Money mistakes. We all make them. The important thing is to learn from them so we don’t make the same mistakes again in the future. With that in mind, I wanted to invite you guys to share your biggest money mistakes so we can all learn from each other and — hopefully — avoid repeating the same mistakes over and over.
To get things kicked off, I’ll go first…
My biggest money mistake
My biggest money mistake in the recent past has been missing a huge opportunity for tax loss harvesting during the market meltdown last year. At the time, we were sitting on some fairly significant paper losses in our taxable investment account, and we could’ve banked that investment loss for future tax savings.
In order to avoid a wash sale, we would’ve had to switch to a slightly different investment for at least 30 days, but that would’ve been fairly easy to achieve. Our primary holding in that account is the Vanguard Total Stock Market Index (VTSMX).
Given the high correlation between VTSMX and other funds within the same family, such as as the Vanguard 500 Index fund (VFINX), we could’ve easily made the switch without missing on any potential rebound during while waiting out the wash sale rule.
All it would’ve taken was a quick login and a few clicks of the mouse. The payoff would’ve been a significant loss that could be used to offset future capital gains and/or up to $3, 000 in ordinary income per year. Since losses carry forward, we could be reaping the benefits at tax time for several years to come. But I didn’t do it.
Honestly, the thought never even crossed my mind until I was pulling together our tax paperwork earlier this spring. Of course, it was far too late to do anything by then. But I’ve learned my lesson, and won’t miss my chance the next time the markets takes a dive.
What about you?
Okay, I’ve shared my story. Now it’s your turn. What’s been your biggest money mistake? Don’t be shy… Maybe the rest of us can learn from your mistake.
None of the poor choices I have made (uncompleted psych degree, single parent at 19) compare to the DUMBEST thing I ever did: a 17k dollar wedding.
Sad part is that I didn’t even want the wedding, I just wanted the marriage. I wanted the courthouse and dinner with close friends and family. I was vetoed.
So for the last year all I can think about it the opportunity lost from paying 1k bills every month instead of investing. And then remind myself I will never do something so dumb just to appease the in-laws.
My biggest mistake was signing up for a permanent (variable universal) life insurance policy without really understanding how the policy worked or how much more expensive the cost of insurance vs. term. I was 24 at the time and healthy, a perfect candidate for cheap, 30-yr term insurance. Realized the bad deal two years later and ended the policy. The surrender charge ate up the entire account value. I reminded myself that I was avoiding throwing good money after bad, so paying the surrender charge and replacing the policy with a 30-yr term with a 2.5x payout for about 1/3 the annual charge actually made me very happy. I invest the difference for retirement and my kids’ college.
$60k Loss
I bought a house using a REALTOR [they don’t do anything believe me!]. This was to be my residence. I had life savings of $30k and borrowed the rest. Realtors have an indemnification agreement that I had “held harmless” them, their successors and/or assigns, affiliates [termite inspector] from any wrong doing and can have NO recourse because of it. I was 25. I’m 27 now working off the last $40k debt [including interest]. I won’t file bankruptcy because I can get above water again inside of 3 years though my belt is as tight as living on a rice diet. I believe in responsibility, and I signed the contract, so at least I will be held accountable.
What happened: termite company takes advantage of old lady [seller] for 20yrs. house eaten with termites bad. termite inspector fails to go into attic [where all evidence needed to condemn the home].
now thats a contract! I got hurt bad and hope NO ONE ever has to live with this. I sought council and did not have a case. I paid to have it demolished as it was a safety hazard, and gave the land to a builder that built on it [they paid taxes].
My advice:
NEVER USE A REALTOR, use a great title company with attorney and pay a general contractor $50 for an inspection.
I failed to do a personal inspection because the realtors appointed termite reference did it as state law requires it. I figured that was good enough.
I was wrong, and now I’m paying for it.
Getting a liberal arts degree. I just took whatever classes interested me, and eventually they added up to a degree – if someone had said to me, at 18, “this pays this much, this pays this much, and this you have to make a career on your own terms” I would have made a way better choice.
Not saving more when I was working before we got married. Eating out alot because I lived alone and who wants to cook for one? Thinking I had tons of time to prepare for retirement. Nothing big, no major vacations or expensive clothes, just frittered away. “I coulda been a contendah”.
Like KimC, ours is also real estate related (though I guess not quite as bad). Our mistake was really just the timing (2005). Everyone we knew, from relatives to friends to coworkers, fed us the standard lines about home ownership. We did everything else pretty much right – fixed rate mortgage, payments based on what we knew we could afford rather than what the bank told us we could ‘afford’, modest down payment, on a small condo in the MD suburbs. We anticipated staying here for about 3-4 years and moving after I finished grad school.
Well, I finished grad school in December of 2008, right in the thick of the Great Recession. We are now looking at 2012 as the earliest we will be able to move. Our place is still at least 15% below what we paid in 2005, and at least 6% below our current mortgage balance. Consequently, we’ve put off starting a family because we simply don’t have the room in our place. Meanwhile, most of our (married) friends bought SFH foreclosures within the last two years and some are already working on their second kid.
