Freed by 50

Like many people, I’ve learned a lot about money by reading books, articles, and blogs. At 41 I have a fair amount of real life experience to draw from as well. I look around me and I see examples of people doing things I like, and things I don’t like so much, and I gain experience by observing. But by far the most influential financial role models I’ve had in my life are my parents.

To set the tone for this article, here are two sage pieces of advice my parents have given me that still stand out to this day:

In response to my freaking out about credit card debt I’d taken on after buying my first condo and buying some cheap furniture:

Most Americans have ten thousand dollars in credit card debt on average.

When I decided I was going to use the majority of the $20,000 my grandparents had left me to pay off my college loans in 2005:

Forget the loans. You need to put that money into a condo because Long Island real estate only goes up!

Now before I delve into how fantastically (and sometimes impressively) terrible my parents were and still are with money, I want to say that I don’t blame them for any of my own early struggles. Although my parents did influence many of my poor decisions, looking back I blame my own lack of knowledge for any of the pitfalls I experienced. So let’s begin.

For my entire life, my parents income has been a mystery to me. Both my mother and father were injured working their respective jobs and collected disability from their employers. My mother went on to become a real estate agent, and my father owned a series of deli’s and laundromat’s that I’m not sure ever really earned a lot of money. The one thing I am very sure of is that whatever they were bringing in, they were always spending more.

My mother had been a flight attendant during the golden age of the job, and for many years my parents were able to travel the world for next to nothing. The travel bug was something they would never shake, even after my mother stopped flying for a living. This was the first influence I took into my early financial life and used to brag that I liked to take one big trip quarterly. Naturally I paid for these on credit just like my parents.

My father was the money man of the family. On the outside, he was an entrepreneur who traded stocks on the side. He always had a nice late model car. He was quick to pick up a tab and frequently called out others for being cheap. One of the first financial lessons he taught me was how to rotate credit card debt.

I first remember this lesson from when I was about eight years old. Once a month my father would sit me down with him at the kitchen table in our 3,000+ square foot custom built home. The table would be covered in that month’s bills as well as his existing credit cards and a pile of that month’s new credit card offers. He also kept the phone handy so he could wheel and deal with the credit card companies. What I didn’t know then was that he was never actually paying anything off, or even paying it down. He was simply moving money around until the time he could borrow against our house to pay it all off.

The quote above about real estate summarizes my parents money philosophy, and what I believe to be the entire Baby Boomer generation’s philosophy, that your primary home is a clear path to wealth and equity is a bottomless well. The truth is, for the majority of the 80’s, 90’s, and early 2000’s, Long Island real estate did relentlessly go up (the true effect of this is debatable given interest rates, taxes, inflation, salaries, and the cost of goods and services). This gave my parents ample opportunity to leverage their home and cash out equity. And cash out they did!

Despite having owned progressively larger and more expensive homes throughout my young life, what I didn’t know until fairly recently was that my parents had been financing their travel, cars, remodels and other big ticket expenses by using the equity in their homes. When they sold their last house for significantly more than they’d paid for it at the height of the real estate market, I thought they’d finally struck it rich. The truth is they walked away nearly penniless.

Although my father was and still is terrible with money, he’s a wizard with debt. I learned that before selling that house he wrapped all of their debt, including some very large student loans he’d taken out for my sister, into a cash out refi, and then declared bankruptcy! You see the magic here is that he’d learned student loans will survive bankruptcy, so he paid them off with equity to make them go away.

My parents believe in keeping their car payments low. The idea of having a paid off car has never once entered their minds. But always having a new car is important to them, so keeping the costs low is also important. I would always go with my father to participate in the negotiations for our new cars. Most times we’d start out at places like Jaguar or BMW, and ultimately come home with a new Nissan. We’d negotiate the lease period that gave us the lowest payment with nothing up front because we had nothing to put up front (something I didn’t know at the time and my father would play off as his money being more valuable elsewhere). They are currently driving their fifth or sixth Mitsubishi in a row, which they bought on a seven year note. I nearly screamed when I heard the term.

My parents love golf. Their entire lives revolve around golf. They live on a golf course and belong to an expensive golf club. They play up to five times per week. While this keeps them physically healthy, their golf life eats up about 75% of their income. In order to keep up with their friends, they have to continue to live in the increasingly more expensive golf community. Their rent has nearly doubled in ten years, but they refuse to move. Their 3200 square foot townhouse is three stories with two, two car garages, an elevator, a solarium, 12 foot ceilings, and each of the three bedrooms has a large en suite bathroom with two more half baths in the common areas. Sometimes they don’t go to the third floor for months. The only way they’ll move is if they can buy something a little more modest.

When my grandmother passed away recently, she left behind a small home in Florida which sold quickly, netting my parents a little over $100k. This is their nest egg and it’s meant to keep my mother afloat along with her small pension and social security should my father die and his comparatively larger pension with him. So naturally they’re looking to sink the full amount into a house.

Although they’re in their early seventies, my parents still believe that owning a home is their path to wealth. What’s more, it’s been suggested that by purchasing a home, they’re setting up my sister and I for an inheritance. My feeling is that if anyone were ever able to recoup that original $100k it would be a miracle.

This brings us to present day. Nearly every time I speak to my parents some aspect of financial life comes up. It’s been years since I felt comfortable disclosing anything about my financial life. I generally just listen and comment appropriately.

My parents have always been very loving people. My dad coached all my little league teams, they came to all of the big events, they were always available when I needed them. They’re good people. They’re just fantastically bad with money. Over the years I’ve made attempts to guide them or at least voice my opinion, but it all falls on deaf ears.

The positive take away from all of this is that my parents have actually been phenomenal financial role models, but for all the wrong reasons. I’ve learned so many ways to not get ahead from their actions, and it’s served me quite well over the years. It proves to me that when looked at in the right light, even bad role models can teach you something.