I’m on decent financial footing at the moment.
And I like to think that my financial decisions these days are based on sound reason.
But it wasn’t always that way.
Like most recent college grads I did some pretty dumb things with my money at a time when I really didn’t have much money to be able to afford doing dumb things with.
I had a diploma, but I had not yet gone through the school of hard knocks, a.k.a. life. I thought money was made to be spent. Remember my railing of the “spend less than you earn” philosophy? I used to live it.
Below are five financial mulligans I can’t get back and the ensuing lessons learned (after years of reflection).
Speaking of mistakes, why would you write “stupid” on your forehead, photograph it, and post it online? Oh well, made for an appropriate photo, so thanks anonymous stupid guy…
Mistake #1: The Big House that we Over-Financed
Not long after graduation, my wife and I rushed into buying our first home – a two-story, 1,500 square foot, 3-bedroom.
Our thought process at the time was “this could be the first and last house we buy – we have to have enough space for future kids!”.
Not only did we buy too much house, but I didn’t have 20% saved to put down on the house, so we took out a second loan – a HELOC at a 9% APR to avoid PMI payments. Don’t know what a HELOC is? I didn’t either. We paid the mortgage interest, the costs to heat the big home, the property taxes, and more (as I’ll soon describe…). We paid for more house than we needed.
Less than three years and zero kids later, our “first and last” home simply turned out to be our “first” home, as we relocated for job opportunities.
Financial Lesson Learned: your first house is almost never your last. Buy it to fit your present lifestyle, not your future 10 years out. And always put at least 20% down to avoid extra financing charges. There should be no rush to buy a house. If you don’t have 20%, you shouldn’t be buying.
Mistake #2: The Furniture
When we bought our first home, we had few personal belongings.
At the time I was living in a one bedroom loft apartment with my fiance. We didn’t have much stuff at the time.
In between closing and move-in, I had decided that you simply can’t casually fill a home, you need to have it fully furnished from the start!
I then proceeded to spend over $4,000 on a couch, loveseat, dresser, bed frame, coffee table, book case, chest, 2 end tables, entertainment center, and office desk.
In reality, all of the furniture we had from the loft would have been sufficient.
We used a small U-Haul to move from our apartment to our first home. We needed an 18-wheeler to move from our first home to our second. We’re still selling off the excess today.
Financial Lesson Learned: when you buy more house than you need, you feel like you need to fill it. In reality, you’re effectively paying hundreds a month for glorified personal storage. Simply buy what you really need and don’t accumulate for the sake of filling space.
Mistake #3: The Engagement Ring
I just told the full story in my “how much should you spend on an engagement ring?” post. It definitely makes my list.
$3,000 was too much to spend – roughly half of my life savings at the time.
It turned out to be a great return on investment =), however, it could have been an even greater return on investment had I kept it simple and meaningful or just went with a wedding band.
Financial Lesson Learned: Always question expensive traditions (odds are they were created by corporate interests). Special moments don’t have to drain your bank account.
Mistake #4: The Car Upgrade
Shortly after we bought the first house, I was really stuck on the idea of upgrading one of our vehicles.
At the time, we had two cars. Both were completely paid for. One was a bit older and I decided we should replace it.
Sadly, we could have commuted together and gotten by with just one car, but we didn’t.
I bought a used car for $12,000 and took out a 7% APR loan to pay for it, giving up my paid for vehicle.
I later felt guilty and dumb about the purchase and decided to sell the car on Craigslist and now bike to work. One of the best financial moves I’ve made.
Financial Lesson Learned: a car that works without payments is superior to a nicer car with payments – especially when you don’t really need either. I let my desire for something ‘nice’ over-rule common sense.
Mistake #5: Gambling with Stocks
Believe it or not, after all these spending blunders, I still had a few dollars left to play with.
So what did I do with it?
I started “learning” how to trade stocks from Jim Cramer (of Mad Money fame).
One night, he got me so fired up about a stock that I went online after the show and bought the stock with a market-order in after-hours trading (paying a 20% premium to what it traded for earlier that day) without doing any research on it beforehand.
I was looking for a quick buck and this stock purchase seemed like the ticket.
It never again reached the price I bought it for.
Financial Lesson(s) Learned: where do I start? How about a list:
- trying to make a quick buck with investments is no better than gambling. When you gamble with stocks you lose.
- don’t let your emotions rule your investment strategy.
- don’t let loud mouth talking heads on television guide your investment decisions.
- never buy a stock after hours, especially with a market order – you’ll get killed.
Financial Lessons Discussion:
- What were some of your biggest post-grad financial mistakes? Are there any financial ‘mulligans’ you’d like to have back?
- What lessons did you learn that you’d like to pass along to others?
Wise words indeed – and some great advice that most will disregard, as we all think we are the exception.
