I realize that my financial story is not uncommon.  I was reading a couple of days ago that 30% of all home owners are under water in their mortgage, and while the financial situation has improved somewhat foreclosures continue at a rapid pace.  I realize that for most of us this news is water under the bridge.  The decisions have been made, the loans closed and issued, jobs lost, and so on.  So the trick now is dealing with the fallout, learning how to deal with the reality of bad decisions, bad advice and our super awesome credit and banking systems.  The worst part is being patient because with credit the best medicine really is time.  Oh yeah, and it will suck.

So let's talk about my mistakes and lessons learned:

Mistake #1

Following the crowd.  We had a comfortable situation, no credit card debt, in fact no debt at all aside from the mortgage.  Looking back I believe that because I had been careful with money I had a false belief in my ability to make sound financial decisions during a turbulent financial market like Southern California housing circa 2005-2007.  In reality, my lack of experience and and an overabundance of confidence were a very bad mix.  Many people around me were buying homes, holding them for a short period and flipping them for a profit, or buying multiple homes for long term investing.  I assumed that I could come late to the party, do what everyone was doing and be successful.  I can almost look back on this and laugh now.  Almost.

Mistake #2

A house is not an investment.  A house is a place I live in, it is also a home where I raise my kids, a dog, grow a garden and make memories. If I live in my home long enough to pay off the mortgage it can also provide comfort and security after I retire.  Profits from a house are not realized until the property is sold and because we all need a place to live, if I sell my house I have to buy another one.  So I never realize a profit unless I downsize or rent or live in the basement at my In-Laws house.

I hear stories all the time about someone who buys a property, resells it, buys another one, sells that house and so on until they make enough money to pay of their last property and live happily every after.  Some of these stories are true.  Many more people try to flip homes and fail.  Flipping homes is a job, if I want to flip homes I have to work hard which will include doing renovations and repairs, do research and be prepared to fail.  A person who flips homes is actually making an investment because he plans to resell and roll those profits into another property.  Luck is also a factor.  Most people don't want to make that commitment or take that risk, I am one of those people.

Mistake #3

The bank is not my friend.  The bank is never looking out for my interests, a mortgage is a business relationship between myself and a person or organization who wants to make a profit whereas I only want to make a home.  Making a profit means that a bank will do whatever it needs to do to squeeze every penny out of me as possible.  My responsibility is to protect the long term financial stability for myself and my family; the bank will not do this for me.

Mistake #4

Overextending.  I readily admit that I took on too much debt.  Regardless of what others were doing or the advice I was given I should have realized that even a small blip in cash flow would be a disaster and I took no steps to minimize my risk and exposure.  In almost every way what happened is completely and totally my fault.  I got greedy, plain and simple.

In my next post I will discuss how I and my family dealt with the aftermath.  Hint:  It hasn't been pretty or fun.