Nickeled and Dimed

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The dumbest financial decision I have ever made came when I was 22 years old and about to start my junior year in college.  My friend had bought a motorcycle a couple months earlier and I was convinced I had to have one too.  Forget the fact that I had never even rode on a motorcycle, much less driven one, I needed one and I was going to buy one.

So when my college roommate and I visited a local motorcycle shop and I saw that brand new, shiny blue, Kawasaki Ninja 250R sitting there, I knew I had to have it.  After the $3,200 for the bike, $180 for the helmet, $800 for the useless warranties they suckered me into and various taxes and title expenses, the total bill ran to about $4,900.  Being an unemployed college student, I had no money to put down.  Kawasaki didn’t let this stop me from buying their motorcycle, though.  They simply gave me a $5,000 limit credit card to make the purchase on (You may be wondering how a college student with no job was approved for a $5,000 credit card?  That was easy, the nice lady in the credit department of the motorcycle store simply told them that I made $36,000 a year.  Shocker that we are in the credit crisis we are currently in, huh?).

After signing off on my $4,900 loan at 8 percent interest (was set to jump to 12 percent after two years), I had myself my dream motorcycle.  I spent the next few weeks learning to drive it and spending even more money getting “necessary” motorcycle equipment and insurance.  After about a month, one thing became clear; the motorcycle wasn’t for me.  I reluctantly came to the conclusion that I need to sell it.

For the next year and a half, the motorcycle sat in my dads garage.  I “tried” to sell it, but was extremely unrealistic in my prices and never got a serious offer.  Finally, in the spring of 2008, I sold the motorcycle on Ebay for about $2,500.  Here’s a look at the final cost for my months worth of motorcycle riding:

$4,900 purchase price + $200 equipment cost + $200 insurance cost + $400 interest payments = $5,700 total cost

$2,500 selling price - $100 eBay fee’s - $130 new battery cost - $50 fixing up fee’s = $2,200 total earned from sale

Total amount of money lost on motorcycle purchase= $3,500

Ouch.  Until I sat down to write this article I never realized how much that silly motorcycle actually cost me.  That seriously hurts. 

The road to financial independence is paved with many mistakes.  Like all other mistakes in life, the important thing is what you learn from them.  Here is what I learned from my costly motorcycle mistake:

1. Seek advice, not just approval.

When I started asking people for advice on whether or not I should buy the motorcycle, I simply ignored the people who told me it was a bad idea and listened to the people who thought it was a good one.  I wasn’t seeking advice.  I was seeking approval.  And anyone who didn’t give me that approval got ignored.

When making an important financial decision (or important decision in any area, for that matter) ask the opinion of the important people in your life.  Write down each opinion and give each opinion equal weight in your final decision.

2. You shouldn’t have to create a sales pitch on why something is a good idea.

Before telling people I was considering buying a motorcycle, I first came up with all kinds of reasons it was a “good” idea.  I came up with all kinds of reasons I should buy it, from saving money on gas (that baby did get 85 miles to the gallon!) to puting less miles on my car, I was positive this was a good idea.  By the time I was done, I had come up with a formula that showed I would be saving money by purchasing a $4,900 motorcycle! 

If a financial decision is a good idea, it will usually sell itself.  Look at both sides of the equation, not just the “benefits”.

3. If you have to lie in order to qualify for a loan, you can’t afford the loan.

When the credit department had to tell Kawasaki that I made $36,000 a year in order for me to afford the loan, that should have set off some HUGE warning bells.  If people who issue the credit had determined that you need to make at least $36,000 a year to afford their motorcycle, and I was currently making somewhere around $5,000 a year doing summer work, how in the world did I think it was a wise investment for me?

Look at the qualifications for a loan, if you have to lie to meet any of those qualifications, you can’t afford it (not that being able to meet all the qualifications means you can afford it).

4. Take an emotional cooling off period before making a large purchase.

When I bought my motorcycle, I went to the store, found one I wanted, got the financing, and bought it the next day.  Had I waited a week after seeing the motorcycle, my senses may have kicked in and realized it was an awful, awful decision.

By taking some time to let your emotions settle down from the excitement of a big purchase, you may realize it is actually a bad idea.

Even the most financially successful people have and continue to make many mistakes in their financial lives.  Mistakes are a natural part of the process.  By learning from your financial mistakes you can turn them into a positive experience in your journey to financial success.

My $3,500 motorcycle mistake is still painful to think about.  But I have learned several lessons from it and if it is the largest financial mistake I ever make I will be very happy.

What’s the dumbest financial decision you have ever made?  What did you learn from it?

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