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Hindsight 20/20: My Biggest Financial Mistakes

Author Greg Davis
Editor Vinci Palad

Looking back on my life at age 64, I realize I have made many financial mistakes, as have many of my friends and readers. Let’s review and discuss some of the biggest mistakes that either my wife & I, or friends & relatives, have made.

 


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1. Carrying Lots of Debt 

After finding our dream vacation home in a quiet, gated golfing community in Corolla, North Carolina, we moved forward with the financing and other buying costs required to purchase this large 4,500-square-foot home in 2005. We were able to pull together the 20 percent down payment and finance the remainder through some creative financing tools. 

Since it was at the peak of the real estate market for beach properties, our best option was a jumbo mortgage, which is a loan where homeowners must undergo more rigorous credit requirements than those applying for a conventional loan.

During the loose credit policy period of 2005, banks offered multiple option payments for these types of nonconventional mortgage loans. We chose the ability to pay interest only for up to five years, which felt very risky to me as a conservative accountant. Then, a more conventional mortgage payment of principal and interest would be due for the remaining twenty-five years. 

While not an ideal financial situation, I knew we had some sizable bonuses coming from our jobs over the next several years. These bonuses would allow us to pay down the principal on our mortgage, which we did from 2006 through 2008. Then, with a much-reduced balance, we could convert to a traditional mortgage at much lower interest rates. 

In 2017, we sold this house for much less than we had bought it at its peak twelve years earlier, which resulted in a sizable capital loss on our tax returns. While we loved owning a beach house in OBX, this was the worst financial decision of our lives.

 

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2. Taking Social Security Benefits Too Early

Just because you can receive Social Security as early as sixty-two doesn’t mean you should immediately apply for benefits.

Anyone who has worked at least ten years qualifies for Social Security retirement benefits when they turn sixty-two. If you want the full benefit you are owed based on your work history, you must wait until your full retirement age (FRA) to sign up. Social Security payments are reduced every month you claim benefits from age sixty-two until your FRA. 

If you sign up at sixty-two, which many Americans do, you only receive 70 percent of your full benefit if your FRA is age sixty-seven (or 75 percent if your FRA is age sixty-six). If you do not know your key retirement dates, you can search the Social Security website (https://www.ssa.gov/benefits/retirement/planner/ageincrease.html) for your full retirement age to determine the timing of your benefits.

You can delay benefits past your FRA if you desire larger monthly checks. The Social Security Administration increases your benefits every month and you delay benefits until you reach age seventy. 

If you wait until your maximum age of seventy to start collecting your benefits, that equates to a yearly increase of 8 percent, which is an attractive guaranteed return.

 

3. Out of Control Spending on Material Goods

The first rule of fiscal responsibility is never to spend more money than you have. 

When I was 22 years old, I lived at home after graduating college and earned an annual salary of $15,000. I felt that I was “rich,” and thus, I spent my entire first year’s salary on a shiny new sports car…a dark blue 1981 Datsun 280ZX with T-tops! 

YES, it was a COOL car, but it was NOT a wise financial decision.

Fast forward to 2009, when I was looking for a vehicle to replace a company car. Since turning 50, I felt I NEEDED a brand-new shiny vehicle to celebrate my birthday and reflect my successful career status as a financial executive. Like my prior experience at age 22, I purchased a new 2009 Lexus RX350 SUV that was loaded with all amenities. 

Once again, it was a COOL car, but it was NOT a wise financial decision. 

The money I spent on these cars could’ve grown had I chosen to invest it instead.

Since then, I have learned that replacing vehicles with a low-mileage used vehicle is the most PRUDENT financial decision.

 

4. Pulling Investment Money out of the Stock Market 

Most people will not move their money if the stock market is doing well, but many investors start to get anxious when the market drops.

A common mistake I have seen with friends is pulling money out of the market at the first sign of a downturn. Rather than stick with an investment philosophy based on their individual risk tolerance, some people I know have made the mistake of wanting to sell everything and sit on the sidelines to protect their assets. This happened during the 2008-2009 financial crisis and during the horrible post-pandemic stock market decline in 2022.

The best advice I gave me regarding the stock market was it’s NOT timing the market that matters but it’s time in the market that grows your portfolio. 

 

5. Leaving Retirement Money on the Table 

A frequent mistake I have witnessed fellow employees making is needing to contribute more of their own money into a company-sponsored 401(k) plan to take full advantage of the company match. 

