Monday life fail: The Vaez family

I haven’t done one of these posts in awhile, but lo & behold, MoneySense has come up with another little gem. As always, the author works really hard to inspire pathos for the characters — but eventually the math is too much and all you can think is “what a dumbass”.

The Vaez family is unlike those who merely fail their whole life, this couple had it all together, and then engaged in such vicious self-sabotage it’s almost unbelievable. In their twenties, they worked hard and saved before having children. They actually managed to put $200,000 away for retirement and only have $50,000 left owing on their home. Ignoring the mess they’re in now, those are some impressive financial accomplishments.

Alas, failure to adhere to some very basic rules for good finances has completely sunk them:

1. DIVERSIFY YOUR INVESTMENTS. You know how everyone tells you never to put all your eggs in one basket? Listen! It’s good advice! The Vaez family sunk their entire life savings (the $200K) and then some (borrowed money) into risky investments — and lost it all. Losing any amount of money sucks, but they would be in a completely different place now if they merely lost $50,000.

2. IF IT’S TOO GOOD TO BE TRUE, IT PROBABLY IS. Don’t buy into something that promises you the moon. I have no idea what these “limited partnerships” were that they sunk a quarter-million into, but it was obviously extremely promising to convince them it was a good place for their life-savings. You work hard for your money, only leave it with people and organizations you can trust.

3. KNOW YOUR LIMITS WHEN YOU BORROW. This couple currently owes $125,000 on a line of credit and another $50,000, both amounts they borrowed for investing. Wtf? While I’m definitely not against borrowing to invest, especially for retirement, I’d feel really uncomfortable taking out a loan for approximately equal to what’s in my savings — you know, that sum that took them their entire working adult lifetime to acquire. Again, they were probably baited by an over-promising investment, but come on.

4. DEBT IS BAD! The Vaez family owes $50,000 on their line of credit for “personal expenses” (bringing their total non-mortgage debt up to $225,000). I think “personal expenses” is just a nice way of saying they have no idea what it was spent on. Regardless of your income or net worth, never ever ever rack up consumer debt. There is no such thing as being able to “afford it” — you might wind up in a position where you cannot afford it really fast.

5. DON’T DONATE WHAT YOU CANNOT AFFORD. The couple donates $10,000 per year to church-related charities. I’m sorry, but that is insane, especially with the debt they are now facing. Being charitable is noble and all, but you have to put your financial health before other people, period.

Now the couple is freaking out because they can’t afford their children’s RESPs or have enough to support an aging parent. Their stuck, and it’s costing them because now they can’t spend their money where they want to, on their family. This is the worst thing about debt: it acts as a huge barrier between you and your values. When you have debt, the money you earn isn’t yours — it belongs to your creditors, so you wind up never getting to use it on the things you want.