In 2015, me, my wife and son went on an all-inclusive three week holiday to Cuba. Read on for details of the financial ignorance that lead to a cheap, bargain holiday that I'd shopped around for costing almost double the price.
Life at home was busy and both me and wife had been working hard. I'd just got a promotion at work and so had extra income. We deserved a holiday, God knows we'd earnt it.
We didn't really talk a lot about finances at this time of our lives. Our combined income was pretty decent and we always paid the bills - never defaulted ever. Sure we had a couple of credit cards but we always made the minimum repayment and our income was bigger than our expenditure.
I scoured cheap holiday websites for good deals on holidays over a couple of weeks and eventually saw a decent deal - we hadn't even decided on where we'd wanted to go yet but when I saw this deal, the idea of 3 weeks in Cuba all-inclusive was great. The holiday would cost us around $7000 but with no need for much spending money at all, so after a brief discussion I booked it. Something to look forward to following working so hard. After all, everyone is entitled to a holiday aren't they?
We arrived in Cuba and the holiday was great, we didn't spend much at all whilst there - we spent a lot of the time in the complex's pools and in the restaurants or lying about sunbathing. It had been amazing. What made it even better was when we spoke to other guests about how much they'd spent on their holidays. A couple with a child like us had spent $11,000 on a TWO week break there. Wow, hadn't we done well. We'd put the holiday on a 0% Purchases Credit Card - I had an excellent credit rating and knew that when we got back home we'd start to pay it back. Only...we never.
We got home, had our holiday and went back to work. Little things happened, the car kept having problems, the roof leaked, our fencing blew over in harsh winds. So the credit card wasn't getting paid off and there was absolutely no motivation whatsoever to pay it off - heck we'd had our holiday. Anyway, Christmas was coming.
Following months of avoiding paying off the debt - although we didn't even call it debt at the time just "the card". Instead, we got through Christmas and didn't wrack up anymore on "the card" - weren't we clever and good with money!?
It was coming up to the end of the 12 month interest free period when reality set in, I tried to get a 0% balance transfer card but failed. Now, we were in trouble. The interest was going to kick in - don't ask me the amount, I never really understood interest rates anyway, despite being good at Maths. Yeah, right.
We then began to gain interest at an alarming rate but we just carried on paying off the minimum amount - it was ok as we were still not struggling each month. My wife, who at the time, didn't care much about the finances asked me how we were getting on with our bills including the cards. It was only when we sat down and went through it, that we realised with all the interest accrued we still owed around $6200 but had spent over $2000 in interest!! It was time to change our ways!
The new "us"
From that evening of sitting down together, we vowed to change our ways. We had to face reality, neither of us was "good" with money - we'd had our heads buried in the sand, in fact worse than that we actually thought of ourselves as better with money than other people! That couple that paid $11000 may have paid it all with cash saved up for all we knew. Yeah they were stupid! Now we knew who was really stupid. It took us a couple of years of sacrifice (no holidays!) to pay back the amount we owed and by the time we accrued all the interest, it cost us just over $13,000 - close to double the cost of the holiday!
What we do now
Firstly, we decided to make money our hobby! Sounds crazy but that's what we did. We consumed books, TV shows, podcasts, youtube videos, magazine articles, etc on all things to do with money and these are the major changes we've made:
1. Never ever ever borrow money you don't have (except your mortgage!).
New Zealand, like most developed countries, is awash with offers of credit and all of them seem attractive. In fact, offers such as Layby, Afterpay, Genoapay are extremely tempting as you can go into a shop, get the item and pay it off in installments. Great eh!? Wrong. At least not for us and the way we live now. We live our lives, if you can't afford it don't buy it. Save first.
2. Stop wasting money on the little things.
I love a coffee but no longer ever buy one whilst out, I make it myself. The last time I got a takeaway coffee was through the Z app, as they were offering a free coffee for people new to the app. As a family, we've cut down on those impulse buys. We also live by the rule of 24 and give ourselves 24 hours before making a decision on a purchase i.e. if we see something we want in a shop, instead of getting it there and then, we go home and wait 24 hours before making a decision. Also, we put money that would have spent on an impulse buy straight into savings.
We subscribe to the 50/30/20 rule of budgeting whereby you spend 50% of your income on essentials for example, rent, bills, food. 30% goes on entertainment and other non essentials, whilst the remaining 20% goes on savings (which can include investments). We took a while to hit the 20% part of this - the first month we saved just 1%! However, we built this up and as income as gone up - the additional money has gone straight to savings. That's been hard as human nature dictates we believe that we deserve rewarding for the hard work we do. We've now learnt to delay gratification and know that saving now ensures a better tomorrow.
We have to learnt the hard way but I've spoken to loads of people who are currently in a mess financially. There's also people who seem to go on vacation all the time, go out every weekend and buy the nicest clothes. You know that one day this lifestyle will catch up with them.
Good luck on whatever stage of the financial journey you are at. For tips on how to stop living paycheck to paycheck check here and if you like what you've read, feel free to share and tell other people.