The following is a post by staff writer Crystal at Budgeting in the Fun Stuff. Her blog covers living expenses, saving for your future, and the fun stuff along the way.
Since Daniel started his interview series of other bloggers, my favorite question he asks every time is “If you could tell your 20-year old self one thing, what would it be?”
Every time I see that question, I think of the huge mistake Mr. BFS and I made when we were 24 years old. I would tell my 20-year old self to fully check out any business venture before jumping in head first. This mistake ultimately led to us losing $12,000.
It all started with befriending the owners of the local board game store. They were nice people and the game store was our favorite hang-out. After a couple of months of playing there on a regular basis and even volunteering to help out, they brought up that their line of credit was running low and they needed a little help just to make it until the summer – they “would be good from there”.
Yes, at this point we should have questioned why they were so behind on their line of credit, but we didn’t. We should have asked for a copy of his credit report, but we didn’t.
When we asked how much they would need to get everything straight, they immediately said that $6,000 would fix it all. With dreams of passive income from a game store on our minds, we cashed in the savings bonds from our grandparents and threw in $3,000 from our own savings. That had to be the quickest $6,000 we ever threw away.
After we invested that first $6,000, we slowly figured out that both of the owners treated cash like water and had no idea what they were doing. They had a maxed out line of credit at around $130,000, a $3,000 loan from Dell that was behind by several months, and another $5,000 personal loan they had never paid anything towards. The incoming money was barely covering the cost of merchandise and utilities. I immediately was handed the check book and asked to set things right.
This is where Mr. BFS and I should have said goodbye and just thanked our lucky stars that we only lost $6000…but we didn’t.
Over the next week, I figured out the numbers and made a payment plan that would technically work if absolutely everything went by the book. You see where this is going, right?
I paid that Dell loan off from our own savings (talked them down from $3,000 to $1,800). We also sunk in another $7,000 over 3 months for merchandise and owed sales taxes. That brought our grand total out of pocket to about $15,000 in 4 months.
The store was indeed recovering and my payment plan was even leading to the bank reopening the line of credit, but then one of the owners over purchased a week’s worth of product despite my reminder, which caused an overdraft on the line of credit. That overdraft was the last straw for the bank and they called the full line of credit due at once. That was a sad end for a good store.
The two owners had to declare bankruptcy since all the loans were due and they didn’t have the cash to cover it. Hubby and I hadn’t touched our home fund, but our emergency fund was hit really hard. After the closing costs and 20% down payment, we only had about $5000 left in all of our savings combined. It was a rough first year and we just crossed our fingers that our house wouldn’t have any major issues. I didn’t want to touch my 401(k). We got very lucky. :-)
That whole situation was a wakeup call for Mr. BFS and me. We are two very smart people who can successfully run a business, but we were way too arrogant and rushed into a very bad situation. We were just too stubborn to back away. Arrogance and stubbornness led to an overall loss of $12,000 since we were able to recover about $3,000 in tax breaks over the following 3 years. I am thankful we didn’t go into debt, but it was definitely the most expensive lesson in humility that I hope to ever have.
What would you tell your 20-year old self? Have you learned any expensive lessons along the way?