It’s not very common, among the people around me, to meet anyone who can share real experience of personal finance or financial education, since it’s a subject that, as a rule, bores most of the people I know. But as chance would have it, the other day I met a woman whose story could be useful to others, mostly because it’s such a common case. The difference is that this woman managed to draw the right lessons from her experience and came out of it having learned them.
She told me she still remembered the feeling of having an empty bank account and the uncertainty of not knowing how she was going to make the next month’s payments. At 28, even though she had a job (badly paid, but a job), the payments-to-income equation was too much for her.
What I learned from being broke
She says she felt she’d hit rock bottom when friends suggested spending a whole Sunday at the beach in the middle of August and she had to say no, because it was something she couldn’t afford. In fact, it had been a while since she could even afford a Saturday night out with her friends, let alone going out to dinner.
Her situation took a turn for the worse when she landed a good job related to her degree. It was very well paid, she was very good at it and, as a result, she had prospects. Six months in, she got a raise, and that’s when she decided to buy a €21,000 car on installments. She could comfortably afford the €420 monthly payment plus her rent without any problem.
See also: The myth of getting rich in the stock market and retiring young
Hell arrived when the company she worked for had to close, something she could never have imagined. At that moment, after breaking down at home over what was about to hit her, she realized a lot of things.
She realized that most people live paycheck to paycheck, herself included, and that everyone certainly lives as if they had money, but living as if you had money is not the same as actually having money. Most of the things we buy, even though we can pay for them, we can’t really afford.
“I deeply regretted replacing my car. It was already eight years old, but it hadn’t given me any trouble. I changed it only because I thought I could afford it, since I had prospects at the company.”
Today, three years later, she has completely turned her financial situation around. And here are the lessons she learned from being broke.
1. Don’t rely on income from a single source, and don’t rely on a job
Having a job just means you’re one step away from not having one. Having a single source of income that doesn’t let you save is very dangerous. I learned to give proper weight to earning some extra money, even doing things you don’t enjoy. A university graduate cleaning houses and looking after children? Well, in the end that’s what I had to do to try to pay off my car loan and my credit card as soon as possible. (Read: 8 realistic ways to make money fast online)
2. Always live below your means
I earn more money now than I did before, and some months I spend the same as when I went broke. I got married last year and forgot about the big fairy-tale wedding they sell us in the movies. I never want to go through the same thing again, so now, when my husband and I go through good patches financially, that’s when we take the opportunity to make more money, because we know the lean times can come back at any moment.
3. Learn the basics of finance
Finance never interested me. In fact, I never gave any importance to saving or to household financial planning. Today I’m very aware of the need to always set aside part of what I earn for a savings plan, and I’m even thinking about investing in the stock market for our future children.
4. There’s life after going broke
Feeling broke, losing your job, not knowing what you’re going to do… it’s completely demoralizing, and I understand why many people fall into depression, but letting yourself go under doesn’t help. Quite the opposite: adversity is when a person has to get stronger, because today, from the other side, I can say that every bad patch passes if we help it pass.
As a saying I heard a while ago goes: “You never know how strong you are until being strong is the only choice you have.”
In her own words
“Today I’m even glad I went through that situation, because I honestly think I’m much better off for having learned that lesson. I don’t want any more debt in my life. Any purchase my husband and I make today, whatever it is, we study down to the last detail so as not to disturb the financial plan we started in the slightest.
I also learned that I wasn’t as smart as I thought. And that’s a hard conclusion to reach for someone who got her degree with very high marks and one day realizes she’s just another ‘fool’ who has no idea how the world works when it comes to money. Everyone should know the traps you can fall into.”
See also: 7 mistakes we make with our personal finances
Featured image: Markscheider, CC0 1.0, via Wikimedia Commons.
