A Millenials Guide To Beating Bankruptcy
Some of us celebrate our 25th year on the planet with pizza and beer, others of us quit our jobs and travel the world, most 25 year olds don’t think about how to avoid bankruptcy. However, when Jim Spiewak II was 25, he was in front of a bankruptcy court judge, explaining how he’d lost two properties — one in Florida, the other in Tennessee — to foreclosure. “I went from the highest of highs to the lowest of lows in the space of 18 months,” Spiewak says.
The collegiate entrepreneur
Spiewak’s story isn’t one of excess as much as it is ignorance of personal finances. And it began well enough. He spent a year researching the local real estate market while still a student at the University of Michigan, ultimately convincing his dad to take out a home equity line to fund a property investing business the two would operate together. “I wanted to get into investing — specifically, real estate,” Spiewak says.
The plan: Buy fixer-upper homes and flip them for a profit. At the end of 2003, they began shopping. Success didn’t take long. Within a year — December of 2004 — Spiewak was sitting on $30,000 in profits from two sales. Not bad for a college student studying finance.
But Spiewak saw an opportunity to do better. Ever since his parents had bought a house in south Florida shortly after the 9-11 attacks, Spiewak had eyed a move to the Sunshine State. He also had inspiration. “[My parents] had done very well in real estate their whole lives,” Spiewak says.
Florida real estate, he reasoned, was the perfect can’t-miss investment. So after his junior year at Michigan, Spiewak packed his bags and spent the summer of 2005 in and around Sarasota County, looking for property. He found what he wanted in June. Spiewak placed the needed deposit and began imagining life after graduation, living in a newly-built home near the beach.
What he still needed was another investment property. The next month he would find one in Tennessee, near the headquarters for FedEx, his father’s long-time employer. Spiewak reasoned that pilots of the express carrier would need a short-term “crash pad” that was a little homier than a hotel. “It rented out right away,” Spiewak says. A $5,000 investment was on its way to becoming another $30,000 profit.
At least it was until the real estate bubble began to burst. Within 18 months, he’d be broke. “Either it was bad judgment, bad timing, or a bad investment, I got in at the very top,” Spiewak says.
Empty pockets lead to a new beginning
A Chapter 7 bankruptcy filing would be his only option. But wiping out his debts would come with a cost. Not only has Spiewak been without a credit card since appearing before the court last July, he’s also unable to qualify for a loan of any type.
“One day, I had all this money in the bank. The next, I have no money, two ruined houses, and bad credit for 7 years,” Spiewak says. Still, he hasn’t lost hope. If anything, he feels reborn even though he couldn’t avoid bankruptcy.
Spiewak in January started financialyoung.com, a website that answers common financial questions for the under-30 crowd that was inspired by a series of lectures he’d been giving to students at the University of South Florida in the months following his bankruptcy filing. He calls it his chance to give back, a way to keep his younger peers from repeating his mistakes.
“Bad things are going to happen to good people — that’s life. You can either feel sorry for yourself, or you can pick yourself up and start over,” Spiewak says.
So many are. Bankruptcy filings were up 35 percent year over year in May, and 1.2 million cases have been filed in the last 12 months, The Associated Press reports.
Beating bankruptcy with a passbook
Spiewak is a year into his bankruptcy. He’s not thriving, but he isn’t begging on a street corner, either. Going broke, it turns out, has been a cleansing experience financially: “What I realized is that I needed to get rid of all the BS in my life.”?So he took inventory, placing every expense — everything he could think of — into a spreadsheet that he still uses today. He lives off his wages as a financial advisor, placing everything into a savings account that he can draw from with a debit card. He’s become more disciplined as a result.
“It’s not about how much you make, it’s about the choices you make,” Spiewak says. “If you have [a] spreadsheet in front of you every day, you’re more likely to not spend lavishly.”
He doesn’t. Instead, Spiewak is rebuilding his financial life by adhering to two timeless principles:
1. Pay yourself first. Spiewak has accounts that automatically withdraw from his primary savings to fund his 401k, a Roth IRA account, and emergency savings. Only what’s left can be used for bills. It makes for a tight living, but he manages using the spreadsheet. “I know exactly what my expenses are every month,” Spiewak says.
2. Buy only what you can afford. The spreadsheet also helps him to know exactly how much money he has for recreation. And knowledge, plus a bit of forced savings, is power. “To me right now, [savings and debt reduction] is more important than going out with friends at the end of the month,” Spiewak says.
So it should be for us all.