A Day in the Life of a Bankrupt Man – Insight 5

Note: This article is part of an on-going series about Jim, a fun-loving but financially disastrous friend. Let’s see what adventure he has in store today.

2012 Nissan AltimaToday we continue our adventure with Jim, our soon-to-be bankrupt man. Jim is a real person, a friend of mine, though the name is fabricated. It’s been a little while since I last encountered him, since I’ve moved to a new city and all, but he recently came into my life again. If you recall from our prior meetings, Jim’s parents declared bankruptcy a little over a decade ago, mostly due to poor financial decisions. Jim learned everything he knows about money from his parents. Let’s see what he’s up to now, shall we? Continue reading

A Day in the Life of a Bankrupt Man – Insight 4

Note: This article is part of an on-going series about Jim, a fun-loving but financially-disastrous friend. Let’s see what adventure he has in store today.

Shortly after my return from Greece, I found myself sorting through the massive stack of snail mail that had amassed since my departure. At least 80% of it turned out to be junk, but a letter from a local credit union caught my eye. As it turns out, the local credit union was running a “back to school” special by offering a $50 sign-up bonus to anyone who brought in the letter and opened a free checking account with at least a $100 deposit.

“OK, I’ll bite.” I thought. I’ve never been a member of a credit union before, so this should be interesting.

A few days later my wife and I drove to Target, and since the credit union was only a block away, I decided to walk there while my wife picked up a few necessities, like tofu, soy cheese, and bananas.

Anyway, I kissed my wife good-bye and started sauntering toward the credit union.

Lo and behold, guess who pulled up next to me, asking if I need a ride? It’s Jim, our lovable soon-to-be bankrupt man!

Jim: Hey man! What are you doin’ out here? You need a ride or sumthin’?

No, Jim, but thanks anyway. After explaining where I was heading (and flashing the letter with the $50 bonus offer), Jim looked startled and amazed. While he gawked, I couldn’t help but notice a 24-pack of beer in the passenger seat next to him.

Jim: Holy crap, man! Where can I get one of those letters? I should go home and check my mail, too! Hey, I sure could use some money like that right about now, ya know?

Uh oh. Just hearing him say that makes me cringe. Jim, what kind of trouble have you gotten yourself into lately?

Jim: It’s just not fair, man. My student worker job was postponed until fall semester starts at the University, so I’ve been out of work all summer. Times have been tough, man. Real tough. Heck, I just had to go get a payday loan so I can buy groceries and food for my two dogs! It’s alright, though. It’s only a two-week loan, and my student loan check should be arriving soon!

Oh. My. God. Now it was my turn to stand agape. Picking my jaw up from the pavement, I muttered… something. I still don’t remember what I said. Seeing my perplexity, Jim tried to comfort me.

Jim: Hey, it’s alright, dude. Like I said, it’s only a two-week loan. Classes start in a couple weeks, and I’ll have my job back. Oh yeah, and once my student loan check arrives, it’s smooth sailing!

We made some parting words, and I wished him well, then continued my saunter toward the credit union doors. In disbelief, I mulled over the disparity between us. Like Jim, I’m also a student, and my salary is pathetically (nay, humorously!) low. We probably make about the same amount of money.

Yet, here I am on my way to screw a credit union out of $50, and Jim is taking out a payday loan to buy beer!

Jim could have easily salvaged his situation by either:

  1. Setting aside some cash every month into an emergency fund, just for situations like this.
  2. Getting another part-time job over the summer. Heck, he knew his student worker job would not be available from May until August!
  3. Living a more frugal lifestyle in general, or…
  4. A combination of the above, plus the possibility of making purchases on a credit card and making minimum payments for a couple months. I don’t advocate minimum credit payments, but they’re better than payday loans!

Plus, Jim is planning to cover his payday loan debt with student loan money! Shock and horror! Student loans are a necessary evil for many people, but I don’t think Jim is using them for their intended purpose. No doubt he will also blow any excess loan money on extraneous purchases, such as a Nintendo Wii or a few more guitars.

Or maybe he will just buy more beer with it.

Just for the record, the local credit union gave me the $50 bonus without hassle. The rules for the bonus stated that the account had to be open for 90 days before the bonus would credit, but I struck up such a conversation with the guy that he went ahead and credited my account upon opening! I suppose he could tell that I was just there for the bonus. πŸ™‚

A Day in the Life of a Bankrupt Man – Insight 3

Today we once again meet Jim, our soon-to-be-bankrupt friend. Poor Jim just can’t catch a break – every time he comes close to breaking free from the “living month-to-month” cycle, something (or someone) pulls him back into the fray.

