We have made plenty of mistakes when it comes to handling our money. Of course, we all wish we could go back in time to correct some of the mistakes we made, but in an effort to help someone else avoid some of these, here is a list of some of our biggest ones.
The top 5 money mistakes we’ve made.
Not tracking our money/having no idea where our money was going
Have you ever uttered the words, “I just don’t know where it all went?”
We certainly have!
There was a very long time where we didn’t do any sort of tracking for our money. We didn’t have a lot of money to begin with when we first got married. What we did have, we spent and we didn’t really know how and what we were spending on.
Every once in a while I would check our online statements and do manual calculations to get a rough idea of how much we were spending in a particular category (i.e., eating out, groceries, travel etc.) but I didn’t know on average how much we were spending on a weekly/monthly/annual basis.
Life got a lot easier when I started tracking our spending. There are a lot of apps that help you do this, we personally use Personal Capital. By manually linking each of our accounts, I can navigate to the app within minutes to see our spending patterns each month and look back over the last few years to see what our average spend is per category.
It is so much easier to have it automated vs. having to do manual calculations. And by reviewing it on a more regular basis, I can see if we are way over in a particular category and where we may need to cut back. For us, we spend a decent amount on food. We don’t have a high mortgage, we don’t have a car payment, we don’t have any student loans or any other debt aside from our mortgage, but man when it comes to food, we like to spend.
What can I say, we love food! But after seeing how much we spent over the last year, it’s helped us be more aware and work to bring those costs down.
Another benefit of understanding where you money goes, is that it allows you to evaluate whether you are actually spending in the areas you value. It sounds simple, but how often do we spend blindly on things we don’t even care that much about and then come to realize that we don’t have any money left to spend on the things we do love?
Not starting sooner with investing
When we first got married, we were barely saving anything. We were on one salary for many years so we didn’t have a lot of extra money in the budget to save and invest. I started contributing to my 401k in 2013 (in very modest amounts). I was contributing a few hundred dollars a month and that was really the extent of our saving and investing because I still had about $65,000 in student loan debt and some credit card debt.
Here’s a breakdown of the amounts I was saving/investing by age.
2010-2012 (Age 22-24): I didn’t save or invest anything. I lived and worked abroad in Ireland and at the time they didn’t offer any 401k options. I was also making less than $30k per year so I didn’t have much left over to invest.
2013-2015 (Age 25-27) contributed roughly $4,700 per year for a total of $14,225 to 401k
2016 (Age 28): contributed $3,753 to 401k
2017 (Age 29): contributed $3,861 + $5,279 employer contribution for a total of $8,960 to 401k
2018 (Age 30): contributed $7,607 + $6,721 employer contribution for a total of $14,328 to 401k
2019 (Age 31): contributed $9,986 + $8,966 employer contribution for a total of $18,952 to 401k (just shy of maxing out 401k) + saving for a house
2020 (Age 32): contributed $11,564 + $9,362 employer contribution for a total of $20,926 to 401k (first year maxing out 401k!) + maxed out two Roth IRAs ($12,000) + investing money into our taxable brokerage
2021 (Age 33): contributed $10,183 + $9,612 employer contribution for a total of $19,795 to 401k (second year maxing out 401k) + maxed out two Roth IRAs ($12,000) + investing money into our taxable brokerage and HSA
I’m proud of how far we have come and I know we can’t go back and change it, but man do I wish I had prioritized investing in my younger years.
To help give you a better idea of the difference it makes the earlier you start, let’s do a comparison.
Scenario 1: Sally starts investing at age 22. She starts out with $100 and invests $500 per month into her Roth IRA until she retires at age 65. At age 65 she will have $4,328,416 saved. WOW!
Scenario 2: Sally isn’t interested in investing yet and decides to begin investing at age 32. She starts out with $100 and invests $500 per month into her Roth IRA until she retires at age 65. At age 65 she will still have $1,560,625 saved. But by delaying 10 years, she loses out on over $2.75 million in growth just from compounding interest.
