This time my guest is a professional financial adviser. And not only that, he is one of the About.com guides where he writes about financial planning. As you’ll see just below, he really has a lot to share – I’ve got the most detailed responses I’ve received so far.
My guest is also a blogger and you may already know him – that’s Jeremy at Generation X Finance – a frequent guest in my “link love” posts as well.
SI: Have you ever been in bad financial trouble? If yes, what did you do to get out of it?
Jeremy: I was in pretty bad financial trouble just out of college. While still in school, I had established a few businesses. I had a web hosting company, ran a few fairly successful websites, and even went on to become a partner for a retail store. I couldn’t find a job in my field after graduation, so I had figured I’d be better off focusing all of my efforts on my businesses. Well, in order to expand beyond the dorm room and part-time income it was providing, I needed to expand. I started with the web hosting company and invested in more infrastructure (new servers, hired some support staff, etc.) This was the time where anyone could get credit, so going to the bank and asking for 10 or 20 thousand dollars in unsecured debt was easy. Since I didn’t have the cash on hand to do it, that’s what I used.
After some time and revenues not increasing enough to keep up with the added debt, I took on a partner to help. After some improvement and regaining some capital, I decided it was time to let go of that business and sold my remaining share to the partner. For a loss. I recovered some of the debt, but not all of it. Then it was time to focus on the other businesses. Unfortunately, I/we fell into the same traps. Business was starting to pick up, but it wasn’t quite enough to really break out, so we utilized the easy access to credit so that we could put the money into what was needed to take the business to the next level. And after a few years when that didn’t happen, I again was faced with selling off my portion of the businesses. In each case, I was only able to recover a fraction of the debt that was owed.
After I was separated from all my business ventures, I tried my best to keep up with all the payments. But being unemployed for a while, and working part-time just to pay rent led to things getting even further out of hand. I got to a point where I was considering bankruptcy and was researching attorneys that could help. But for whatever reason, one day I just said no, and I told myself I wasn’t going to go that route. I had gotten myself into this mess, so I was going to get myself out. It all started with beginning to consolidate some of the debt and to try and get rates reduced. I was able to successfully negotiate some of the interest rates down from 29% to around 9%. In a few cases, I was able to work directly with the bank to convert the revolving credit lines into installment loans at lower rates. It was amazing, just doing some legwork and asking for help enabled me to cut the monthly payments in almost half, and significantly reduce the interest rates, all while converting around 12 separate monthly payments into 3.
Once I finally found employment and began receiving a steady paycheck, I set up direct deposits to come right out of my check and go right to these debt payments so they were paid without even thinking about it. Since money was still tight, I found other ways to make some extra income, from odd jobs, IT consulting, and creating websites. I can honestly say that I hope I never have to go through something like that again, but the things you learn while being faced with a situation like that can’t be learned through books or by a talking head on TV. So, while I regret ever getting into that situation to begin with, I think it provided a valuable lesson and was critical to my success thus far, and will likely prove to be helpful in situations in the future.
SI Note: Quite a story. Maybe the credit crisis is not such a bad thing after all?
SI: Do you dream about early retirement like most people? Do you know what you are going to do with your time if you retire young?
Jeremy: I dream about early retirement every day. It’s not that I dislike my job, because I actually love it and couldn’t see myself doing anything else. But I also love to golf and love to travel. And when you’re bound to a 9 to 5, it’s hard to do much of either. I actually envision my “early” retirement to be more of a pursuit of a dream than an actual retirement. Once I’ve build up the resources, I’d like to retire by building and owning my own golf course and/or resort. I actually have a bit of a background in landscape architecture and golf course design, so it isn’t as farfetched as it sounds. But buying and developing the land for a golf course, and running the business isn’t something you can do without a good deal of capital. And since I learned my lessons about borrowing too much money for business, I want to be in a situation where I don’t have to rely heavily on banks in order to make that dream come true. But then, I could live on, and golf on my very own creation, and that’s what I’d call retirement. And I’d like to have this happen before I have to play from the senior tees!
SI Note: I asked this question because it seems that many people dream about early retirement without having any idea what they are going to do with their time. Lying on the beach is not the answer, but probably doing what you love is.
SI: The situation in the financial markets is pretty bad right now. What’s your forecast for the next few years? Is a big depression coming or everything will be back to normal?
Jeremy: This is a difficult question. From a pure financial market standpoint, things aren’t that bad. Of course, we just saw the largest single day point drop in the Dow ever, and the largest percentage drop since 1987, but as a whole, the markets are still not in terrible shape. From 2003 to 2007, we saw a pretty strong run. The Dow almost doubled from around 7,500 to 14,000 in just 4 years. We’re now sitting around the 11,000 mark just a year off the highs. Considering what we’ve been through in the past 10 years, from a pure market standpoint, things aren’t as bad as they could be. But when you look at the state of the financial sector and real estate, that’s another story. But at the same time, a lot of the real estate crisis is localized, just like the talk of being in a recession. The coasts have been hit, and some major metro areas and speculation areas like Las Vegas are really taking the brunt of this and making all the headlines. But when you begin to look at many places outside of these hot spots, things aren’t nearly as bleak, and in many cases, things are doing quite well.
Of course, it trickles down, and as more banks and investment companies begin to feel the pressures, the negative effects will be more widespread. Is a big depression coming? I don’t think so. I think we’ll continue to see things decline a bit for another year or two as we weigh the effects all of this has on the global economy, but things are much different than they were in the past. The stock market may continue to fall, and home prices may continue to drop, but this is a global economy. We’re also a much larger service economy now than manufacturing was in the past. We will still lose some jobs, we’ll probably have to struggle with inflation, and suffer from real estate woes, but I don’t see any massive meltdown. That is, of course, assuming the government finds a way to assist the ailing financial industry. We clearly don’t have the ability to cope with more major bank failures, and we can’t afford to restrict credit even further. So, I have to preface my comments with the assumption that the government does come to some sort of consensus as to how to address the banks that are in trouble. If they fail to do that, then all bets are off as people are irrational and will begin a self-fulfilling prophecy to create another great depression.
SI Note: So the apocalypse is not coming yet? Sounds encouraging from a finance professional. I definitely hope the US economy starts picking up again soon and the USD raises more against the EUR (that’s entirely selfish hope of an European of course).
So, that’s it. It was pretty long, but really interesting. If you want to read more exciting stuff from Jeremy, don’t forget that Generation X Finance works 24/7 and you can subscribe by email or RSS.