Remember that Jim’s parents are bankrupt, and have been for over eight years now. They have taught Jim everything he knows about money, and for some reason he still listens to their advice. Today’s adventure involves unexpected maintenance on his car.

First, a bit of background information: Jim’s financial life is contained within a single checking account plus a debit card. He has no credit cards (since his bankrupt parents convinced him that they are inherently evil), nor does he have a savings account. He DID have a fledgling savings account started, but he emptied it in order to… well, you will see.

Jim also owns an aging car. Recently it has been giving him A LOT of trouble.

Jim: Man, you would NOT believe what happened to me last week. I was driving to my buddy’s house when my car started acting funny. It was acting sluggish and all, then it died on me, during rush hour! Not only did I cause an impressive traffic jam, I had to pay to get my crappy car towed.

That stinks, Jim. It sounds like your alternator needs replacing.

Yep, but more than that. My battery needs changing, too. Plus, I already know that my AC unit and my transmission aren’t going to make it much longer. Sometimes I think this crappy car isn’t worth fixing.

(Aside: that may be the smartest thing I’ve ever heard him say.) Maybe you’re right, Jim. Have you considered selling your car? We do live in a town with decent public transportation. Plus, we have pretty good bike paths. Perhaps you could sell your car, buy a good bicycle, and invest the rest as a “nest egg” for the eventual purchase of a better car. After all, you mostly just drive to school and work, and both of those places are on the public transit route (or accessible by bike). You also live a block away from a grocery store, so that’s no problem either.

Jim: Hey, that’s not a bad idea. I’ll think it over while I wait to see how much it will cost to fix my car.

Of course, my proposal for Jim to sell his car and rely on biking/public transportation will not work for everyone. The point is that it WILL work for Jim, given his location and simple transportation needs. Plus, biking is good exercise. (…) Now that some time has passed, let’s see what he decided. πŸ™‚

So, Jim, any plans to sell your crappy car?

Jim: Well, I talked to my mom about it, and she thinks I should just pay to get my car fixed. I guess that’s what I’ll do.

(Aside: He talked to his mom? His bankrupt mother?) I see. But isn’t that going to set you back quite a bit?

Jim: Yeah, a lot. I’ll have to wipe out my entire savings account, and then some! It’s a shame, but at least I’ll have my wheels back.

If you say so. What made you change your mind?

Jim: My mom didn’t think that I’d like taking public transportation, and that I wouldn’t stick to biking. Oh, and my brother is a freshman in college here, and she thinks I should be available to drive him around, since he doesn’t have a car right now. After all, he shouldn’t have to suffer just because I don’t have a car.

Sigh. Personally, that sounds like a miserable life to me – shuttling my brother around to the club or to friends’ houses. As for not “liking” public transportation, thousands of college students do it every day in this town out of necessity, whether they “like” it or not.

Riding a bike is no different. I ride my bike to the university almost every day, and I have saved hundreds of dollars in gas and parking permit fees over the past two years. I actually prefer it now over driving.

In the end, Jim wiped out his savings and paid to fix his crappy car (which is still giving him “nickel and dime” issues). Maybe it is worth it to him, but it’s leading him one step closer to a bankrupt life.

A Day in the Life of a Bankrupt Man – Insight 2

student-loan.jpgRecently we met Jim, a real life 26-year-old soon-to-be-bankrupt man. He’s a typical Joe, err… Jim, working his way (slowly) through college, working a part-time job, and trying to make ends meet each month. I should mention that Jim’s parents have been bankrupt for many years now, and they’ve taught their son everything they know. Alas, the apple falls not far from the tree.

In the last episode of his life, we witnessed his disastrous mistake in dealing with an insurance company. Let’s see what surprises he has in store for us today, shall we?

Hi Jim, how’s it going? College classes just started for you again, didn’t they?

Jim: Yes, they sure did, which means it’s that time of year again – time to collect my student loan money! In fact, I just received the check a few days ago.

I see. Jim, like a significant amount of people working their way through college, has a growing amount of student loan debt. Like a mortgage, student loan debt can be considered “good” debt, unlike debt owned on high-interest credit cards or car loans (shudder).

So, Jim, I suppose most of that money is going toward tuition and books?

Jim: Ha! Right. Only what’s necessary will go toward that junk. The remainder is mine for the spending! Moneymoneymoney, what shall I buy?

What? You mean you’ve already spent some of it?

Jim: Heck yeah! First of all, I gave my landlord several months of rent in advance. I don’t want to forget about it, you know? Then, I bought a Sony PSP so I can game on the go. Oh, and my computer was a couple years old, so I needed to upgrade it so I can get this new, awesome video game that’s coming out soon.

