There are a whole bunch of bloggers talking about their biggest financial mistakes on the magnificent web of information. I think this is a fantastic exercise because we can learn so much from these errors. Since you are reading Winning Personal Finance, I of course haven’t made any mistakes (cough cough). Luckily, I’ve avoided some of the big ones like consumer debt, high investment fees and not saving at all. Unfortunately, my financial life has not been perfectly streamlined. Without further ado, here are my 7 most regrettable financial decisions and more.
Not Investing Enough in Myself
As a young person, time and your potential future earnings are the biggest assets you have. Warren Buffett offered to exchange $100K for 10% of the lifetime earnings to any of the Columbia Business School students in the audience at a talk he gave. As you know, Warren very rarely loses his bets so he’s valuing the lowest expected lifetime earnings of that group at well over $1M.
I believe the very best investment a young person can make is in themselves. I’ve done very well in my career and am happy with how my skills and salary have grown over time. With that said, I could have done more.
I could have added an advanced degree part time at night without giving up my salary while I was in school.
I could have taken more one-off technical courses just to add skills.
I could have done a much better job of networking. As an introvert by nature, “networking” may be my least favorite activity. Sometimes you need to do things you hate. I should have done more networking.
I think some additional investment in my younger self would have paid off handsomely.
I believe my largest quantifiable financial mistake was lifestyle inflation. Essentially our household spending increased as our income increased. This is a common mistake. When you are working hard and life is stressful, it’s easy to spend out of frustration. I should have used any frustration from work as motivation for saving instead.
Because the more I save, the sooner I won’t have to work.
The lifestyle inflation mistake was two-fold. First, we did not properly consider long-term goals with all spending decisions. Second, we were not actively tracking and analyzing spending to make sure we were on target with our goals. Had we been tracking our expenses regularly and realized the thousands of dollars we were spending on nonessential items, I think we would have chosen to redirect more toward investing.
Not Having SMART Goals
While I have always had financial goals, they were not always SMART. In case you don’t know, SMART is an acronym for:
An example of a “dumb” goal is saving for a down payment on a house. While it’s a viable goal, as written it does not meet any of the SMART criteria. At the time we had this goal, we used it to justify not maxing out our 401(k) plans. We kept our monthly additional “down payment savings” in our checking account and maybe once in awhile – when it looked like there was extra – we swept it over to our down payment account.
To make the goal SMART, it needed more focus. We should have written the goal as: Contribute $1,500 per pay cycle into our online savings account via direct deposit until it reaches $100K.
The lack of clarity and specificity for that goal left us saving at a much slower pace than if we had more focus. You already read about how we were not tracking our spending above, right? Guess where the extra money we were spending came from? That’s right, our “down payment” fund. When I really think about it, we probably could have maxed out our 401(k) and saved for a house at the same time had we came up with a plan and stuck to it. Ugh! Passing on the 401(k) deductions when our income (and tax bracket) were at their peak was an impactful mistake.
Invested too Conservatively
As you know, the stock market always goes up over time. As such, a young person many years away from retirement should be investing in equities (stocks) to maximize gains and not worry about diversifying with bonds right away. All of this is laid out very well in this post from JL Collin’s Stock series. Anyway, for some reason, I invested a small portion of my assets in bonds from the start. I’m not sure what I was thinking. It may have been the conventional advice about subtracting your age from 100 or 110. That formula would have left me with 78% or 88% in stocks at age 22. I should have gone with 100%! I would have enjoyed better overall returns and had all the time in the world to recover from a market correction.
Being Lazy about Personal Finance
There are so many examples I can give on this. Here are just a few:
I once went 9 years without shopping around for insurance.
I did not set up automatic investments into my brokerage account. Instead, every once in awhile when there was extra money in my checking I bought some investments. Remember that time invested in the market equals money, and I was giving up some of that time!
At one point I did not pay attention when my discounted rate with the cable company expired and I think my bill increased to almost $200 at one point!
These are just a few examples. If you focus on your money, you will have more of it. Don’t be lazy!
I love the strategy behind a complex negotiation. But in general I’m fairly non-confrontational. I avoid the awkwardness of confrontation and negotiation whenever possible. This is probably why I’ve never sold anything on Craigslist. This avoidance can impact big decisions like negotiating a salary and buying a house or smaller ones. (Side note – you should always negotiate your salary before starting a new job). Recently I’ve been a bit more adventurous and have taken the approach of just asking for what I want to see what happens. This has worked out really well. For example, the other day I received $10 off a pair of ice skates I was buying just for asking. I know that amount is small but there are countless opportunities to just ask for a better deal. Had I asked at each opportunity, I’m sure I would be further ahead today.
Purchasing a Home as an Investment
While I learned how much money I need to be financially independent relatively recently, I knew I wanted to accomplish this goal ASAP since I was a teenager. Two years after graduating from college, I decided it was time to buy my own place. I’d known all about the mortgage interest tax deduction and that “renting was just throwing money away.” I accomplished my goal and bought a condo at the ripe old age of 24 (a story for another time).
I made two mistakes here. First, I made the purchase right before the housing market crashed. Second, I bought a place that was just adequate enough for a college student. It was described as “cute” and “cozy” when people were trying to be nice. It was nice but very very small. Had I waited two more years, I could have bought a “grown up” place and would have gotten a much better buy on it as the market came down.
To be clear, the mistake to avoid was not the bad market timing. That was unavoidable in my opinion. The problem was that the transaction costs required to buy and sell a home are very expensive. You don’t want to flip houses every year unless you are adding significant value to them. Because of this, I was committed to live in a place I outgrew quickly for way longer than I wanted.
I eventually was able to sell this place for what I paid, but really wish I had waited until I knew for sure that I’d want to stay put for a while. If you are not ready to settle down in that specific house/apartment for a long time, there is nothing wrong with renting.
More Regrettable Financial Decisions
I hope this list helps you avoid my sub par decisions. If you are interested in other financial mistakes made by personal finance bloggers, here is a list of related articles for your enjoyment and education. Remember, it’s better to learn from somebody else’s mistakes than to make your own.
Anchor 1: Chronicles of a Father with Cents
Anchor 2: A Journey to FI
Link 1: Think Save Retire
Link 2: OthalaFehu
Link 3: Turning Point Money
Link 4: Femme Cents
Link 5: Jumpstart from Scratch
Link 6: The Frugal Gene
Link 7: Gen Y Money
Link 8: 99 to 1 Percent
Link 9: Atypical Life
Link 10:Chief Mom Officer
Link 11: Foreign Born MD
Link 12: Kiwi and Keweenaw
Link 13: The Cash Dad