Like I’ve mentioned in my previous posts, life has a way of sucker punching me right in the face when I least expect it! If you’re like me, you’ve been cruising right along enjoying life when you’re hit so hard, so fast right out of the blue that you practically come out of your shoes!!! Just a few years back, this happened to me!
My wife and I were still engaged and our daughter wasn’t born yet. In preparation for our upcoming new life together we were deciding what would be the best course of action with regards to our finances. I owned a high end condo that I bought back in 2007 (during the height of the real estate market here in Canada) and determined that by selling it we would be able to pay off all of our debts with the equity and invest the remaining equity, which would give us a nice clean slate and a good head start on our marriage! We would be completely debt free except for our home mortgage, and would be able to chunk a substantial amount of money towards savings every month! This was before I was on the FI path.
Life had other plans for us in store! Not only did we not sell the condo, but only two weeks after listing it on the market, I received a notice from the condo board that it had been assessed for $4.2M in water damage!!!!!! They discovered that the condo had been built defectively without moisture being able to escape. Rain and snow would get trapped inside the buildings exterior and everything from the finished stucco on the outside right down to the studs needed to be completely replaced! With there being 52 units in the building, our portion of this assessment was almost $80,000 owing!!!
So not only did we not get to pay off any of our debts, but now all of a sudden we needed to come up with an additional $80k to pay for our portion of the condo assessment. Let me unpack what took place next.
Before we paid the $80k, we met with a real estate lawyer to see what our options were from a legal standpoint. He explained to us that our assessment would be paid one way or another. We either pay for it ourselves, or the condo board would put a lein against our unit and force us to sell it to cover our portion. Even if we decided to foreclose on the condo and walk away, the bank would sell the condo for a fraction of the property’s value, and then they would come after us to cover the rest of the outstanding mortgage.
The lawyer explained that a foreclosure on the condo would also affect my principal residence (my home)! I would have to sell or refinance my principal residence to cover the remaining foreclosure proceeds! Long story short, we were stuck, and there was no getting out of this predicament!!!! I originally paid $335,000 for a condo that now required $78,000 in special assessment fees. This brought the total investment into the condo up to $413,000 at a time when the current market value was only $250,000! I was underwater by $163,000!!! Did I hear you say OUCH!!!!!!!!
We didn’t have the $80k in liquid assets sitting in an account somewhere, plus we had about $1400 in monthly consumer debt payments that needed to be paid. To say we were freaked out would be an understatement! What we needed to do to pay this debt made me sick to my stomach. We refinanced our principal residence for about $60k and used a line of credit for the remaining amount. Going further into debt to pay for this special assessment was such an insult at a time when we were supposed to be heading to the alter debt free, and without a care in the world! Having this new debt in our lives brought our new monthly debt payments up over $1600 which tipped us over our financial and emotional boiling point!
I remember driving one day for work and I was on a quiet country road. I had to pull over because I couldn’t keep it together! I was so MAD, SAD, and COMPLETELY FED UP!!! I couldn’t believe this was happening to me. How did our life get to this place where I was plagued with debt? What did I do to deserve this??? How did so many years of having the Midas touch turn into the worst possible scenario happening to us totally unexpectedly? After some long hard reflection the answers became totally clear to me.
It took me a long time to get over the feeling of being a victim. I had to face myself in the mirror and realize that I was responsible for all of it! Yes, I know I didn’t build the condo, but I also had not been prepared for an emergency either! I was the one who racked up credit card debt, had student loans, lines of credit and a truck payment. I was the one who thought it was a good idea to live carelessly thinking I was totally in control of my life and finances when in reality I was totally out of control!
After accepting responsibility for my past, I made the decision immediately to put in place a plan and actions to become debt free!!! Fear is the greatest motivator sometimes! We were scared to death! If anything else came up expectantly, it would devastate us! We were hoping to start a family in the near future, but how can you plan to have a baby when you can’t even afford to buy milk??? Or how can you plan for birthday’s or Christmas, etc. when one payment the size of an entire mortgage is servicing debt each month?!
There was nothing that was going to stop me from getting out of debt!
We sat down and spent quite a bit of time planning our goals and figuring out the best way to go about paying off the debts. The first step included getting on a budget! We took control over our finances and allocated every single dollar that came into the house towards our debts! We used Dave Ramsey’s debt snowball method, which allowed us to have small wins and to keep paying off our debts smallest to largest! First all of our credit cards were paid off (then cut up), then the student loan was paid off, then the truck, and finally the line of credit! It took us just shy of two years to pay off all of our consumer debit, but it was not easy!!! It was intentional, and required HUGE SACRIFICE!!
What happened to us, has likely happened to all of you in one way or another to a smaller extent, or a greater extent! The truth is that when you take control over your finances and your life, amazing things can happen!!!!! I wish I would have discovered the FI community alot sooner, but by having these experiences in my life it has given us greater determination and lazer focus on our goals like never before!
My greatest gift to my child will be the wisdom and knowledge that I will share with her, which will allow her to (hopefully) avoid the same mistakes that I’ve made! Now that we’re on a path to financial independence and freedom, our lives are so much more liberating and full of joy! I hope that this post can relate to you or your situation, and give you hope! If you’re needing some advise, or encouragement please don’t hesitate to reach out!
RAFI