A Vanguard 2021 study says roughly “one-third (34 percent) of Americans with 401(k) plans are saving below their employee matches.”

In 2024, you can contribute up to $23,000 ($30,500 if you are fifty or older). These 401(k) matches were an important method for building our retirement portfolio and enabling us to retire early.

 

6. Not Learning About Personal Finance Or Asking For Help

The worst mistake is people who do not educate themselves in personal finance before making a money transaction with retirement or educational accounts. 

I have spoken with individuals who regret taking a loan from their 401(k) plan or withdrawing money from a 529 educational account because they did not know about the ramifications of doing so before they did it.

If you don’t have time or interest to study or simply want to be certain before deciding, I highly recommend getting help and speaking with a financial advisor.

My wife and I consult our financial advisor before making large expenditures. For example, we needed to replace all the special-order windows in a beautiful townhome we had bought. After discussing the total cost of $40k with our advisor, we decided to spread the cost out over two years, which spread the cost out as well as increased our tax rebate availability.

We plan to buy a used car in 2024 to replace my wife’s 15-year-old vehicle, which shows signs of increasing repair bills. We have discussed this expenditure with our advisor so that we can plan to have the necessary funds available next year.

 

7. Not Tracking Spending 

One of the best ways to avoid the mistake of spending too much is to have a budget so that you know how much money is needed to meet your obligations.

As budget director for Hershey for over ten years, I learned annual budgets are critical to any long-range strategic plan. While at Hershey, we created and reviewed five-year operational plans, which helped guide our annual budgeting process. Thus, I decided years ago using budgets would be extremely helpful in keeping my wife and me on a steady path to a happy retirement. 

For the past ten years, we have used software called You Need a Budget (YNAB) to make budgeting easier for my wife and me. This software can be accessed online via youneedabudget.com and offers an app for your cell phone, allowing you to quickly enter a transaction and see how much money remains in any expense category. YNAB breaks our monthly budget into four main categories of spending as follows: 

  • Immediate obligations (mortgage, utilities, groceries). 
  • True expenses (auto maintenance and gas, medical expenses, clothing). 
  • Quality of life goals (vacation, fitness). 
  • Just for fun (dining out, sporting events). 

 

8. Not Having an Emergency Fund

Emergencies are rarely planned for or even anticipated. That’s why an emergency has the potential to cause such financial hardship. It is important to set aside money in an emergency fund to ensure you have money available to deal with an unexpected event, such as a job loss or a sudden illness (i.e., COVID). Like many financial experts, I recommend at least 3-6 months of living expenses in your emergency fund. This calculation is much easier if you use some form of budgeting tool.

 

9. Not Discussing Money Issues with SO 

While not overly romantic or sexy, my wife and I have monthly “budget or money dates” where we review our financial statements together and how we are progressing with our overall retirement goals.

While this budget date allows us to focus on how we are doing concerning our short-term annual goals, it also creates an atmosphere to decide how to cut back on some areas where we are exceeding our budgeted expense targets. 

Since my wife and I have always enjoyed having a nice dinner at local restaurants, it comes as no surprise we often exceeded our dining out expense line item in our budget, especially since we moved to Philadelphia in the fall of 2021. 

Thus, the monthly budget allows us to cut back toward the end of the month or ensure we have savings elsewhere. We have found going to early dinner “happy hours” or not ordering wine are excellent ways to save money. The beauty of an overall budget is that we often have enough savings to offset the dining-out overage in our grocery expense budget. 

Like many people, my wife dislikes talking about financial stuff. We decided to make our monthly money dates more fun as we usually have a nice dinner with a bottle of wine. This can be at a restaurant or simply at home. 

My advice is to make it a fun habit that you will enjoy. 

You can find the concept of this monthly couple discussion in the book What the Happiest Retirees Know, where the results of a study of over 2,000 older folks revealed: “Happy retirees talked about personal finances with their partners one to two hours per month.” I think that is time well spent to achieve combined happiness with our finances.

 

10. Not Having a Plan 

The biggest mistake is not having any plan for your financial future. Without a plan, there are usually no goals, limits, or budgets (this term must be important as it keeps popping up!). Without a plan, you will simply react to the situations you encounter financially. Typically, this will result in more spending, less saving, and unwise decisions.

By collaborating closely with our trusted financial advisor (and friend) and following some of the finance tips in this article, we could leave our major careers and fully retire at age fifty-five and sixty-one, respectively.

