This article in the American Bar Association Journal caught my attention. The long and short of it is that a new associate at a huge law firm bought his fiancee a $100,000 (yep, six figures) engagement ring. The associate, Ryan Strasser, who probably makes about $175,000 a year, says he budgeted $40,000 for an engagement ring, but his fiancee, Sarah Jones Dickens, said she was worth at least a 3.5 carat ring, so Strasser ponied up the extra $60 grand to please his future wife with a 4 carat rock. Things went south, the engagement was broken off, and now the lawyer wants the ring back. Strasser left the $4,800/month house the two had been sharing while Dickens finished her dissertation in art history, but continued to pay the rent. He claims there was an agreement that he would let her stay, he’d pay the rent, but she’d give the ring back. Now Dickens claims the ring is hers, no strings attached.
So what’s the connection between this sad tale of unrequited love and bankruptcy? Well, Strasser might end up there but the real moral of this story is that just because you have money doesn’t mean you can’t get yourself into a lot of financial difficulty. Strasser apparently financed the ring through a combination of savings, credit cards and a $30,000 personal loan. In other words, he’s got what we in the business call a butt-load of consumer debt. That debt is bearing interest that’s probably in the high teens. As one commentator to this article put it, “he’ll be well into alimony from wife number 1 before he finishes paying off this mistake with his fiancee.” Now that’s kind of cynical, but there’s a lot of truth to the statement.
Strasser exhibited several signs of bankruptcy prone people. First, he let emotion get in the way of clear thinking. Really, if your fiancee says she’s “worth” a $100k ring, isn’t that a red flag? Secondly, he let the fact that he’s making good money cloud his judgment about his ability to meet his obligations. You can never make enough money to cover your expenses, because expenses have a way of expanding to consume the money available. What you have to do is learn to live within your income, whether that’s $17,500 or $175,000 per year. Thirdly, he turned to credit cards and personal loans to finance what was never a necessity in the first place.
Most of the time people file bankruptcy due to circumstances beyond their control, such as job loss, unexpected and uninsured medical expenses, death of a spouse, that sort of thing. But a good number of people put themselves on the fast track to bankruptcy by acting like Mr. Strasser. And it doesn’t matter how much they make.