Facing the Future With Resolve, Not Regret

Busted. Broke. Insolvent. Wiped out. Call it what you want, my husband and I have less than zero dollars. Way less than zero. In a documentary about wealthy kids, Donald Trump's daughter tells a story about her father pointing to a homeless man on the sidewalk and saying, "See that man? He has more money than I do." We're not the Trumps, but debt, like wealth, is relative, and ours is crushing.

I've always had a decent handle on my finances. I put myself through a community college without a single loan and managed to pay cash for most of my bachelor's degree. I worked as a bank teller and attended school in the evenings until I reached a point where the classes I needed to graduate were offered only during the day, so I quit my job. I picked up a part-time position keeping books for a volunteer ambulance corps and took out my first student loan. Credit cards filled the gaps.

When I married, my husband had some debt from a previous business he'd owned. We moved to the Midwest where I attended graduate school and my husband found a job with a company that paid well. In three years, we managed to pay off all of our combined debt and grow a small savings. We contributed the maximum to my husband's 401K. We invested in IRAs. In January of 2000, the company for which my husband worked was acquired by a larger company that planned to "right size" the workforce. Apparently, my husband was the wrong size. He lost his job that March.

Luckily, we were in a good position when the pink slips went out. Free from debt, except for my student loans, the healthy severance package he received was enough for us to live comfortably while we started our own company. For three years, business boomed. At any given time, we had three to five employees. Ours was a small shop but we tried to think big. We paid a competitive wage and offered full health care coverage to our employees. We did pro bono work for struggling businesses and friends. In lieu of traditional advertising, we used our marketing dollars to fund an art gallery that I managed.

Let me set the record straight. My husband and I do not live beyond our means. Even when our business was healthy, we lived frugally. We did not run out and buy new cars. Our furniture--most of which belonged to his grandparents and was passed on to us--remained the same. We continued to rent a house rather than buy, because our rent was dirt cheap

Thankfully, we did not own a house, because we probably would have lost it. Business slipped and two years later we were flat on our asses. As I said before, I think I'm pretty good with a budget, but when you own your own business, the rules change. After we lost one of our biggest clients to a merger, we stopped paying ourselves in order to keep our employees (who also happened to be our friends) employed. This worked for a while because we had savings, but once the savings ran out, we turned to credit. When business did not pick up, we used credit to fund payroll. When our credit ran out, we tapped into our retirement. And then, last May, we hit bottom. We fired our friends. We shut down the office. We packed what little we owned and moved back east, into my husband's parents' camp in the Catskills.

The business is now a two-man shop (my husband and I), and we are struggling to get back to zero. We know where we went wrong. It was an expensive lesson, but one we will never make again.

What were our mistakes?

First, we employed friends. If you own a business or want to start one, please do not hire people with whom you are socially and emotionally involved. For over a year we agonized over the fact that if business did not improve, we would have to let our friends go. It's hard enough to lay off any employee, but when the employee is also a close friend, you will do everything in your power to keep payroll coming, even if it is to your own detriment.

Second, we could not afford the benefits we provided. Do not offer full health care coverage unless you are absolutely certain that the company can afford it. This benefit was crippling whenever we encountered a cash crunch. We just finished paying off the premiums in December, a full six months after we let everyone go.

Third, we risked our personal financial stability. Do not, under any circumstances, sacrifice your credit, retirement, and personal savings to keep a business running. Before we hired our first employee, we should have decided how much of our own money we were willing to funnel into the company as capital. When business is bad, you are not rational (things will pick up, you think, if we can just make it through this week, month, year) and you are susceptible to taking risks you might otherwise eschew from a more stable position.

Now what?

In September, we introduced the company and personal credit cards to the scissors. The business is making money again and we are using every dollar, minus what little we need to live, to pay down the debt. Soon, we have to find our own house, which means more debt, but it's either that or rent, and we're through renting. I have returned to my super-frugal roots and am counting every penny that passes through our bank account.

Stick around. Visit often. I'll share money-saving tips, budgeting insights, book reviews, business decisions, and general ruminations on personal economics, consumerism, and living a good life without robbing an armored car. Watch where we go from here.