 years. It took them 10 years to go from $0 in debt to $1 million in debt. This is crippling debt. Most families in the United States will not come anywhere near this amount of debt in a lifetime, but this couple did in less than a decade. Here is their story.
HOW TO GO FROM DEBT FREE TO OWING $1M IN 10 YEARS
Comfort and Kofi Boateng won a visa lottery to come to America from Ghana in 1997. Their odyssey would not take them to where they truly wanted to be like Homer’s, but just the opposite. Instead of the American Dream they would be ensnared in an American Nightmare.
In the Ghandian culture, people pay cash for their assets including their homes. In Ghana, Comfort graduated with a degree in computer science at the University of Science and Technology in Kumasi and his wife, Kofi, received an associate’s degree.
The couple married in 1989, he was 30 and she was 26.
Wanting more opportunities, they applied online for a lottery administered by the State Department to receive a U.S. permanent resident card. If this was football, this would be considered a Hail Mary.
The reason for this is that the odds of getting chosen were slim. Per federal data, less than 5 percent of the 1 million immigrants granted permanent residency enter the United States through the lottery. But, this family beat those odds.
In July 1997, Comfort was on his way to American in a plane headed for Maryland.
On May 5, 2000, they bought their first home, a three-bedroom townhouse for $128,900 in Germantown, MD. This was after renting for several years and taking 2 of those 3 years to save for a down payment.
Even though his wife admitted she didn’t know anything about loans and houses, she was now a homeowner.
For me, this is a red flag. If you do not know about loans or homes, then why buy a home with a loan? This is a double whammy. At this point, I would urge anyone to learn about these things before doing anything else.
FROM $128,900 IN MORTGAGE DEBT TO $223,900 IN FOUR YEARS
In 2003, the Boatengs become American citizens. Comfort’s mother gets a green card to come live with them and this eliminates $300 in weekly child-care costs as they now have three children.
The Boatengs refinance their Germantown home several times to pay for home improvements and consolidate other debt. They cash out $95,000. They now owe $223,900 in mortgage debt.
Ultimately, with 6 people now living in the home, they decide they need a bigger house.
The townhouse, thanks to the booming housing market before the 2008-2009 stock market crash, their home is now worth $355,000 within only 3 years.
FROM $223,900 IN MORTGAGE DEBT TO $838,583 IN 1 YEAR
The Boatengs decided to move to from Germantown to Bowie, which is in Prince George’s county Maryland.
A home is found in a subdivision with manicured lawns, European cars, and intercom systems in a place called: Fairwood.
The neighborhood has a lot that Comfort likes because it reminds him of his dormitory back in Ghana.
At this point, he is already emotionally attached, which is a major no-no when it comes to money.
The family decides to build a house for over $600,000!
They think it will be a good investment. Their thinking was it is likely to go up in value like their Germantown home and could use the equity (more cash outs) to pay for the kid’s college educations.
I now have to call a time out! Flag on the play. I am shocked that this couple did not see the RED FLAGS here! How are you going to afford this? His wife is working as a secretary making $30,000 and he as an IT specialist making $80,000-$100,000.
They do not have the money to pay for this. This is the part in game where they are supposed to forfeit.
Alas, they continue to roll the dice with their finances. Little do they know the house is about to win.
Their real estate agent assures them it is affordable, if the refinance (yet again) the mortgage on the Germantown house — which they were going to keep (this just makes no sense, now they are going to be landlords!!!) — and cashing out the $60,000 in equity. That money will be the down payment for the Fairwood house.
Bad, bad, bad idea. They are now taking advice from a realtor.
Let me tell you something. This person is not their financial advisor, CPA, attorney, business manager, or anything. He owes this family nothing. They have signed no documents to act as a fiduciary. They are not working is this family’s best interest.
Think of it like this. A baker likes to bake. If you ask the baker, if you should buy a cake, the answer is going to be yes. A barber likes to cut. Same rules apply, if you ask a barber, if you need a haircut.
However, I digress. Let’s get back to the story.
The Boatengs receive a loan from Lehman Brothers.
I’ll offer you a little background on the Lehman Brothers. It was founded in 1850. This bank was the fourth-largest in America and was not only one of the biggest subprime mortgage lenders (that helped cause the 2008-2009 housing crash), but also became the biggest bankruptcy in American history with $600 billion in debt. It had been in business for 158 years.
Due to their income, they could only qualify for an interest-only, adjustable rate mortgage. This is the worst type of loan there is. Do not ever take out an interest-only loan.
He has a great credit score of 748, which is how they got they loan. However, credit scores only mean you are great at managing debt. Nothing more. It does not necessarily mean you have any wealth.
For the first five years, they only make interest payments, then afterwards they would be required to pay more. How much more? Nobody knows. That is why these loans are so dangerous.