If I had a time machine I’d go back to 2005 and punch both of us in the face.
Without a doubt massive credit card spending during my early 20’s. I was making $30k a year and spending $20k on credit cards, just making that min payment. Then I topped it off with a debt consolidation company plan.
I am completely credit card debt free now, almost 8 years later and many thousands off dollars and sleepless nights later. I was able to eventually bring my credit score over 700 to purchase my house last year at 4.5% 30 year loan with no PMI.
I wish I had never touched a credit card, I can’t think of a single thing I bought on credit that I still own, all a waste. I learned my lesson though, which I guess is better than not learning and repeating the mistake.
Our venture into rental real estate was, without a doubt, our biggest mistake. We call it our 7 year stupid tax, a phrase we learned from Dave Ramsey.
When the economy in our small town crashed a few years ahead of the nation, we found ourselves making payments on an empty house – for 5 of the 7 years we owned it.
We were never as happy as the day we *paid* over $20k to complete our short sale. That’s not counting the $30k forgiven by the bank, or the taxes we paid on that $30 when we were forced to claim it as income.
I recently crashed my truck on the winter ice. I did not have full-coverage insurance on it, only liability and comprehensive. It would have totaled the truck had I been able to claim it on insurance. With used vehicle prices where they are, I ended up fixing the truck despite frame damage. I did save some money over the 2 years that I did not carry collision insurance. Taking into account the value of the truck, the deductible I would have paid, the premium savings, and the cost to repair the truck, I’d say I’m out $2000-$2500.
The second oops involved in this story was the snow tires I had bought the day before I crashed. I bought a pair of tires for the rear of the truck, but left the regular street tires on the front. Had I bought 4 snow tires and wheels I would not have had the accident. They probably would have cost an additional $400, which I will be spending this fall anyway to get another 2 snow tires and wheels.
Michael,
Maybe my dumbest (current) mistake is not having any renters insurance at all. How do you figure out how much you need?
My wife and I are recently married, and we really have very little of value. Furniture? So far it’s all hand-me-downs or things I’ve obtained over the years. Our bed is brand new (well, a year old now) and we bought it for $1k. Clothes? My wife is a student, I wear jeans and athletic shoes 5 days a week.
Granted, if my apartment burned down today, I’d have to get a new place and replace everything in it, blue jeans and all… but am I allowed to pick whatever number I want (say $50k and replace all the hand-me-downs with brand new stuff), pay the premium, and get a check if something were to happen?
Ha! Hands down, it was trusting my State Farm agent to tell me how much our stuff was worth. We bought a condo and I went to my agent to get some condo/renters insurance. She said, “You just got married and you only need enough to cover the contents, soooo probably $10,000 or $15,000 would be plenty.” I said, “That seems kinda low, how about $25,000 instead.” I walked out with a $25,000 policy to cover our contents.
Three months later, on August 11, 1999, (not that it was a big day for us) our condo along with 23 other units burned down. Going through the claims process, we were underinsured by $25,000 before we stopped counting. It was a painful and long lasting lesson.
Having been a comprehensive financial planner, I didn’t know much about property and casualty insurance so I relied on the advice of another. Oops.
This was happening as my wife and I were going through the early money crunch with kids. We were 21 years old, just had a baby, and daycare threw gas on the fire. When I go back and count the cost and the time lost, we’re looking at about $50,000 lost through the underinsurance as well as interest costs to replace our belongings that we couldn’t cash flow. As for lost time, we’re probably still five years behind our initial plans.
The lesson learned is that we are our own best counsel and more questions and research should have been done. We were both in jobs that required formal business attire, and just in suits, we lost a solid $10,000. When you have a fire and must go to work the next week, you can’t buy things on sale like we normally do. As a result, your replacement costs look a helluvalot like full price – painfully expensive.
Before taking this too far, the bottom line is that it was a dumb mistake that I don’t put on the agent, but ourselves. More research, more questions would have solved this problem. C’est la vie, right?
Driving uninsured.
Fell asleep driving. Ran a red light. Was broadsided. Car was totaled. Other driver’s insurance company sued for damages. Other driver sued for injuries. Took 5 years for the litigation to end and everything to be paid, not including money a friend loaned me to pay off a subsequent car that I left in NJ when I moved cross country. (That took another 4 years to pay off.)
Yeah, if I could re-live my mid 20s, I’d be a lot richer today 😉
Does not saving for retirement earlier in life count as a money mistake? When I first hit the work force after college I knew I should start saving for retirement, but I put it off for stupid reasons (ie. didn’t understand the paperwork, didn’t know who/how to ask how to invest my money, didn’t know how much I could afford to save so I just didn’t save). So 6 years of potential retirement savings went to waste. I’m only 30 so it’s not as bad as it could have been I guess.
Yeah, converting when the market is down is a great strategy. Sorry to hear you missed your chance. 🙁
A recent mistake was not converting my Traditional IRA to a ROTH. I had intended to do so during the meltdown and procrastinated. The plan was to save on taxes paid during the conversion but the investments have nearly returned to the pre-crash level eliminating the potential savings.