#1 should really be “Buying too much house”. Like you we bought a $150k house without 20% down, and took out a HELOC. But I was in my 40s and making good money, so the house was well within our budget. We paid off the HELOC in under two years. Our Mortgage is about 20% of my take-home, and every month we pay extra principal. Within a year we expect to own half of our home.
As for #5, Proverbs 28:20 says it best: “whoever hastens to be rich will not go unpunished”
I think a lot of us have made financial mistakes like this. With me it was buying an expensive car when it looked like my income was going to keep going up. It eventually started decreasing and I was stuck paying off a car that was no longer in my budget.
It’s really refreshing to hear “Buy it to fit your present lifestyle, not your future 10 years out.”
When I bought my home a few years ago, everyone was mortified that there were only 2 bedrooms “Where will you put your kids?!”. Um, I’m single.
Yet, while you’re single and childless I have family that bought the same 2 bedroom home and years later have three children and no room so they have their childrens bunkbeds in the parents bedroom. The home is valued at $230K when they paid $360. They did the same thing as you without 20% down took out a heloc to avoid PMI. This is now illegal and not allowed.
Would it not have been smart for them to rent while having no children and saving more cash to buy a 4 bedroom home when they started having children.
I’ll rent till I have the downpayment and income to live in a home that is big enough in case I have a larger family. It’s not worth buying a two bedroom home, selling at a possible lose when you have a a few child to buy a 3 bedroom home, than selling at a possible lose and buying a 4 bedroom home when your family grows.
My biggest learning from this past year… if you come into a decent chunk of money and wish to pay off all your student loans, after having paid most of 1 year’s interst on them, wait until the next year to pay the loans off.
Could have gotten much more student loan interest back on my tax return if I had spread out the payoff of my loans over 1 year and into the first month of the second year rather than do it all at the end of one year. UGH.
I think the car issue is the main problem for most young people. I refuse to get a car loan unless I need a car and right now our car suits us just fine, even if sometimes I wish we had two cars.
Ha! It sounds like my story almost exactly. Although I don’t consider the engagement ring a mistake, I wear it as my wedding band. Getting the matching band was a mistake because I never wear it. I think I spent as much on my couch as you spent on your whole house. Lesson learned.
Good article… I’d say we’ve (mostly) avoided making big money mistakes early in our marriage. We bought a 3b/2b home (20% down); keep our used furniture (we’ve since bought a new sofa and loveseat); I did spend 2 months income on the engagement ring, but I don’t consider that to be a money mistake; we kept our used cars (one is still running!) and bought a used car outright to replace the one that died. Lastly, I too made stock (panic) mistakes. I rode out 2008-9, then decided we were in another horrible downturn at the start of last year (missing out on the ~6% rebound after a rough Q1)… fortunately, I have learned my lesson. Stock investments are for the long term (10+ years), and I consult with an advisor when I start to feel the itch to “do something” as the market turns. Action is connected to success in many things… just typically not in investing.
I sort of made mistake #1. Buying too much house. I did put down 20%+ to avoid PMI but I shouldn’t have bought when the market was at an all-time high. I should’ve just rented a cheap apartment, biding my time, and saving money and waited for the market to come down before I put in my big down payment, and I would’ve had cheaper monthly payments to be able to pay off the house sooner.
That house that I bought was only a 1100 sq ft home w/ 3 bed, 3 bath, but it did cost a pretty penny back then.
It is tough to beat yourself up about this one. It sounds like you chose a reasonably sized home with payments you can afford, though they probably feel expensive compared to what you’d pay if purchasing today.
I am in the same boat, with having purchased my first home at the absolute peak of the market. I have spent a lot of time mulling this over and cannot really fault myself for the decision to purchase. The real issue is buying more than you need.
What, no mounding Credit Card debt?? I thought that was a customary blunder for post grads. We’ve put plenty of money into business plans (the wife and I) but we’re still on the “ground floor” and the debt’s still there… We have learned some good forced lessons however, like how to tell each other “NO” for bad spending and the sense of humility that comes with being absolutely cash poor!
Yeah, no credit card debt. I know that’s a mantra for a lot of personal finance personalities who have “risen from the ashes of debt”. Not here. It’s one of the few things I got right from the beginning.
Many people no longer know what a starter home is. It is not the biggest home one can buy when starting out, it is generally a home that has the same space as what someone would be willing to rent if they were living within their means. People don’t want to buy condos because they don’t want to live too close, but they would be willing to live even closer in an apartment
The current housing fiasco is full of people who are loosing their first homes. There are too many people who make more money when someone spends more.
It’s good to make some of these mistakes while you are young & can recover from them. I made mistakes 1,2& 3, 15 years later than you. Luckily I am still young enough to recover!
I think the biggest mistake we have made is accepting a “free” car from a family member. It is an expensive make that we would never have bought ourselves and it has cost us a bundle in gas and maintenance. Go ahead and look that gift horse right in the mouth!