Friday, October 17, 2008

My Story and I’m Sticking to it Part II

What a Winer

I'm broke, have no cash, no assets, and no paying job. Whey, whey, whey you say. Well I don’t blame you. I can’t believe I’ve been so stupid, let me repeat that STUPID, STUPID, STUPID. I am and should be ashamed to be in this situation. I’m not sorry about losing money in business because owning a business is one of the best ways to create wealth. However, I am sorry how money was squandered away in the business which we will discuss in a later article. I took my eye off the ball when it came to the managment of money and assets. And it disgusts me to admit my family and I have lived a hyper consumer lifestyle. I know better, I’ve been an inveterate student of money management, investments, markets, and finance for all of my adult life. The message of conserving assets along with the prudent management of money has been delivered repeatedly to me through classes, seminars, books, magazines, and articles, but these messages fell on deaf ears. Why, arrogance, ego, and………drum roll please, an inferiority complex. Yes that’s right, a fear of being inferior to those around me. The fear of not feeling superior, of not having more, better, bigger than the next door neighbor or the guy standing next to me at the airport, little league game, etc. Psychology in achieving long term success weighs heavily on whether one succeeds or fails and we will discuss this in future articles. I know how I got into this mess now its time to adjust and correct the situation. This adjustment will blossom into a new lifestyle, one of frugality, comfort, security, new investments, and new wealth.

Some would say that for a Latin kid born in east LA to a single mother during the tumultuous early 1960’s forwarding to the present where my family lives in a home in an exclusive beach community in sunny southern California, having owned multiple businesses, purchasing several investment properties, and buying things associated with success such as boats, luxury cars, carribean vacations, five star hotel stays, flying first class and getting caught up in a hyper consumer lifestyle, well they might say my life has progressed for the better. I might be inclined to agree if I were looking at my life from an outsider’s perspective while someone else picked up the tab. The problem with this picture though is that my lifestyle has left me flat broke and drowning in debt. At this point bankruptcy is not an option. I abhor the thought of having to subject my name and reputation to a “Bankruptcy” but this may be a viable and appropriate option for others struggling with their finances (look for an article on Bankruptcy soon).

Why is bankruptcy not an option for me? Family history is the short answer. My grandfather was an old cowboy from Arizona, and on the farm he taught my dad honor and character is more important than life itself, and they both passed this on to me, so no, bankruptcy is not an option. They believed a man's name (today it would probably include credit score) was how others would judge you whether directly or indirectly. This is whay I have always maintaned as good a credit record as possible and dealt honestly with anyone I've associated with in business and in my personal life. How can you go against family tradition, a tradition handed down from a man who borrowed money at the bank on a handshake. Merle Haggard wrote a song about a man like my grandpa “who borrowed money on his name”. Now with both my dad and grandpa gone I feel a strong obligation to honor them both by working my way out of this financial mess without disparaging my family name.


Back to my debts. They are a combination of business debts from the failed business and personal debts from living expenses while the business was failing. While the business incurred operating losses of $750,000.00 (the accounting amount on the books) it did not include still outstanding debts for the corporation as of the close of business on June 16, 2008. Let’s look at the outstanding debts for the business.

The corporation had credit card debt of $59,000 which many of you may know has a personal guarantee attached as it is a requirement by card issuers for small corporation credit cards. In addition, the business has past due rents to a landlord of $23,545.00 and furniture obligation lease payments of $23,900.00 and phone lease obligations of $15,000.00. As the business was part of a national franchise the corporation also owes $20,000.00 in back royalties and an additional $125,000.00 in what the franchisor termed “lost profits” for the loss of future royalty revenues. The current outstanding debts for the business total $266,445.00, not including the operating losses.

On the personal side our credit card debt is $25,900 between seven cards. This does not include $19,000.00 in debt on three BofA credit cards which I reached a settlement on for 0.13 cents on the dollar and paid off earlier this year. I have not been paying any of the other credit cards since January 2008. We have car debt of $26,500.00 with Porsche finance for three more years with monthly payments of $685.00 per month. Fortunately we qualified for Tier I financing when we financed the car so the interest rate on this debt is 4.5% fixed. Our first mortgage is $698,000.00 at an annually adjustable 6.35% interest with 25 years remaining with a current payment of $5,975.00 which includes taxes and homeowners insurance impounds. We also took out a home equity line of credit of $565,500.00 which helped support us and the business with 8 years remaining on the term at an adjustable rate tied to the federal funds rate plus 2.5% currently at an imputed interest rate of 4% with a current monthly payment of $2,950.00. Total consumer debt is $52,400.00 and total mortgage debt is $1,263,500.00

Monthly Expenses

My mortgage(s) payments total $8,925.00, car payment is $685.00, tuition payments for private high school are $1,050.00, utilities are $530.00, college tuition and expenses are approximately $500.00, and misc expenses including food and gasoline are approximately $1,100.00. This totals $12,790.00 per month.


