Washington Post personal finance and travel columnist Nancy Trejos, was kind enough to take the time to answer a few questions about her honest and self revealing book about personal finances Hot (broke) Messes: How to Have Your Latte and Drink It Too.
The author describes candidly her descent into debt, and how she created and executed a plan to become debt free, without living a life lacking completely in pleasures and treats. She also shares some handy tips for living and shopping on budget, as well as saving for major purchases and for retirement.
Thanks to Nancy Trejos for her interesting and informative responses. They are greatly appreciated.
What was the background to writing this book Hot (broke) Messes: How to Have Your Latte and Drink It Too?
Nancy Trejos: I became a financial mess early on--in college. But I was able to get by, mostly by making minimum payments on my credit cards. I got into the habit of just sweeping aside my problems, and not actually fixing them. I started working at the Post 11 years ago. I covered all sorts of beats: county government, education, even the war in Iraq briefly. And then I became a financial writer.
I remember an editor asking me to be the personal finance writer and I said "Are you kidding me? I'm a personal finance disaster." But he thought I would come up with some good story ideas, which I did. But the longer I covered personal finance, the more it became impossible to keep living in denial about my own finances.
I was constantly interviewing people on the verge of bankruptcy or unable to pay their mortgages, and I realized I was not all that much different. They would always seem embarrassed talking to me and I would tell them "Hey, I know exactly how you feel." I wanted to write this book because I know there are so many people out there who are in financial trouble. They're not bad people, they're not dumb people, they've just made mistakes. I wanted to show those people that they're not alone.
The book is about your experiences with getting into and out debt. How did you find yourself in such serious financial difficulty?
Nancy Trejos: It started early on. I grew up in Queens, N.Y. My parents were immigrants. My dad is from Colombia. My mother is from Ecuador. My dad worked in a hospital cafeteria. My mom cleaned offices. They were frugal. We never splurged on anything. But we had everything we needed. I left my parents' home when I was 17 and never went back. I went to Georgetown University, where many students came from wealthy families. I started trying to keep up with the Jane and Joe Hoyas, as we called them.
I wanted to dress better and go on Spring Break, and I was able to do so because I got a credit card. Card companies were willing to give cards to any college student. I figured I could charge my lifestyle and get a better-paying job and deal with it later. It became a vicious cycle. I didn't have a strong financial foundation when I struck out on my own. Financial literacy isn't really something that is taught in schools, or even in many households.
Mancy Trejos (photo left)
Why do so many people have problems with money management and debt?
Nancy Trejos: As I said, I think people don't get taught enough about finances. We get taught more about sex than we do about how to balance our checkbooks. But also, I think part of the problem is psychological. Personal finance is called personal for a reason. Many people are emotional spenders. You have a bad day at work and you spend too much on cocktails after work. You break up with someone and you go buy a new wardrobe to make yourself feel better. We have to learn how to make more rational decisions about money.
One of the major problems facing people today is credit card debt. How does it get out of control?
Nancy Trejos: For a long time, when real estate values were soaring, people could mortgage their way out of debt--that is, they could get home equity lines of credit and pay off their credit cards. We went through a period of so much prosperity--the stock market was at a high, real estate values were soaring--and people got caught up in wanting the bigger house and the bigger car. They were able to finance these unrealistic lifestyles because banks were willing to extend credit to just about anyone. Those days are over.
How can credit card debt be repaid without causing other financial problems?
Nancy Trejos: For one thing, don't withdraw money from your 401k or other retirement savings accounts to pay off your credit cards. So many people do that and it hurts them later on in life. There are other ways to get out of credit card debt. Get on a budget. Cut back on things you don't need. Look at all your expenses and eliminate the cable if you don't watch it, or that magazine subscription you don't need, or whatever the case may be. Those are little things but they add up. And pay off the credit card with the highest interest first. People often attack the card with the highest balance but that's not necessarily the one with the highest rate.
Should people consider creating a spending budget and how can they stick to that spending plan when it's formulated?
Nancy Trejos: Of course! Everyone needs a budget. You have to know how you are spending your money. You have to know what your fixed and variable costs are. You have to know what your assets are. And from there, you can come up with a spending plan. It's not easy. You're going to screw up every once in a while. But you'll get better at it.
One of the greatest fears people have when creating a budget is they will never have fun again, and are faced with a lifetime of macaroni and cheese washed down with tap water. Does that have to be the case?
Nancy Trejos: Of course not! You can still have fun. You just have to set your priorities. Give yourself an entertainment budget. And make tradeoffs when you have to. Sometimes that dinner with friends means you'll have to wait for that pair of shoes you really wanted. It's all about prioritizing. Also, there are ways to have fun without dropping a lot of money. I still go out to eat, but more often than not, my friends and I will cook together, and it's so much fun.
People require good clothes to go to work in the modern world. Is it possible to dress well on a tight budget?
Nancy Trejos: Yes, you can find great deals at thrift stores and consignment shops. And conversely, when you have clothes you are done with, you can try selling them, sometimes even at a profit. And there are so many web sites that will help you find deals, like Shopittome.com. I get regular email alerts from them letting me know when items go on sale at my favorite stores.
Buying a car is a major purchase for people. What are some of the biggest mistakes that people make when they go shopping for a car?
Nancy Trejos: They don't do their research. And they give in to the car salesman too easily. That's why it's so important to take someone along with you. You shouldn't be afraid to walk away if a salesman is not willing to budge, especially when it's towards the end of the month and they're under pressure to show results. You are likely to get a call back if you walk away. And if you don't, there are plenty of cars for sale out there.
Is there a difference between good debt and bad debt, and how can a person tell the difference?
Nancy Trejos: I believe so. I don't consider my student loan a bad debt. I got a good education, and a job, out of it. Mortgages are usually considered to be good debt, though that has not been the case for many in recent years. If you are paying an exorbitant amount in interest or fees for your debt, it's not a good debt.
How can a retirement plan be created when there is only so much money to go around?
Nancy Trejos: Many employers will match your 401k contribution, so why not accept that? It's free money. I know it's hard to think about the future, but you must. You don't want to end up destitute in your retirement, or having to work many more years than you want to.
What is next for Nancy Trejos?
Nancy Trejos: I'm a work in progress. I'm doing much better financially, but there are times when I am tempted to buy something I shouldn't buy. I just have to keep reminding myself that being in debt is no fun. It kept me up many nights. I don't want to go back there.
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My book review of Hot (broke) Messes: How to Have Your Latte and Drink It Too by Nancy Trejos.
