Posted October 29, 2018 in Uncategorized
My Top 3 Money Mistakes
I’m very passionate about personal finance. And I post on social media about it quite often. I don’t want any reader to get the wrong impression of me, so I thought I’d write about some of the top mistakes I’ve made with money. Because, well, I’ve screwed up a lot in this department when I was younger!
In addition to sharing these mistakes, I’ll outline the lessons I learned from each.
I do consider myself fortunate enough that none of these mistakes have completely crippled me or put me or my family in harm’s way. Just plain old foolish and ignorant financial decisions.
So here are my top 3:
#3 – The first thing I did when I graduated from college was buy a “new” car. New to me, but it was a used car. And I bought way more car then I should have! I figured that since I’m in a full time job now, I deserve to have a better car. So I went from a beater to a $15,000 car (back in 2002). Seemed about right. Except that my salary was only $29,000 per year and I had some student loans to pay back.
I ended up putting some money down on it, but I used a credit card for that. Hello cashback points … cha ching! About 3 months later this car that I fell in love with was totaled in a car accident.
a: I don’t buy new cars anymore. And I don’t finance cars anymore. Heck, I don’t even have a credit card anymore! The last car my wife and I bought was with cash. Now that we are out in front of car payments, we just keep saving a little money each month to build up a fund that is used to buy replacement cars with cash.
b: When I consider the question “can I afford it”, my mindset has shifted from “can I fit the monthly payment into the budget” to “can I pay cash for it”. This mindset and shift in approach means everything! The latter approach means you are thinking about what you’ll need to purchase in the future and save for it in the present. It also forces you to consider if you REALLY need that certain thing you’re considering buying. And it will bring a peace and sense of control over finances.
#2 – I bought 2 Harley Davidson bikes in a matter of 4 months. The first one was my “beginner” bike and I quickly realized that that bike was too small and wimpy, so I upgraded to a bigger bike. I bought the first Harley without anything down and financed it at around 7.5%. Ouch. Then I traded that Harley back into the dealer for a new Harley 4 months later. Well, everyone knows that trading in a vehicle to a dealer will get you a lower amount than if you just sell it via private sale. I knew it too. It was just much easier to trade it in. Double ouch. My only concern on this transaction was whether or not I could fit that monthly payment into my budget. I didn’t care about anything else. And the dealer knew it. And so I bought the bigger Harley and put it on a 6 year note. Ouch, ouch, and ouch!
a. If/when I’m going to sell a vehicle, I’m going to do it private sale. Sure, there will be some hassle factor, but the spread between wholesale trade in and private sale is worth the extra hassle. At least to me it is.
b. At this point, I’m still analyzing purchases by trying to fit the monthly payment into my budget. This lesson has been a painful one that took a long time to learn.
#1 – I was going through a job change towards the end of the 2008/2009 Recession. When I left my older employer, I ended up cashing in my 401k, because I thought the world was going to end, and I used it ALL to buy gold. So I paid the early withdrawal penalty of 10% AND paid my income taxes on that 401k (around 25%). If that’s not bad enough, I bought gold at an all-time high when it was around $2,000 per ounce. Do you know what gold is currently selling at today? I’ll save you the time of looking. It is selling for around $1,200 per ounce! I ended up selling it 2 years ago and got about $1,300 per ounce for it. There is so much foolishness in this whole situation that I can’t stop laughing at myself right now! Other than buying a new car, the process I just outlined for you is the best way to take $50,000 and turn it into $20,000 in a few years!
a. Part of the reason I ended up cashing out and taking the penalties on my 401k was because I bought into all the gold hype. I thought that the market would continue to go down and not recover. This might sound silly to you as you’re reading this as the market is pretty strong, but just wait, the next market pull back you might start to think irrationally too. Everyone knows to “buy the dip”, but when you’re in the dip it’s really hard to use sound logic and reason! Since this mistake, I’ve leaned on a financial adviser. Someone to keep me from doing financial harm to myself! When the markets are good, everyone thinks they don’t need an adviser because they can do it themselves. But when the market turns, you’ll wish you had one!
b. I don’t buy gold anymore.
c. Always roll an old 401k (or 403b) out of your old employer’s plan and into an IRA.
There you have it! Most of what I know is purely just a part of learning the hard way. And these are just a tip of the iceberg…I have made a lot more decisions I wish I could have back!