The Boatengs borrow $493,600 from Lehman Brothers, at an initial loan rate of 6.1 percent. In five years, it would reset to at least 8.3 percent. Their payments go from $3,662 up to $4,336. Thinking they would be able to refinance in the future to get a better rate. This day would not come.
He would then lose his job while the home was being built.
This is the part of the story where I am like. It’s all over. The house of cards has come crashing down. The jig is up. No more easy credit access. The bill has come due. There is no free lunch. It’s over.
And what happens next?
They admit to being emotionally attached, do not tell the lender of his job loss, decide not to walk away from the $20,000 deposit and not back out of the deal.
The Boatengs get a second loan to complete the financing through their broker’s company, a 30-year fixed-rate mortgage of $61,700 at 8.5 percent. The couple paid $29,000 in closing costs and put down a total of $73,000 in cash at the closing. They move in on November 25, 2005.
They now owe $838,583. Comfort has no job or any income and the couple are drowning in debt.
FROM $838,583 IN MORTGAGE DEBT TO $951,176 OF DEBT IN LESS THAN 1 YEAR
The couple is tapped out. They have no money to furnish the home. The first payment is due on January 1, 2006.
The payment on both homes (they still own the one in Germantown) is $5,550 a month!
Shut the front door! No, I mean literally. Shut the door to that place and give the keys back to the bank. Sell it and walk away. From both properties, in my opinion. You owe the bank everything you have.
The tenant in Germantown couldn’t pay. The housing market crashed, now being underwater, they couldn’t sell.
What did they decide to do? Take out more debt. Kofi started selling Mary Kay and took out $15,000 in personal loans with Bank of America. Then another $20,00 for her Mary Kay business with a 15 percent interest rate over 10 years. She didn’t see the risk because she thought she could earn $7,000 a month with Mary Kay.
Hold the phone. What happened to being cash heavy when starting businesses? Or starting them with your savings. Businesses need capital. Why not start small and see if a business works out? Then expand. She is putting the carriage before the horse here. There is no guarantee of making $7,000!
The Boatengs now owe $951,176.
FROM $951,176 TO $1,011,176 OF DEBT IN 6 YEARS
They decide to consolidate again. Howvever, consolidation only works when you pay off what you owe.
The couple took out a $620,000 refinancing loan from Countrywide Home Loans. It was again an interest-only subprime loan, carrying a 6.29 percent interest rate and adjusting in two years (even sooner this time) instead of five. Their payment on the Fairwood house would rise to about $5,230 by November 2008. That is $62,760 a year, after tax income!
They were unable to pay the $5,000 monthly payment and tried to modify their mortgage, but were able to get relief. They owed to much to qualify for HAMP. Ain’t that a kick in the head.
The Boatengs made their last Fairwood mortgage payment on Sept. 18, 2008. They are now in default and can be foreclosed on at any time. This means not only losing their home, but any money they put into it.
By November 2011, their payments were set to go up to $6,000. The bank valued the house at $378,216. That is $238,839 less than what they paid.
During this time, his wife went back to school in 2003 and graduated in 2009. She owed $90,000 in student loan debt. She lost her job and unemployment ran out after eight months.
Comfort was mostly unemployed or not working full-time from 2005-2010.
In 2014, the family was notified by Nationstar Mortgage, their new lender, that late payments dating back from 2008 were due now: $318,611.97.
Comfort’s mother passed away in 2014 and he was still looking for full-time work.
He became so frustrated he thought: Why stay in America? Why not just go back to his country and find a job there?
Like me, their housing counselor noticed that their downfall began with the idea of buying a second home for more than $600,000!
The couple owed $$ 1,011,176.
That was 2014.
FROM $1,011,176 TO $1,371, 813 OF DEBT
By 2015, they owed $257,776 on the Germantown house, $969,037 owed on the Fairwood house, $55,000 in personal loans and still have the student loan debt (which is not dischargeable in bankruptcy). The couple who had never owned a credit card before moving to the United States now owe more than $1.3 million.
They currently earn about $100,000 a year.
It does not take a rocket scientist to know that they do not make enough to pay off these debts. They owe more than 10 times their gross income (what they make). And more than 19 times their net income (what they take home).
The interest on that type of debt is mind numbing. We are talking more than $50,000 a year in interest alone. That debt is likely to balloon to $2 million in another a decade. This will be during their golden years. They are building no wealth.
The reasoning for taking on so much debt was that the couple stated they saw that was how everything was done in America. You had to borrow to get ahead. Everything involved debt.
I want anyone out here reading this to take this away from this cautionary tale: Stay away from debt.
Don’t borrow more than you could ever afford to repay.