I work in an investment business on an all commission basis. My work is tied directly to the availability of financing through the capital markets. With an impending recession and credit markets currently frozen my industry has seen a dramatic reduction is sales activity. Past annual earnings range between the lower six figures to the lower seven figures. Although it is safe to say competition in my business has elevated to the point where an independent operator such as myself is at a competitive disadvantage and would have a hard time consistently earning seven figures, in good economic times. In calendar year 2008 I have not earned enough to meet my monthly living expenses. My wife worked with me in our business and is currently not employed although she is presently seeking employment. We have earned what amounts to 1 ½ months of living expenses in income in the last five months with very little income coming in between now and the end of the year. We have cleared out our retirement accounts and do not have any savings left to fall back on. Our situation is obviously dire.

My Financial Recovery Plan

Stay tuned for more on my plan to pull us out of our current financial crisis, and articles on how you can reach your financial goals using the tools and resources some of which I will use to workout of this financial crises. There are many resources and financial products that exist today which were created to assist the average American to save money, invest, start businesses, and create wealth.

I welcome your comments. To your health, wealth, and happiness.

The information contained in this site is the sole opinion of the Baron Von Savings. The Baron is not a professional money manager, tax expert, accountant, attorney, or stock broker. You should consult with an appropriate professional before making decisions concerning your finances.


  1. Why don't you just sell your car? Wouldn't you rather be rich than look rich?

    Unless you start making mid-6 figures or higher very soon, you are gonna declare bankruptcy. If you do that, you'll lose all the crap you have anyway, why not get rid of some of it so you have a chance to keep the rest?

    It doesn't make any sense to me.

  2. Try debt solutions (google it). It's a legit company, I am using it currently (I have much less debt, about 8k in cc debt). But essentially what they do is call your creditors and tell them that they are helping you and your family with your debts. Then they take (Say you have BofA debt!) all the bofa debt they have (not just yours) and go talk to BofA about a settlement. The second they get a settlement you are called, you dont have to take it if you cant afford it. But it gets the creditors off you and then you have a chance. Look at their site they have settled a HUGE amount of debt!!!

    Hope that helps! Also I side with sellign the car, maybe buy a 1K car if its mandatory to have one!

  3. The short answer? You need to pare
    down your lifestyle drastically and

    My advice would be as follows:

    1)Since you`re probably not going to able to sell your home for a decent price anytime soon, I would suggest renting it out, and moving to a much smaller, much cheaper place to live. Which brings me to my next point:

    2)Get rid of *everything* that isn`t absolutely essential to your
    existence. Remember, you`re trying to *survive* right now, and not "Live" - you`ll "live" again LATER, AFTER you`ve straightened
    out your financial situation.

    What most people view as "assets" are often, upon closer and honest evaluation, really just liabilities.

    Get rid of the boat, the jetskis,
    the big-screen TVs, ALL your "toys",(and don`t put them in storage, either!) as they aren`t presently doing you any good, and are actually hurting you financially just by virtue of you having to own, store, insure and maintain them, and their very presence is, right now, a hindrance
    towards your being able to rent out your home, move out and into a smaller, cheaper place.

    Right now, you need to stop the bleeding. Put all your non-essentail "stuff" up for sale or auction on Craifslist and/or ebay.
    Have a garage-sale, raise some cash, and free up some room.

    Trade the Porsche in for something inexpensive, reliable, economical and sensible - you`ll be needing
    just such a vehicle to commute to your new job, which brings me to my next point:

    3)You need income. NOW. STEADY income(which may help you as a bargaining chip with your creditors
    if/when the time comes to negotiate
    "doable" terms). You`re going to
    have to go out and get a {ugh} job, as will every family member who`s able to work.

    I know first-hand it`s not easy - I
    used to own a business back in the 80s that my partner and I started on a shoestring, built up to a quarter million a year business in 3 years(3 years of 90-100 hour workweeks), only to see it crash and burn 2 years later. Towards the end, I couldn`t draw one thin dime in pay for the last 8 months.
    I gave it my best shot at trying to turn things around, and made the classic newbie mistake of starting to pour my personal assets
    (what little I had left, plus whatever I could borrow from my available credit lines), and eventually was SO broke my electricity was turned off, I drove without insurance(in my Mercedes, no less), and had to buy cans of Sterno for heat every night. I was also tens of thousands of dollars in debt at this point.

    I finally decided I had hit bottom, was at a dead end, and had no choice but to seek employment. I went to work for my competitor!
    I was slightly embarrassed to show up at their office for an interview, but instead of being mocked or snickered at(as I had expected), I was welcomed into their organization and respected for my experience and tenacity.
    I was working again, and now at least, bringing in some money, which, afterall, is the basis of any personal financial recovery -
    without income, you cannot rebuild and recover. But with some income, even if not much, you can plan, start living within your means, and putting youself on the road to recovery. Which brings me to my next point:

    4)Live within your means. This one is so basic yet SOoo important!
    You CANNOT continue to spend more than you earn. NOBODY can. Not big corporations, not even big governments(look what happend to the Soviet Union in 1989).