It’s better to start investing at any age than it is to not start at all. But I wish someone had sat me down and explained the power of compound interest when I was younger.
I truly had no idea the difference it could make.
Thinking that we needed to have it all figured out before we could start
I have read a lot of books on personal finance, listened to countless podcasts, read blogs and articles and I did that for many many years before ever taking any sort of action. I felt like if I just read one more book or just learned one more strategy, THEN I could finally begin investing.
But that perfectionistic attitude and fear of doing something wrong, kept me from taking action during the crucial years when I had more time on my side for the beauty of compound interest to do its thing.
I’m not saying you shouldn’t educate yourself, but there comes a point where you have to take an action step forward.
The financial services industry purposely makes finances and investing sound so complex, and filled with so much jargon, that they convince ordinary people that they shouldn’t control their finances and instead should have an expert handle it for them.
Actually, investing in low cost index funds is really the easiest path to becoming wealthy with the least amount of work involved. You don’t need to be an expert to get started in investing with these types of funds. You simply go to any of the major brokerage websites (Vanguard, Fidelity, Charles Schwab are a few of the ones I use), transfer some money from your bank account and select the funds you want to invest in. I outline a list of some great options in my post here. You can then simply automate a certain amount of your paycheck to be invested each month and set it and forget it.
Don’t rely on your habits. Automate the process so you don’t even notice that you are saving and investing.
I promise you, no one will care more about your money than you do. Don’t waste too much time procrastinating because you don’t know where to begin. Simply begin and watch your wealth build over time with very little effort.
Spending money on depreciating assets
Society praises debt and consumerism, so it’s no surprise that when we come into some money, our instinct is to spend it on things like clothes, cars, toys, entertainment. Things that are fun, but don’t appreciate over time. It’s also natural to want to upgrade your lifestyle as your income increases.
When I first started in my career I was making 22,000 euros per year, which equated to roughly $30,000 US dollars. It took me about 7 years into my career to hit the 6-figure mark, and it became easy to simply increase our lifestyle. A more expensive apartment, more trips, more spending on entertainment, dining out, purchasing a car etc. But when I look back on those years, I don’t really have anything to show for it. That was a hard pill to swallow.
I am NOT saying to live a life of deprivation and to never go spend money. I am not that person that says to cut out a latte, don’t go out for dinner and eat rice and beans at home 7 days a week.
What I AM saying is that while you enjoy your life, think about setting some of that money aside to invest in appreciating assets (stock investments, real estate, bonds). So that when you look back on the last decade, you can see that your money went to work for you and grew over time.
We still takes trips, meet friends for dinner and do fun things. But we pay ourselves first and invest a good portion of our income (between 40-50%) and then have fun with the rest.
Not having any clear goals for why we were saving
I saved the biggest one for last.
When we first got married, we really didn’t have any clear goals for saving. Since we didn’t even know why we wanted to save or invest money, we didn’t have any motivation to do so. So we really didn’t do anything.
If you save without any idea why you are really saving, it starts to feel a lot like deprivation. Once you start to get clear on what you want out of your life and how having a solid financial plan can help you get that, it becomes easier and dare I say, outright fun, to save and invest and watch your assets grow.
I like working and I like routine. But I would like to have more of a say over my time and to have more freedom. I don’t always want to have to ask someone for permission to take time off. I am passionate about sharing and teaching others how to take control of their finances so they can live the life they want. When we do finally reach financial independence, I want to continue writing and sharing with others how they can do the same.
I’d also like to open up the world for my son and be able to travel and spend more time with our family who live abroad. I want to have more freedom and flexibility to spend more time with the people I love.
It took me about 10 years of searching, learning and exploring to find out these were things I wanted. Now that my husband and I are on the same page about what we want our future to look like, we don’t find it so difficult to sacrifice now, because we know the payoff will be worth it.
I’d love to hear from you. What have been some of your biggest money mistakes?
