Lately, I realized that I’ve been sharing a lot of really great things that are going on in my life (paying off our mortgage early, net worth wins and transitioning to my small business full-time). While that news fun to share and can be motivating for those of you reading my blog, I think it’s also important to share some of my money mistakes as well.
That’s what the financial journey is all about. We’re not always hitting big wins all the time. There are a lot of mistakes, but those mistakes can sometimes be the biggest lessons and help us learn a lot.
And then there are mistakes that just really suck and you don’t learn anything from them!
Here are 5 major money mistakes I’ve made in my life. Hopefully, by sharing these money mistakes, it’ll help you avoid them in the future.
1. Buying an Expensive Home I Couldn’t Afford
In 2004, I bought my first home. I was so proud to be a homeowner at 22 years old.
Little did I know the true cost of homeownership. And man, did I learn quickly!
When I bought the home, I only put 10% down so I had some pretty high mortgage payments for a guy only making $38,000 per year. My mortgage payment was around $1,200.
When I decided that I wanted to switch careers at 23 years old, I took a pay cut of about $10,000. I did not think clearly about my mortgage payment when I made that decision.
This uneducated money decision left me with a mortgage payment around 50% of my monthly income. Add in the housing costs, that was about 70% of my income!
When all was said and done, I had about 30% of my tiny income to eat, watch Netflix (this was when they were sending the DVDs in the mail) and get a few beers with my friends.
2. Leasing a Luxury Car When I’m in Debt
A few years and a few new career choices later, I landed myself at a new company making around $40,000. With my new-found wealth and a couple of extra roommates to help me pay my mortgage, I decided it would be smart to lease a luxury car.
I had no business leasing a luxury car because I was in student debt and in debt with my Home Equity Line of Credit (HELOC). And my income was not sufficient enough to afford it.
Instead of leasing a luxury car I could have:
- Started investing for retirement
- Reduced my debt
- Put some money in savings so I would stop using my HELOC as an emergency fund
Nah … I decided that I needed a luxury car in my mid-20’s because it made me look cool. That decision, while fun, set me back as I headed toward some big moments in my life.
3. Using My Student Loans to Buy My Wife’s Engagement Ring
Soon enough, I met the woman of my dreams. My wife Nicole!
And I wanted her to be my wife right away, but I had NO money for the ring.
Do you know why I had no money for the ring?
- Bought a house I couldn’t afford
- Decided to go back to school to get my MBA
- Driving around in a luxury car
So did I decide to save up for the ring? Or buy a less expensive ring?
Nope! I decided to drop $5,000 and I used my student loans to pay for it.
Not only was I racking up tens of thousands of dollars in student loans for my MBA but I added on another $5,000 for Nicole’s ring. What a way to start the marriage!
4. Refinancing My Mortgage (and Then Moving Shortly After)
After we got married, the value of my home started to plummet during the Great Recession. In 2010, I owned a home valued at $140,000 but I owed $180,000 on it. Yikes… that's when I had a lovely negative net worth.
When 2012 rolled around, the value had risen enough to a point where I owed less on it than it was worth. Phew!
But the money mistake guy was back for more mistakes!
I decided it was smart to refinance my mortgage so I could lock in a rate at 5%. Now I had an adjustable-rate mortgage at the time and my rate had dropped down to 2.71% because the Libor Rate continued to go down.
I didn’t understand any of this at the time. I just felt uneasy to have an Adjustable Rate Mortgage because it might adjust upward someday. So I refinanced.
We ended up losing out on about $13,000 through lost interest payments and refinancing fees. This was a really dumb move.
Also, to make matters worse, we decided to sell the home just a year later. It made NO sense for us to refinance our mortgage when we were planning to move. This was wasted money.
5. Having Blind Faith in my Financial Advisor
Around this same time, I connected with an Investment Broker who was going to help us with our investments and retirement plan. At this point, we were both making some pretty good money and we needed someone to help us invest it.
My blind faith in this individual was a big mistake.
At one point, we had saved $100,000 and we asked him where we should put it if we were considering buying a home in the next couple of years. He suggested putting it in bond funds because they were a safe investment.
What I didn’t understand was that there was a “front-load fee” that dropped our investment balance immediately. Additionally, the bond funds he put us in started to drop in value.
Our $100,000 savings had dropped to around $95,000 in just a few months.
I should have known not to put any money in the stock market or bond market if I want it back in less than 5 years. I hoped my “advisor” would “advise” me against such things, but it feels like the front load was more important.
Painful and pricey lesson learned.
Oh, man … I feel like I just went through a financial therapy session!
Even though these money mistakes are upsetting to relive and re-share, I learned so much from all of these experiences. And these lessons have truly shaped the way I approach money now.
I like to keep things simple, have patience and realize that good things come with time and education.