    If your net income is $100k a year you must spend NO MORE(Preferrably,
    LESS) than $100k a year. If your net income is $20k a year, you must keep your spending under $20k
    a year.

    Distinguish "needs" from "wants" - you NEED a roof over your head, and although you may WANT a nice, big house in a great area, in YOUR
    situation, you`d be wise to lower
    your expectations and, if you have to to remain solvent, cram into a 2bdrm apt for the time being.

    You probably NEED a car, but do you NEED a Porsche? I think not.

    Stop worrying about what others might think(they aren`t paying your bills, are they? Stop worrying about wether your neighbors have more and nicer "stuff" than you - they`re
    probably deep in debt too - the cracks simply haven`t appeared yet in their house of (credit-)cards
    that they built.

    Pay cash for everything. You`ll find you`ll be spending less and saving money on interest payments.
    If you don`t have the cash and it`s NOT an emergency, DON`T BUY IT. Use plastic only in emegencies, or when there`s simply no other way to pay.

    You can do this, but it will require a serious and honest self-reasessment of your life and your financial situation, and will require a major change in thinking and philosophy of how you approach everyday life`s challenges. There`s nothing quite like being flat broke and living in your van
    for 9 months(as I once had to do)
    with no water, refridgeration, electricity, sanitation facilities, or safe place to park at night, to give one time to reflect back upon the bad financial habits that GOT them into this mess in the FIRST place,
    lay out a workable strategy for getting out of a bad situation, and adopting a new philosophy of
    frugality and debt-aversion so as to avoid ever being in this situation again. Good luck!

  4. Thank you all for your feedback. A couple of things. The car being sold is in process. In fact I'm hoping to sell it and make enough to cover one months mortgage payments (we put $20k down as a down payment). I need to get a replacement car 1st though as we have four people using our current two cars (the other car was bought for cash). We got ride of a third car recently and took one of us off our insurance (my daughter now doesnt drive and needs rides to and fro) to reduce auto expenses.

    We are trying to barter/exchange a baby grand piano for a used car. If we sell the piano first then we will use this money to buy a replacement car for the Porsche. We do need two cars though to get us all around to school, work, etc.

    As I have not written about my personal financial recovery plan yet I can appreciate all of your comments. We are paring down on all of the crap we have and seperatley are working on a individually managed debt reduction program.

    The debt reduction though can only be implimented after I shore up income generation which has been my primary focus at the present time.

    The house rental comment is good. I looked into this and would consider it but would be backwards almost as much as the mortgage. I might save $1,000 - $1,500 a month bewteen renting an appartment and the shortage between mortgages and rents received. But it is an option and we will move in this direction if we need to. If we can get through to August 2009 we can move onto our sailboat (which we quit paying slip fees on in January) and live free, relatively speaking, by anchoring in protected harbors. The inconvenience and work required to live this way would be enormous. We would need to live somewhat of a nomadic life for a while but we could do it while we move through our personal financial recovery. I look at this option as an opportunity to add to my life's experiences. My wife on the other hand doesn't share my enthusiasm and would do it but may be miserable. I'm letting this idea grow on her. Stay tuned for more on our personal financial recovery.

  5. Your household expenses seem ok, EXCEPT for your mortgage.

    Have you tried to work that out with your first and HELOC lenders yet?

    If they won't budge your best option from a cash flow perspective is to let it go into foreclosure

    I doubt you will come close to covering that mortgage by renting out the house.

    In California, the first cannot come after you for any deficiency.

    Then you can negotiate with the HELOC lender and your business creditors.

    Why would you have to wait until August to move onto the boat if you own it now?

    BTW, you've got a GREAT story here.

    Be sure to document as much as you can to generate cash flow from it later.

  6. Bill,

    The boat move would have to wait until August because a) its the time both my kids would be away to college and have a place to "live" and b) the boat is a 32' sailboat, not much room for two more or less 3 or 4.

    You are absolutely correct renting my house would only bring in about 40% of the mortgage. Equalized by the rent i would have to pay, and the difference I would have to make up on the mortgage, and theres where I get the $1-2k savings.

    I'm having a hard time sucking up to the idea of let the house go into foreclosure. Not having much dough, but still having my principals, I'd like to be able to sell it, and use the proceeds, there wont be much left, to pay off the debt. Then we can start afresh. The loses from both the business and personal will certainly be "cataloged" for future use. In fact, the way I see it, my next business opportunity, providing I run it through my existing corporation, will generate "income" tax free for about the first $1,000,000.00. I'm telling ya, there are opportunities everywhere.

    I'm glad you enjoyed "My Story and I'm sticking to it". My reasons for writing sharing this outline draft is that I'd like to be able to use the entire story (I have a more comprehensive version I am working on) as a way to measure my progress . I hope to use reflection, popular personal finance theory, and personal life experience to move through this process. I'd also like to use my life's examples to guide others in ways to avoid developing similar behavioral traits. If something else develops out of it then obviously I'm going to be in a position to not only want to, but may NEED to, pursue any other opportunities.