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?