The 5 Biggest Financial Mistakes I’ve Made

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“What are the biggest financial mistakes you’ve made?”

It’s a question I get from time-to-time, so in today’s post, I’m going to answer that question for anyone who’s curious.

The Biggest Financial Mistakes I Haven’t Made

First though, let’s talk about the big financial mistakes I haven’t made.

I’ve been interested in personal finance since I was a kid, so I’ve avoided many of the most common financial pitfalls.

Before we dig into my personal financial messes, let’s discuss these common financial mistakes because they probably apply to many of you. No judgement 😉

Mistake #1. Waiting to Save for Retirement

Money needs time to grow. So the sooner you start investing for retirement, the better off you’ll be.

In fact, starting your retirement account while you’re young and broke could give you an extra $831,751 in retirement!

We break it all down in a post, aptly titled The $831,751 Reason to Save for Retirement While You’re Young and Broke.

Mistake #2. Racking Up Credit Card Debt

The problem with credit card debt isn’t the debt itself. The problem is the high interest rate.

If you pay off your credit card in full every month like I do, you have nothing to worry about. But if you’re a typical 22-year-old, making minimum payments on your credit card(s), you could have grand children before your credit cards are paid off!

I ran my own credit card numbers in a little post called Um…Excuse Me…But You’re Paying Your Bills Wrong. In that post, we talk about how it would take 23 years to pay off my $5,286 balance if I only paid the $52/month minimum. And it would end up costing $6,146.99 in interest alone. Gross!

So, if you’re gonna use credit cards for the rewards program, more power to you, but pay off the balance in full every month to avoid the excessive interest costs.

Mistake #3. Over-Paying for Education

Education is super important. But many Americans are paying insane tuition prices for degrees they won’t ever use.

If you know what you want to do with your life, and an expensive degree from an Ivy League school is necessary for your career, then go for it!

But if you’re uncertain, don’t get an expensive degree just for the sake of having it. Not when there are so many options for saving money on college!

Mistake #4. Keeping Up with the Jones’s

Why spend money you don’t have on things you don’t need to impress people you don’t like?

Save your money for the things that bring you joy. Screw the Jones’s!

Mistake #5. Failing to Have an Emergency Fund

Carl and Ellie from Disney’s Up are the saddest example of not having an emergency fund. If they had a separate emergency fund, they could have replaced the tires, fixed the roof, and still gone to Paradise Falls together.

Life will go wrong. Set aside an emergency fund so you’re prepared when that happens. You’ll be able to cover your financial emergencies without sacrificing your dreams.

The 5 Biggest Financial Mistakes I’ve Made

So we’ve covered the biggest financial mistakes I was able to avoid. And now, for your viewing pleasure, here are the 5 biggest financial mistakes I’ve made.

Mistake #1. Buying a New Car

Within a week of driving our new car off the lot, my husband and I already regretted the purchase. And 3 years after buying that new car, we regretted it even more.

New cars lose about 10% of their value the minute they leave the lot. Because after that, they’re no longer “new”, and people aren’t willing to pay as much for them. By the end of the first year, a new car has lost about 20% of its value.

Would you rather buy a new car for $30,000 or a 1-year-old car for $24,000? I’d rather let someone else take the depreciation hit and buy that car after a year.

But we wanted to be the first people to own a car for once in our lives. So in 2013 we bought a brand new Mazda something (clearly I’m not a car person, which is another reason I, of all people, shouldn’t have paid for a new car!) for $36,000.

But really, this car didn’t feel any better just because we were the first to own it. The pre-owned cars we’d bought before had been detailed to be as good as new. Those pre-owned cars had also been well-maintained. We didn’t have more problems with them than with the new car.

The worst part was when we had to sell that new car 3 years into our 5-year loan. We were moving to Europe, and it wasn’t worth the expense of bringing the car. So we sold it to the highest bidder. And still had to pay $1,500 out-of-pocket to cover the difference between the sale price and the amount owned on the loan.

