Sun Jun 05 2011
There are some pretty basic rules about personal finance, and my money mistake involves violating them all. This was no accident mind you. I did it willfully and with no small sense of pleasure. (Keep this article away from young children.)
I was posted to New York at the age of 28 as a business journalist, and intended to live within the somewhat modest means of a newspaper correspondent. And I stuck to my guns, for at least six months. Then I abandoned my guns, hopped over the wall into no man’s land, went AWOL. And in retrospect I’m glad I did, because the investment in my career and the experiences were worth more than the thousands of dollars I figure it cost me.
I blame my fall on the city: Her high rent, irresistible restaurants, the plays, the fashion, the travel beckoning, the fascinating people from all over the world. But for all of that, I might never have strayed.
It’s not hard to keep track of whether you can afford something or not — that’s what bank statements are for. But, I reasoned, this is New York. I will only live here once, and to live and work here and not absorb all its delights would be criminal. The real gamble was that my future, post-New-York self would reap a reward in the form of a higher salary and a better job and that would presumably help me pay down all the debt.
First I gave up the uptown studio apartment that fit my budget and moved to more convenient SoHo on the lower West Side. Then I bought the clothes that kept me in fashion in cutting-edge New York. I shopped smart, sales in out of the way stores.
My new friends liked to dine out (most people I knew in New York used their oven as additional storage space) and pretty soon we were traveling too. Italy, Spain, Italy, the Hamptons, Italy. We travelled together, and an Italian villa back then was a steal — I was practically saving money by going.
Within a few years, I was rich in experience, a billionaire in sights and sounds, a queen of couture. And tens of thousands of dollars in credit card debt. The lowest moment, financially speaking, was when I cashed in my RRSP — paid a huge chunk of tax on it, lost the compounding potential, and used the money to pay off a credit card. Or most of it.
Now financial experts would say that’s not the worst move — after all, no investment return will net you the 19 to 29 per cent you pay on credit card debt.
It seems to me I broke every one of the three cardinal rules of personal finance.
Live within your means. As Dickens said: If you spend even a penny less than you earn, happiness follows, a penny more, misery. I certainly did that — minus the misery.
Start saving early. The miracle of compound interest means the sooner you start the less you will need to save later. Throw in the tax benefits of a registered retirement savings plan and you get a real kick to your savings.
I started saving in an RRSP pretty much as soon as I had income after university. I managed, by my mid-twenties, to be maxing out my annual amount. Then I cashed it all out, losing $40,000 and a lot more potential. But there’s more.
Avoid credit card debt. Paying only the monthly minimum on a big balance is the surest route to penury. Though you will find yourself newly popular with credit card companies who will generously raise your spending limit. Knowing this, I dutifully avoided credit debt until I got to New York. Until then I had used it for the inevitable short-term bridging periods incurred by a combination of extreme poverty and an inconvenient need for food.
So there you have it. Money mistakes one through three. But as for the outcome — well, Dickens would not approve. It ended pretty much the way my 28-year-old self thought it would. I got a higher profile, a high paying job in New York and, when that helped me land a better, even higher paying job back in Canada, I paid off my credit card debt in six months.
Was it a mistake? On a straight math basis yes. It was foolish. But would I do the same thing over again? In a New York minute.
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