This is not a recent article on the NYT, so some of you may have read it before, but it’s probably one of the better financial horror-stories I’ve found on the web so I wanted to share.

When Allison Brooke came clean to her fiance about her $170,000 student loan debt, he called of the wedding. Before you sympathize with the girl under the impression that she’s an doctor or dentist in training, let’s make it clear that she racked up most of this abominable total pursuing a Bachelors degree in photography.

WTF.

As a Canadian, my education is significantly cheaper than that of Americans — even if Canadian students will whine to no end about the unbearable cost. I estimate my BSc. came in at around $30,000 in tuition & books for my 4 years at the university. Living expenses probably match that total for the same amount of time, but working part-time through my degree meant I paid most of it up front and escaped with only a fraction of the entire total in student loan debt. Consequently, I’m a little biased as too how much you should owe and for what when you finally graduate. Suffice it to say, I don’t think anyone should owe six-figures for a photography degree.

That is insane.

The numbers aside, I think this NYT articles raises a lot of interesting points: when in a relationship should you disclose your finances to your partner? How much does net worth matter in determining relationship happiness? How much should it matter? Who’s responsibility is the debt — the person that racked it up or the couple together? Is breaking up over money ever justified?

Early-ish, a lot, very much, the guilty party and yes are my answers to the above. Lugging around a mountain of debt isn’t an unfortunate bout of bad luck, it’s a sign you make poor life decisions. How do you build a life with someone so hell-bent on destroying theirs? While money isn’t the source of marital bliss, it is the foundation to many things that make for happiness: security, travel, buying a home, raising a family, etc. Many divorces are rooted in money troubles, and all of those can be avoided if you’re on the same page right from the start.

Debt is expensive, but I don’t think anyone expects it to cost them their relationships. I think this story is a great example of how it’s never “just money”.

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.

This is a great article by Money Sense. I find the figures comparing income and debt load over the decades interesting — and alarming. Can you believe Canadians owe $1.27 for every $1 they bring in? That aside, I found the couple profiled in the article a bit of surprise.

At first glance, they seem to be doing everything right: no consumer debt, paying off their mortgage early, keeping their grocery expenses down, and sharing a vehicle. They even have two incomes. So why can’t they find money in their budget to put away for retirement or build an emergency fund? They say they don’t know, and the writer of the article doesn’t know either.

Well, I do.

First of all, they’re paying themselves last. Never ever do this. Savings isn’t an extra to your budget. You don’t save whatever is left over at the end of the month. Instead, make your savings goal first — it can be small like $100 or $200 each month — then adjust the rest of your budget to fit it. NEVER the other way around. Ever. Every financial book I’ve ever read was adamant you pay yourself first, and the reason for this is simple: it works. Steve and Krista need to commit to their emergency fund and RRSPs before anything else comes out of their accounts. It doesn’t matter if they only put $50 towards each of these, as long as it’s something.

Secondly, they made accelerated payments on their mortgage. Now, this is generally a good thing… if you can afford it. But they’re all like, “We took six years off our mortgage. Omg where is all our monies?!?!!”.

Seriously?

I mean, really?

Imagine they had just slowed down that accelerated payment plan and built up an emergency fund first. I’m not saying don’t pay off your mortgage as fast as you can, I’m just saying cover the essential foundations of financial health first. I get that they were trying to save on the long term cost, but the overstretch forced them to put a $1000 truck repair on credit, and using credit for emergencies like that essentially cancels out much of the gain of paying of a mortgage quickly because the interest rates can be triple or quadruple on credit cards than what they are on a mortgage.
Furthermore, paying off that mortgage quickly by forgoing retirement savings is almost equally as bad. By failing to contribute now, they’re missing out on a number of years of compounding that could really grow their retirement nest egg. I pointed out when I started my RRSP that waiting just five more years to start saving would have cost me nearly $100K by 65! When it comes to building wealth, your biggest asset is not necessarily the amount of money you have, but the amount of time. Start early, stay committed, and get rich. Period.

I’m not sure if Money Sense is profiling these people with overly-generous outpourings of sympathy because they genuinely believe these fools are getting screwed, or if they think these guys are as dumb with money as I do, but are writing them up this way so the equally dumb masses can relate. I just can’t believe a financial writer can say he doesn’t know where Steve & Krista’s money is going. Maybe they just need to try keeping track of it for a month or two and finding out.