Since Daniel at Sweating the Big Stuff started his interview series of other bloggers, my favorite question he asks every time is “If you could tell your 20-year old self one thing, what would it be?”
Every time I see that question, I think of the biggest financial mistake Mr. BFS and I made when we were 24 years old. I would tell my 20-year old self to fully check out any business venture before jumping in head first. This mistake ultimately led to us losing $12,000.
The Start of Our Biggest Financial Mistake
It all started with befriending the owners of the local board game store. They were nice people and the game store was our favorite hang-out. After a couple of months of playing at the store on a regular basis and even volunteering to help out, they brought up that their line of credit was running low and they needed a little help just to make it until the summer – they “would be good from there”.
Yes, at this point we should have questioned why they were so behind on their line of credit, but we didn’t.
When we asked how much they would need to get everything straight, they immediately said that $6,000 would fix it all. With dreams of passive income from a game store on our minds, we cashed in the savings bonds from our grandparents and threw in $3,000 from our own savings. That had to be the quickest $6,000 we ever threw away.
After we invested that first $6,000, we slowly figured out that both of the owners treated cash like water and had no idea what they were doing. They had a maxed out line of credit at around $130,000, a $3,000 loan from Dell that was behind by several months, and $5,000 of other bank loans they had never paid anything towards. The incoming money was barely covering the cost of merchandise and utilities. I immediately was handed the check book and asked to set things right.
This is where Mr. BFS and I should have said goodbye and just thanked our lucky stars that we only lost $6000…but we didn’t.
The End of Our Biggest Financial Mistake
Over the next week, I figured out the numbers and made a payment plan that would technically work if absolutely everything went by the book. You see where this is going, right?
I paid that Dell loan off from our own savings (talked them down from $3,000 to $1,800). We also sunk in another $7,000 over 3 months for merchandise and owed sales taxes. That brought our grand total out of pocket to about $15,000 in 4 months.
The store was indeed recovering and my payment plan was even leading to the bank reopening the line of credit, but then one of the owners over purchased a week’s worth of product despite my reminder, which caused an overdraft on the line of credit. That overdraft was the last straw for the bank and they called the full line of credit due at once. That was a sad end for a good store.
The two owners had to declare bankruptcy since all the loans were due and they didn’t have the cash to cover it. Hubby and I hadn’t touched our home fund, but our emergency fund was hit really hard. After the closing costs and 20% down payment, we only had about $5000 left in all of our savings combined. It was a rough first year and we just crossed our fingers that our house wouldn’t have any major issues. I didn’t want to touch my 401(k). We got very lucky. 🙂
The Wake Up Call to Avoid Financial Mistakes in the Future
That whole situation was a wake up call for Mr. BFS and me. We are two very smart people who can successfully run a business, but we were way too arrogant and rushed into a very bad situation. We were just too stubborn to back away. Arrogance and stubbornness led to an overall loss of $12,000 since we were able to recover about $3,000 in tax breaks over the following 3 years. I am thankful we didn’t go into debt, but it was definitely the most expensive lesson in humility that I hope to ever have.
This post was one I wrote as a staff writer at Sweating the Big Stuff last September. Yes, I received permission from SBS to republish my older works from his site. 🙂
What would you tell your 20-year old self? Have you learned any expensive lessons along the way?
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!