Hey, and I’m thinking about buying a Playstation 3 with a new, flatscreen TV as well. That will be sweet, but that will probably clean me out of extra money. Oh well, it’s totally worth it.

Sigh. Let’s see, in how many different ways is Jim’s line of thinking flawed here? First of all, I understand that he does not want to have to worry about rent payments for while, but c’mon, how difficult is it to pay your rent on time each month? What Jim completely and utterly lacks is a sense of how to compartmentalize the dollars that he has. If he wants to allocate a large chunk of change to pay his rent, that is fine. Simply put that money in a high-interest savings account and withdraw the needed amount each month. That way, he can earn a few extra dollars in interest. Instead, he’s allowing his landlord to earn that interest! And people like Jim, who have no capacity for compartmentalizing cash, only see potential purchases with they money they have.

Second of all, he’s spending the extra money that really does not belong to him. Student loan money comes at a price, and my guess is that his loans are unsubsidized, which means they are swelling with interest as we speak. He is going to have to pay those loans back one day, whether or not he graduates, and blowing the money on gadgets for his entertainment is more than stupid. It’s… well… the kind of thinking that sends one straight to the seventh circle of hell bankruptcy.

Instead of blowing his money on expensive (but entertaining!) gadgets, he could have set that extra money aside in a savings account as an emergency fund, or perhaps even starting paying back his ever-increasing loan debt. Wasting it on gadgets and flat-screen TVs is the worst thing he can do.

Don’t get me wrong – I’m not against enjoying life in the slightest. My wife and I have many indulgences for which we feel justified in spending some extra money. For instance, we buy mostly organic food, and you will never hear me advocate a ramen noodle diet (ugh!). However, there is a big difference between enjoying life with a sense of financial responsibiliy and enjoying life while foolishly blowing every dollar you have (and locking yourself into further debt).

A Day in the Life of a Bankrupt Man – Insight 1

Meet Jim, a 26-year-old male. He’s an average guy for the most part – single, slowly working his way through college, working a part-time job to pay his bills. However, Jim’s parents filed for bankruptcy eight years ago and have not managed to work their way out yet. Everything Jim knows about money, he learned from his parents.

Jim will probably be bankrupt within five years.

Jim is a real person, though his name is fabricated. He could be someone you know, or someone you pass on the street. In fact, I suspect there are a lot of people like Jim out there. I, your humble narrator, know a lot about Jim simply because he is a friend of mine, and I have the privilege of observing his disastrous financial decisions.

Let’s take a sneak peak into his brain, shall we?

Jim: A few months ago someone accidentally hit my car while it was parked in my apartment parking lot. I saw the girl do it, and she gave me her information so insurance could cover it.

The damage was light – my bumper was cracked, but that’s about it. Anyway, the insurance company evaluated the damage and told me they would send me a check for $500 so that I could make repairs.

So far, so good, Jim. You are lucky that it was not a hit-and-run. So, did your check arrive yet?

Jim: The check eventually arrived, but it was for $1,100 rather than the $500 that I was expecting. I was totally shocked! I thought it might be a mistake, but assumed it must be my lucky day. So, I cashed the check, and my family and I spent it.

A few days later I got a call from the insurance company, and yes, they made a mistake. They caught their error, and now they want me to return the extra $600 to them. It’s not fair! I told the guy that I didn’t have $600, and he got really mad at me!

How does he expect me to come up with $600 so soon? My family doesn’t have $600, and even if they did, they’d use it to buy a car for my brother. So now I have to work out a plan with the insurance company to pay them back a set amount every month. I hate those greedy insurance companies.

Wow. Let’s examine the mistakes Jim made. First of all, he realized that the extra money might be a mistake, and one possible solution would have been to contact the insurance company. Or, he could have cashed the check, put it all into a high-yield savings account, and waited for the company to catch their mistake. That way he could at least earn a little interest from their error.

Second of all, he (and his bankrupt family) SPENT all of the money the insurance company gave them! Stupid! At the very least, he could have held onto the “extra” money in case the insurance company comes knocking.

Third, observe this crucial sentence:

Jim: My family doesn’t have $600, and even if they did, they’d use it to buy a car for my brother.

This, my friends, is the bankrupt mindset in action. Let me translate that sentence:

Reality: We don’t really have any money, but even if we did, we’d use it to lock ourselves into more debt.

That car payment would also come with a hefty interest rate. Ouch.

Thus, we arrive at a simple conclusion. The “wealthy” mindset compartmentalizes money and looks for ways to turn existing money into more money.

The “bankrupt” mindset looks at money and only sees what can be bought with it.

Which one are you?

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