So our car payment was about $200 more per month than we’d ever paid before, plus we had to pay $1,500 to sell it. Hubby and I agree that buying a new car was an expensive mistake, and we’ll never do it again.

Mistake #2. Choosing Mutual Funds Over Index Funds

For years I kept my dream fund money, and some of my retirement money, in mutual funds.

I loved mutual funds because they were neat little sampler baskets of stocks and bonds, hand-picked by a professional fund manager. I never had to pick my own individual stocks (picking your own individual stocks is just too volatile – it can be more like gambling than investing if you don’t know exactly what you’re doing). The fund manager, with all his experience and expertise, took care of choosing the stock and bonds for the fund, and he just took a small fee from the value of the fund in exchange for his work.

The alternative is index funds. They’re also sampler baskets of stocks and bonds, but instead of being hand-picked and actively managed by a pro, they passively follow an index (like the S&P 500, for example). Since index funds are passive, the fees are much lower.

So I thought I was wisely paying for the professional fund management.

What I didn’t know is that index funds have consistently outperformed mutual funds for decades. Apparently, the market as a whole does better than the hand-picked funds. So I was paying more in fees for funds that were performing worse!

Suffice it to say, I moved my money to index funds and wrote a blog post outlining how much money was being wasted with mutual funds!

Mistake #3. Doing My Own Taxes

I did my own taxes for like 10 years. With Turbo Tax, it wasn’t hard, and I didn’t want to pay a pro for something I could do myself. Especially when accountants charge a few hundred dollars to file your tax returns.

Big mistake!

Sure, it costs more to pay the accountant. But they ended up saving me a ton on my income taxes. Because I didn’t know about all the available deductions (which are always changing), and turns out, Turbo Tax didn’t ask the right questions to uncover all my available deductions.

When you really don’t have any assets or many business expenses, maybe you can get away with doing your own taxes. But once you’re a full-on grown up with kids or a house or a business of your own, you owe it to yourself to find a good accountant.

Want to know how much I saved by going with an accountant? Check out Should You Really File Your Own Tax Returns? for a comparison between Turbo Tax, H&R Block, and a private CPA.

Mistake #4. Being Penny Wise and Pound Foolish

Here’s a mistake I keep making. When will I learn my friggin lesson?!

So I hate paying full price and always look for ways to save money. Not necessarily a bad thing.

But I routinely let this become a bad thing by cheaping out on things (like doing my own taxes for all those years). I might save a little money short-term by buying a cheaper product, but when that cheap product doesn’t do what I need it to do, I end up spending more money than if I would have just bought the right product in the first place.

Case in point: I wanted a step (like a step aerobics step) so I can do step workouts at home.

The exact step I use and love at the gym was around $50 on Amazon. But then I found another one on Amazon that looked about the same for like $35. $15 saved – score!

That stupid step is crap. The surface is smaller, so you don’t have as much room to move. And when you stack the step higher, it’s super unstable and keeps tipping on me. Should have just paid the money and bought what I really needed the first time.

Want to see more ways I’ve been penny wise and pound foolish? Here they are!

Mistake #5. Not Asking for a Raise

Most bosses are tasked with keeping expenses low. They aren’t just going to hand out substantial raises, even if you both know you’re worth it.

If you want a raise, you have to ask. Don’t wait for your boss to volunteer a raise. Go after it!

I spent most of my 20’s working hard so my boss would notice and offer me a raise. She certainly noticed my hard work, but she didn’t offer the raise. With my next career move, I promised myself I’d periodically ask for sizable raises. Not just living increase raises. But know-my-value raises. And you know what? Once I started asking, I started receiving.

If only I had started asking 10 years sooner!

Not sure how to have the raise conversation? Check out our Do’s and Don’ts for Asking for More Money.

Feel Like Sharing?

What are some of the biggest financial mistakes you’ve made? Leave ’em in the comments so we can all learn from each other!