Picking up Nickels

Monday, November 20, 2006

Bankruptcy in the making

Do you know someone who lives in an amazing house, drives an expensive new car, and takes incredible vacations? Do you wonder how they pay for it all? Allow me to share the true story of an acquaintance of mine, who I will call "Ken" for our purposes here.

On the surface, Ken and I have quite a bit in common:
  1. We're both in our mid thirties.
  2. We're both married to a stay-at-home mom and have two kids
  3. We both own our own home
  4. We hold similar jobs in the IT business

Unfortunately, that's pretty much where the similarities end. There is one big difference between Ken and me though: he and his family are hyper consumers who live far beyond their means.

Background

I first became acquainted with Ken about five years ago as he was a great technical resource for some home theater gear I had bought. Sadly, Ken ended up losing his job and managed to scrape by with credit cards and selling open box home theater components on Ebay until he found a new job a few months later. You would think that this new debt and diminished savings would make Ken more cautious with his money, wouldn't you? Oddly, Ken and his wife instead began a major spending spree that continues to this day.

Not long after Ken started his new job, he bought himself a brand new 2003 Acura CL-S (MSRP $30,550). Three months later, he bought a brand new 2003 Acura MDX (MSRP $36,400) SUV for his wife. Ken then sold his modest house in the Northeast and took a new job in another part of the country (with lower housing costs) where he purchased a beautiful new home in an upscale development that was more than twice the size of his previous house. He described his finances as "tight", but he and his family were very happy with their new life.

A spending frenzy

That's when the spending really started to take off. A little more than one year after he bought his new 2003 Acura sedan, Ken traded it in and bought a brand new Ford F150 pickup truck for $28,000. One year and a half later, Ken and his wife decided that their 2003 Acura MDX was "too small" for his family of four, so they traded in the Acura MDX and his Ford F150 and bought his wife a brand new Lincoln Navigator SUV (MSRP $49,325) and him a used 2005 Ford Taurus ($12,000) with the understanding that Ken would replace the Taurus the following year with a new car of his choice. Five months later, even though it could be considered "wasteful", Ken traded in the Taurus and bought a brand new 2006 Mustang GT convertible (MSRP $29,965). Fortunately, Ken had developed a good relationship with the salesman at the Ford dealer, who "really took care" of him.

This spending frenzy has continued with many things, but the expensive family vacations (Disney Cruises, etc.) stand out the most (six $6,000+ vacations in three years).

An uncertain future

The numbers are frightening when I consider the debt that piled up when Ken was unemployed, the new home, the $180,000 spent on new cars in three years, the vacations, etc. Consider this about Ken and his wife:

  • They have probably spent about $10,000 on sales tax just for their car purchases over the last three years.
  • They have car payments in excess of $1300 per month.
  • They have very little equity in their new home, which likely carries a mortgage payment in excess of $2000 per month.
  • They have little retirement or college savings.

Ken and his wife have decided to live for today at the expense of tomorrow, but I'm not sure why someone would willingly put their young family in such a dire financial situation. Perhaps they don't care, or don't know any better, or are just trying to fill some void in their life with "stuff". How sad...

5 Comments:

  • Wow, I wish that were an embellishment of the truth but I know all too well that it does happen.

    By Anonymous EconUpdate, at 11/21/06, 6:53 PM  

  • I hope this "Ken" guys reads this, because if he continues this way, the hole is getting deeper for him by the minute.

    Some rich people can be really stupid :)

    By Anonymous Golbguru, at 11/22/06, 3:43 AM  

  • I wish that I made this story up too, but I'm afraid that it is 100% true. The sad part is that I've only written about the purchases that I'm aware of and am sure that Ken's situation is far worse.

    Ken will never read this story: He is too busy discussing his many purchases at consumer electronics and vacation web forums! He will not bother with any personal finance discussion unless his financial situation becomes desperate.

    One more point: Ken is not rich! He is a spender who has purchased lots of "stuff" and has the debt to show for it.

    By Blogger Frugal Frugalson, at 11/22/06, 8:47 AM  

  • Sometimes I feel like this is me, and other times I relate more to your posts... I go through phases of spending and saving. Eventually I get so much "stuff" that I just shut down spending on all things, and then start paying more attention to my funds and investments. I'm weird though, keep up the blog, I love it...

    By Anonymous TM, at 11/22/06, 10:39 AM  

  • Thanks for the kind words tm, it's always nice to know that someone is reading this stuff. :)

    Based on your blog, it sounds like you may have an expensive video game hobby on your hands. :) I used to be into gaming myself, but seem to have lost interest as my unmodded XBox sits in a dusty box in the corner. I'm just getting old I guess...

    By Blogger Frugal Frugalson, at 11/22/06, 2:19 PM  

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