My 8 Biggest Money Mistakes
I have made a lot of money mistakes in my life, especially before I began my pursuit of financial literacy. I am also positive that I am currently making some money mistakes right now, but I just haven’t realized them yet. Here are the most glaring mistakes I have made over the years.
1. Thinking I was financially well-off because of a higher than average salary
According to Forbes, the average salary in CO is $67, 780. I earned more than this. A high salary can easily lull a person into a false sense of security, and this certainly happened to me. I was making a good amount of money, so I spent a lot of money. When I spent more than I made in a given month and charged those overages to my credit card, I would easily be able to pay off the credit card the following month. My high earnings covered the tracks of my bad spending habits. Those bad spending habits continued even after I had a child. Daycare and other child raising costs quickly destroyed my ability to pay off my credit card each month, and I started to carry balances.
My high salary also made me feel like I didn’t need an emergency fund (ha!). I was always able to cover any type of unforeseen expense that came my way. What a joke. I felt like emergency funds were for people with either low salaries, or low job security. Boy was I wrong.
I saw just how far off the trail I was after seeing that 54% of all adults and 73% of adults with a bachelor’s degree have 3 months of savings. I had somehow found myself on the wrong side of the percentages for my savings.
2. Not budgeting
It took me am embarrassingly long time to realize that I needed a budget. I would typically just ask my gut to see if I could afford something. I would also never, ever not buy something if I wanted it, within reason. Shocker – this approach does not work.
You must budget if you are going to be financially successful. Budgeting requires having a very firm grasp on your income, but more importantly your expenses. It’s easy to let your expenses become out of sight, out of mind, especially if you have a somewhat high salary. However, this approach is not sustainable and you will either crash and burn, or look up in 20 years and realize you are miles and miles away from where you need to be financially.
3. Buying a brand new, 2022 Mercedes Benz Sprinter Van
Yep, I fell into the financial trap commonly known as “Keeping up with the Joneses”. I live in Colorado, and two of my friends bought Sprinter Vans for their families. I didn’t want to be the chump sleeping in a tent, while my two friends and their families slept in climate controlled sprinter vans, so I bought a $75,000 van. In hindsight, I made the following, major mistakes:
- I did not have a solid grasp on my monthly income, monthly expenses, and savings rate when I decided the buy the van
- I failed to factor in upcoming, recurring costs (like daycare) when I did my brief analysis to see if I could afford the van
- I originally thought the van loan payment would cost be somewhere around $700-$850/month. However, this was when I factored in a 20% down payment. My monthly payment went up to $1,400 when I accepted a 0% down deal
- I thought I would be able to finish the build quickly and start having the monthly payment offset through rental income. The problem is I failed to fully grasp how big of a project building out a sprinter van is
4. Thinking I was financially safe because of my retirement assets
Due to my undergrad studies, I was aware of the power of compound interest, so I began investing in my 401k early. Throughout my career, I have consistently met the employer match. This is great, don’t get me wrong, but the issue is I was giving myself a pat on the back for investing in my retirement accounts. I didn’t really save or invest much outside of my retirement accounts. This led me to being financially vulnerable since I would typically need to take on debt to cover major, unexpected costs.
5. Thinking I needed 20% down to purchase a primary residence
This one stings. Unfortunately, I think this is a very common misconception among first-time homebuyers. People think they need to have a 20% down payment saved before buying their first primary residence, and the process to save 20% in cash for a $500k house seems like an impossible task. I felt like no matter how much I saved, the housing market continued to appreciate beyond my savings rate, and it felt like I was never going to be able to buy a house. Luckily, we were somewhat forced into buying a primary residence when our landlord told us they were going to sell their house and non-renew our lease two months before our wedding.
6. Taking out 401k loans to invest in crypto during the 2021 crypto boom
Yep, lock me up and throw away the key. I fell (and in a way continue to fall) for the promises of quick riches through crypto. I had seen all the money that strangers made by investing in bitcoin early, and was witnessing people get rich on Dogecoin, and other flash-in-the-pan shitcoins that seemed to double people’s money overnight. Due to the large percentage of net worth I had in my retirement accounts, I thought I would just take some quick loans from my 401k, make a lot of money, pay back the 401k loans as quickly as possible, and increase the non-retirement portion of my net worth.
Fast forward 2+ years, I still haven’t paid off the 401k loans, my paycheck continues to be offset by my obligatory, monthly 401k loan payments, and my crypto “investing” portfolio doesn’t contain enough money to pay off the loans. Meanwhile, the 401k loans aren’t invested in the stock market, and I have missed out on the 15+% gains in the stock market so far this year. Luckily I also missed out on the -19.64% return in 2022.
7. Not investing in a Roth (After-Tax) IRA as early as possible
I missed out on some great opportunities to build an after-tax retirement portfolio through sheer negligence. Yes, I invested in a 401k (go me!), but I didn’t diversify my retirement portfolio in terms of tax treatment, and now I no longer have the ability to contribute to a Roth IRA. Now that I think about it, I’m not even contributing to a Roth 401k, even after identifying lack of contribution to a Roth IRA as one of my major money mistakes. Did I just find a mistake that I’m currently making? Time to make a change?
8. Relying on one source of income
This is a mistake that I know a lot of people make, and will continue to make. I had built a resentment towards my job, because I knew that I was 100% reliant on it to cover my financial obligations. If I lost my job, or lost my ability to carry out my job, then it would be a financial catastrophe. I had originally thought that a side-hustle was only required for people that were low earners, but I was so wrong.
Time to start focusing on building some skills that can translate into additional income. I attempted to earn some additional income by driving for DoorDash, but the time it required just wasn’t worth it. It required me to be away from my family, and I wasn’t building any skills that would help pull in income later. I knew this, but I drove for about 6 months anyways. It felt good to make some additional money, even though I knew it wasn’t the best use of my time.
Conclusion – Money Mistakes
While these mistakes have not financially ruined me, or ruined my family’s ability to eat, they have set me back significantly in my pursuit of financial independence. Not much I can do at this point other than learn from these mistakes, air my dirty laundry on a blog that no one will read, and keep moving forward.
