Article by Peter J. Normandia. Follow me on Twitter.
This economy sucks, plain and simple.
It’s probably the first time in my adult life I can actually say that. I was born in 1979, so I grew up with Reaganomics while watching Fraggle Rock. I was in High School during the first televised war in Iraq, and barely surviving the University of Maryland when Bill Clinton was explaining why Monica saved her dress without washing it. This was the same time the Mortgage Industry began their now notorious, greed filled run.
However, until last year, I had never experienced such a bad economy as an adult. To top it off, I opened a Mortgage Branch the year before specializing in A-paper loans, so I was smack dab in the middle of the windstorm. As the industry got what was coming to it, I learned incredibly valuable lessons I will carry with me for the rest of my life.
As the old saying goes, ‘what does not kill you only makes you stronger.‘
Here is what the recent downturn in the economy has taught me….
Credit, Dead it!
‘That Credit, Dead it. Think a crackhead paying you back, shit, forget it‘
Such were the words of the Late Notorious B.I.G. (remember, I grew up in the early 90s!). Substitute ‘a crackhead‘ for ‘a struggling borrower‘, and you have the real truth of today.
Credit was so available to everyone out there, that it became acceptable to live above your means. No longer did you need a used car when you can lease a brand new one. No longer did you need to have 20% to get a house, or even for that matter, did you need to show you could pay back the loan. Instead you could just ‘state’ your income. No need for proof. No need to earn the right to live the American dream. Instead you could live the dream now, and pay back what you owe when you make it. Wow, sounds great.
So I used credit to open up my mortgage branch. $28,000 to be exact. Being that it was a branch company, the credit I used was all personal. I took a calculated risk. I had the loans in the pipeline. I had a great marketing plan that worked like a charm. All I had to do was close these loans that all fit the current criteria. However, in a matter of days, the industry went into the toilet, and the criteria suddenly changed, even for A-paper loans.
Unable to close the majority of loans, I was left with over $25k in personal debt, and no where to write it off because it was personal. Instead of taking my time to build my company, I immediately tried to have it all. I went for the whole pie in one swoop because I had the credit. Why should I not use it? Well, now, unfortunately, I know the answer to that question.
Even though I had some pretty nice stuff that I owned, it still did not feel right. I had gotten most of it on credit. My house has a mortgage, even though I initially put down 20%. My car is a lease. However, none of these items give me the joy of being proud because I did not earn them the right way. All I earned, was the right to foot the bill.
The Inner Beauty of Living Below Your Means
I grew up in a pretty affluent area in New Jersey. Most kids in my high school got their cars from their parents, barely worked, and had credit cards that their parents also paid for them. I was not as spoiled, but my Dad was able to buy me a car when I turned 17 for $5,000. It was a 10 year old BMW, and I loved it. It still, to this day, was probably the best car I ever owned from an enjoyment perspective. However, in my school, this car was laughed at by some.
‘Dude, you call that a Beemer? It’s like 10 years old.’
Being in high school, I did not know any better. My world was the town I lived in. This was before AOL and the internet had really boomed as a networking tool. All I knew was the life before my eyes. I grew up believing that I should always have nice things. Even though I was not spoiled, I still had it pretty good compared to most, and I got used to it.
As I got older, my young life left me a taste for nice things. To live at the same level I did growing up, I had to start out making what people in my neighborhood made. This was not easy, being that most people in my neighborhood were earning in the top 3% of the country. However, I had the credit. Next thing I knew, I had the house of a successful person, and the bills to go with it. However, my income was not consistently on the same level. Working on commission, I was just able to keep up with my bills most months.
This was the major problem. Because I was just keeping up, as soon as things took a downturn, I was suddenly thrust into a hole. I had a ton of debt, and high monthly expenses to boot. I had to change industries completely, and start a company from scratch doing amazing web work. This was not easy for someone in my financial position. Living above my means could have set me back for years & years.
Luckily, I have great support from my incredible family. Without it, I don’t know where I would be. However, besides the support, they also have taught me something that I did not know. They taught me about the benefit of living below your means. Their generation grew up in that fashion. They understood how to live life before their was credit. I had to learn this the hard way.
As my Father enlightened me, the old school way of thinking was to buy a house with monthly expenses that equal about 1/4 of your income. I think that is great advice, even though it took this dire situation for it to sink in.
Just because you can live above your means, does not mean you should. There is a great beauty in a person that evolves from them persevering through hard times. I know, because I saw the change in myself when I was seriously ill with Crohn’s disease for a year. Persevering through difficult times makes you appreciate the good times.
Learn to love the Struggle
I’ve learned this in Jiu Jitsu: ‘There is no easy road to success.’
If you want to be successful at Jiu Jitsu, you better be persistent. Well, there is no easy road to financial stability either. It is a constant battle, especially in the ever-changing economic landscape that we live in today. It is only through the tough road of living below your means and working toward the things you desire that will satisfy you in life. Going out and purchasing a new toy on credit feels good for a day. Afterward, you are stuck with the bill, and left to juggle that with the rest of your expenses.
However, purchasing something that you earned through your own sweat is a feeling like no other. It makes you proud to own that toy. It makes you feel like a million dollars when you use it, because no one can ever take away the fact that you earned it. This is why we must learn to love the struggle it takes to get where we are going. The easy road is the fastest way, but it leaves you in place you don’t necessarily want to stay.
Prepare for the Worst.
Growing up during relatively good economic times, especially since high school, I never experienced living in hard times. I had heard my parents, grandparents, and their friends talk about the past generation’s experience, but I just assumed it was all part of the past. Today was different. We are not going to make those same crazy mistakes over and over.
Boy, was I wrong.
However, this experience left me with a great lesson. Even when things are going great, and you feel on top of the world, you must always be prepared for a change. If you take the time and patience to set yourself up properly, then when things to take a turn for the worse, you will be prepared to handle it. If you live above your means, then when the slightest change occurs, you will not be prepared to adapt. Financial flexibility is more important then keeping up with the Jones’.
What has this recent down turn in the economy taught you?
As with every mistake I make, it is important to understand the lesson that was learned. These 3 lessons are something I will carry with me for the rest of my life. They will shape the person I become because this is what my business experience has been at a young age. I hope everyone else from my generation has learned a lesson of their own as well.
What is your take on the economic times? Have you been able to adapt, or were you caught off guard like me? How has this change effected the way you will handle your future financial situations?