 

Final Thoughts:

Keep in mind this article’s key lesson: With money and life, failing to plan is planning to fail.

Now it’s your turn. What are your biggest financial mistakes? Please share and comment below. We’d love to hear your thoughts on this topic and learn from your experience.



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8 thoughts on “Hindsight 20/20: My Biggest Financial Mistakes”

  1. I also don’t keep to any kind of formal budget but tend to be on the frugal side anyway. I do avoid high recurring expenses where I can. No cable TV, stream with Netflix and Amazon Prime, cheap cell plan and cheap cell phone. Driving 23 year old trucks but would like to get a 3-4 year old SUV soon since one of those trucks is getting close to 300K miles on original engine and transmission, and looks like a heap.

    My financial person has told me I am able to spend far more than I currently am. It is hard to spend when you’ve had a lifetime of living frugally so you can get out of debt and retire comfortably. Right now I am transitioning from a farm to a house in the ‘burbs that is way more expensive to keep, so I would say my biggest financial mistake was buying that house before having done anything to prepare to sell a farm where I’ve been for 27 years. I sorely misjudged the effort involved with downsizing and doing a massive amount of repairs on the farm to get it ready to put on the market. I do love the new house though.

    Reply
    • Thanks Lynne for sharing your comments as you clearly live very frugally & do not need a budget to maintain your lifestyle. Congratulations on your move to the suburbs as I can clearly appreciate your efforts in downsizing as it’s a tremendous amount of work after living in a property for a long time. True to your financial advisor’s word, it sounds like you are due to spend some money in buying a 3-4 year old SUV. Enjoy the new house & “almost new” SUV!

      Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. biggest most gut-wrenching mistake was buying into a vacation club back in the early 2000’s…such a trap of all sorts and gross waste of money!!!!

    Reply
    • Agreed Ann Marie as I know relatives that have bought into Hilton & Marriott vacation clubs and it’s becomes a very expensive vacation concept with increasing annual fees, etc.
      Thanks for sharing!

      Reply
  4. Thanks for the article. Good set of advice. Most of it we follow, except the budget part. We had a budget that I tracked religiously every month for the first 20 years of marriage, but the last 10+ years I have not been tracking our budget at all. We built a discipline of spending less than we earn in those first couple of decades and continue that now in our late 50s/early 60s even without tracking our spending. My wife likes the freedom and lack of tracking :-). I do occasionally (maybe once/year) check on our credit card bills and bank statements to see how much we are spending on utilities and food/household items, etc. to see how much our budget needs to be for future years, but we do not track on a monthly or even quarterly basis.

    On the SS topic and taking it too early (vs later), just a quibble, but an important point. You mentioned that waiting until 70 provides an 8%/year guaranteed return on your money. I don’t think that is quite accurate. While it is true that your payment will be 8% higher/year waited, it is also true that you will receive fewer payments for one year less (or several years less). From an actuarial perspective, the system is designed so that in nominal dollar terms, the average person will receive the same amount of money in total whether that person starts taking SS at 62 or 65 or 67 or 70 or any other age in between. Your mileage may vary from the average depending on your health (and that of your spouse). Thus, you cannot equate the 8% increase from delaying an additional year to an 8% return on investment. Most of that 8% increase just compensates you for increased mortality risk and shorter expected remaining lifespan. The reality in terms of return on investment is far lower than 8%.

    Having said that, my wife and I view taking a delayed SS payment (at least for me as the higher earner) as a form of longevity insurance and long-term care insurance. We plan to claim my SS at age 70 so that we/my wife have the highest monthly payment in our later years when we might have to pay for long-term care. Additionally, having a larger portion of our income in those later years be inflation adjusted is helpful.

    Reply
    • Thanks John as your insightful response is why I enjoying writing articles for the POF website so much. Congratulations on not needing a budget anymore as you & your wife paid your dues by adhering to a budget for over 20 years of your over 30 years of marriage (similarly, we will hit 34 years next May).

      Your SS refinement is right on point that the net return on delaying SS benefits to the maximum ago 70 is less than the 8% that SS likes to tout in their promos (& I incorrectly stated) due to the time delay in receiving those higher payments.

      Congratulations on your plan to wait until age 70 for you & your wife to maximize your SS benefits as it will certainly help you fund your LT care. In addition, I love your thought process as waiting until age 70 is a form of “longevity insurance”.

      Thanks for your feedback & observations as I hope you both enjoy a long & healthy retirement!

      Reply

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