The Financial Mistakes We’ve Made

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Nobody is perfect, especially not us.  We’ve all made mistakes in every aspect of our lives and that’s okay.

While many people may feel shame, regret, or embarrassment if they do something wrong, we actually view these moments as valuable learning opportunities.  These are great times to ask “What went wrong and how could I prevent it from happening again?” or “Could I have made a different choice that would have led to a better outcome?”

A mistake on its own should not define us; instead we should judge ourselves by how we respond to that mistake and how we assuredly move past it.

Here are some of the financial mistakes we’ve made.  Our goal is to share them with you, so that hopefully you can avoid making the same errors in your own life. 

The Squire

My money mistakes consist mostly of putting things off until later. I was set up well in life and was so fortunate to have been surrounded by smart, kind people that were willing to be patient and help guide the way for me to be successful in my own way, when I was ready. Luckily, even with my late start I haven’t been thrown too far off track… just a little further back than others.

  • Didn’t save early. Okay, I didn’t exactly make a lot of money early on, and I didn’t go into debt, but I spent pretty much all of my money. The funny thing is I’ve never been the “keeping up with the Joneses” type. I didn’t buy a new car, more clothes than I needed, or anything like that. But I did use my money on music, some travel, and I probably spent too much on food. I had a good idea how much was in my checking account… and I used it. I didn’t really think about an emergency fund or needing to save up for anything else in the future. I was young and enjoying life, and figured money didn’t need to play a big part of my life at the time.
  • Failed to invest for years. I figured that I would start investing when I learned more about it. Well, even with all the books and online/friends/family resources out there, I never took the time to learn about investing early on. As soon as I started investing real money, the power of investing early finally started to make sense. If I had started several years earlier, I’m sure it would have shortened my path Financial Independence.
  • Declined a higher paying job. When I got married, I was spending two and a half hours commuting every day. I loved my job, but was looking for something that wouldn’t take me away from my wife and potential future kids for so many hours a week. So I only applied for jobs that I thought I would enjoy and would be closer to home. Of course financially speaking these were the wrong factors to look at. Earning more should be one of the factors if not the most important. One job I applied for offered me a job, and with a much higher salary and the potential to earn even more. The people I met during the interview process seemed great too… but I ended up declining it because it didn’t sound quite as fun as my job at the time. If I would have taken the job, it would have put me in a much better financial situation. It’s quite possible that it would have been a great job. I ended up taking another job that I still have today that pays less. I can’t say that I regret my decision, but I would still call this a financial mistake.
  • Bought a house toward the top of our price range. When we did have a kid, and were hoping to have another one within a few years, we decided to move out of our one-bedroom place and get a house that would better fit our family. We told our real estate agent how much we were approved for, how much we wanted to spend, where we wanted to live, and what type of house we were interested in. The agent did a fantastic job, but we quickly realized that the houses in our price range and preferred location were not quite as ”move-in-ready” as we wanted, and we weren’t willing to budge on location or property size either, so as a result we ended up purchasing a much more expensive house than we had planned on. I would say that much like taking the lower paying job, I think this financial mistake was worth it. It may take us longer to reach Financial Independence, but we are happy with the size, location, school, and the house itself.
Scout

I am very fortunate that none of my mistakes completely derailed my financial journey.  Yes, I could’ve done things better or made superior choices, but these mistakes occurred fairly early in my financial education.  The good news is that I never repeated any of these errors and have also continually learned from others along the way which has helped me avoid any other major catastrophes.

  • Withdrew money early from a retirement account.  My first job out of college offered a 401k and I started contributing immediately (based on a chance conversation with a co-worker).  When I left that job 9 months later I was asked what I wanted to do with the money.  Not knowing any better, I elected to receive a check for the entire 401k balance instead of rolling it over into a new retirement account.  Since I was only at this job for a short period of time, the total amount withdrawn was only $2K-$3K, but I also had to pay an early-withdrawal penalty.  If I had transferred this money into another retirement account and let it compound, it could’ve grown to ~$30k by traditional retirement age.  While that amount is certainly not small change by any means, I’ve been able to save much more since then and by the time I hit traditional retirement age, $30K will most likely be considered just a small drop in the bucket compared to the rest of my projected net worth.
  • Bought a condo near the peak of the housing market… then subsequently experienced a market crash.  I grew up with the typical American mindset that after graduating college, getting a real job, and getting married, the next step was to buy a house since that’s what “everyone” does.  So with no financial education yet and no real awareness of the housing market/economy, my wife & I jumped right into a hot housing market in California.  Because we felt pressured by our real estate agent and didn’t want to miss out, we ended up overpaying for a condo using a not-so-great loan (not a subprime loan per se, but one that involved a short-duration ARM and a balloon payment).  Of course within a couple years the housing market collapsed due to The Great Recession, our home value dropped by ~half, and we were left with an underwater mortgage, meaning we owed more on our loan than what the property was valued at.  Because we hated being underwater, we purposely worked hard to pay down our mortgage as fast as we could (perhaps another mistake if I think about it).  When we eventually decided to move 8 years later, we sold our condo for a ~$100K loss.  We could’ve kept this as a rental property, but we didn’t want to be out-of-state landlords and the equity we did walk away with was used as a downpayment on our current house.  Running the numbers, the brightside is that the ~$100k we lost still amounted to less than what we would’ve paid in rent for a comparable property over that 8 year timeframe.
  • Bought individual stocks.  I know, I know… this is a controversial “mistake” and perhaps not even very egregious, but for most of us in the FI community who believe in index funds, this could be considered a cardinal sin.  Don’t get me wrong, individual stocks aren’t necessarily bad and many people like JL Collins and Brian Feroldi have owned them.  Regardless of actual returns, my mistake is that I bought individual stocks with little prior research of my own – instead I followed “hot tips” from friends, co-workers, and investment magazines.  My other flaw was thinking that for some reason I had an inherent ability to pick good stocks and do well.  I wouldn’t rule out owning individual stocks in the future, however I acknowledge that I would need to perform much more research and constantly stay up-to-date with any new information in order to have a higher probability of success.  But not having the time or interest to do this, along with my own mixed results in the past (some of my stocks did better & some did worse than the S&P 500), this further solidified my belief in the simplicity of investing in index funds.

Links/Resources

Reader Questions

  • Have you made any financial mistakes in your own life?  If so, what have you learned from these mistakes?

Leave your answers or comments below – or email us directly at info@epicfinancialjourney.com

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