Do not borrow one million dollars, if you do not have $10 million in the bank.
You should have 10 times more in the bank than you owe, not owe 10 times more than you make.
That way if the bill comes due, you can pay it off in full.
At this point, borrowing money is strategic and not the only option.
Matter of fact, just pay of all your debt ASAP and owe no one a penny. NOT ONE RED CENT!
If you use a credit card, you don’t want to be rich. – Mark Cuban star of “Shark Tank”
According to CNBC, Americans have an average credit card balance of $6,375 and owe a record breaking $1 trillion in credit card debt, which is the most ever recorded in history.
Investing that money instead could net you anywhere from $50,000 to $200,000, depending on how long you invest it and getting a return on investment of around 9%.
And that does not include an employer match or if you invest more. You could save and invest your way to a small fortune thanks to compound interest.
Here are some ways to avoid paying interest.
MAKE IT AUTOMATIC
I’m sure to many of your out there this is not new advice. However, how many people are actually doing this is another story.
Setting your bills up on automatic payments is a great way to avoid missing payments.
Credit card companies can levy a hefty fee for missed payments. The most recent I read was $38! Forget that. I rather use that money for gas or some other function. Anything is better than paying fees.
In addition, credit card companies can ratchet up your interest rate to 29.99% for missing a single payment!
That means almost near perfect timing of paying all bills.
The closest you can get to doing this is to make all your payments automatic.
Set up everything you can on autopay.
You can put the gym membership, cell phone, utilities and insurance payments on a credit card. Then set up automatic payments with your bank to pay that credit card off at the end of every month and you’re done.
PAY DOWN YOUR DEBTS
Paying off high interest debt is a must on the road to wealth.
Every dollar you spend towards interest cannot work for you compounding interest instead.
Think about it. If you pay $700 per month servicing debt and pay 50% of that in interest, that money is gone. Dust in the wind my friend.
If you can do the polar opposite, investing the entire $700 and earning interest instead, you have a clear path to building wealth over time.
That is the equivalent of $8,400 a year you are investing as opposed to using that amount to pay debt in which $4,200 goes to principal and the other $4,200 in interest and that money you never see again.
Many may not know this, but credit unions are not allowed to charge more than 18% on loans or credit cards (unless you default).
The savings gain alone from not having to pay some credit companies 22-27% interest is huge!
You could save anywhere from $50-150 bucks or more per month with a lower interest rate. That’s another $600-1,800 per year!
Just something to consider.
REFINANCE YOUR MORTGAGE
If you can lower the interest rate on your mortgage, you can save $100’s or $1,000’s of dollars a year.
In addition, if you can change your repayment period from 30 years to 20, 15, or 10, then you can save a ton of money. Maybe not tons of money monthly or right away, but over the life of the loan.
For example, a $250,000 mortgage at a 3.92% rate over 30 years will cost $425,533. You reduce that to 15 years and total output is $331,058. That is a difference of upwards of $100,000!
If you take that $100,000 and put that into index funds, you could have anywhere from $600,000 to $1 million dollars over 30 years with a minimum 6% return on investment.
Many folks will buy at least 2-3 homes in their lifetimes. If every new purchase resets your debt-free mortgage clock by 30 years, then you are likely to spend most of your working years in debt.
I hate to be the bearer of bad news, but this is actually the norm for most people.
You do not want to be normal. You want to be different and extraordinary because that gets results.
If more folks put down 10-20% and got 15 year mortgages, you would be better off in the long run.
Paying on one item for 30 years is a long time.
A lot can happen in 30 years. Heck, a lot can happen even in 10 years!
Retire that debt ASAP or as fast as you can.
You can build an in-law suite, swimming pool, and remodel the kitchen after the debt is gone and the home is paid off.
People used to have mortgage burning parties, after paying off their home. Let’s try to bring that back shall we.
I have recently read in the news personal finance experts expressing their concerns over mortgage payments that Americans are making.
Most wanted the debt paid just before you retire. Others said get rid of it in your 40’s. Like around age 45. Why you ask? Since, this is the point where you are halfway through your career, it is best to spend the second half of it working toward building capital to fund your nest egg.
That is excellent advice.
Basically, you spend the first 20 years paying off all you owe, and the last 20 years building up your retirement accounts you will need in your golden years.
SUMMING IT UP
All you have to do is follow these four steps and you can avoid paying interest or at least a whole lot less of it.
Remember these 4 steps:
Make it automatic
Pay down your debts
Bank with a credit union
Get a 15 year mortgage
Sounds pretty simple right?
Well, you would be surprised by how many people are not doing any of the things stated above.
Therefore, if you can start doing even one of these things now, you are well on your way to building up your bank account.
And in the illustrious words of Porky the Pig, “That’s All Folks!”
