When I think about my money mistakes, I get that sinking feeling in my stomach. If I did not make these mistakes below, I probably could have achieved FI a lot sooner.
Although it was painful to talk about my financial mistakes, hopefully, others can learn from me.
Here are 5 money mistakes that I wish I never did in my 20s and 30s.
Did not invest in the stock market sooner (and contribute to the full amount of 401k)
I started learning about FIRE about 2-3 years ago, and I did not take it seriously until recently. I thought I would never be able to do it.
One of the strategies to FIRE in the US is to contribute as much as you can to your 401k. At first, I could not wrap my head on why I should contribute the full amount to my 401k. But after reading MadFientist’s post about early retirement funds withdrawal and why a traditional IRA is better than Roth IRA for early retirement, it finally clicked.
I thought maxing out a 401k plan is foolish because what if I die before reaching retirement age. Instead, I kept my cash on an online saving account and receive 1.5-2% APY. This return is way below than average annual return for the S&P 500 (10-11%). Not only that, but this is also after-tax money.
These two posts literally made me re-consider FIRE. And until I combined all of my accounts on Personal Capital and see how much money I have accumulated since I started working (about six-seven years) – I realized that I actually could do this.
Related post:
Did not take advantage of the market crash
This is probably my most recent and biggest money mistake.
At that time, I knew that I am sitting on with too much cash. I had more than two years of an emergency fund. But I did not dare to look at my investment account at all until the stock market recovered. I just contributed $6k to my Roth IRA right before the crash. I bought at the highest price at that time and I felt like a failure for making such a decision. It turned out it is not a failure – the market price has increased by $14 per share as of today.
Fast forward nine months later, I realized if I’d bought more VTSAX at a 50% discount, I could very well make at least 50k in gains. Instead of buying more stocks – I was focused on collecting toilet paper and hand sanitizer. 🤦
Yep, 50k just down the tubes because I was too afraid to buy more investments. Not only that, this will very likely let me to FIRE one year shorter. It is a big deal to me. This is my mistake and I own it 100%.
If someone told my past self to spend that much money in a short amount of time, honestly I’d think that’s crazy.
But knowing I know now and how much money I’d miss, I’d not think twice to deploy my cash if there is another crash. There will be, we just don’t know when.
It took me months to let this go and I know there is nothing I can do about it now. I am still investing regularly, max my Roth IRA and 401k contribution and keep my expenses low. I think that’s really all I can do for now.
Lent 10k to my relative and never get it back
Several years ago, one of my relatives reached out to me to lend him some money. Since he always seemed like a reliable person, I decided to help him.
Well.. I learned that lesson the hard way – money and family never mix.
About six years later, I reached out to him and asked for my money back. As I expected, he came up with a variety of excuses. This put a strain on our relationship and I found myself judging how he handles his money (and his lifestyle).
My sister took his financial advice to buy a house at the highest price by taking a loan. She ended up regretting it. His financial principle seems like “if you can borrow it, then you can afford it”. If I knew this is what he believes in, I would’ve never lent money to him. I learned from my mom that he has so much debt that even selling his house wouldn’t cover his financial obligation.
I went through a cycle of resentment for years until I finally accepted this. A big lesson here is you should never lend money to a friend or family member unless you are prepared to give the money away.
Related post:
Listened to a piece of “sound” advice to buy a house for investment
One morning in summer 2016, I woke up with anxiety and a sick feeling in my stomach. I just made a deposit of ~$1,400k to purchase a house in my home country.
My mom’s friend convinced me to buy a house in a nice area. She said that it’d be a good investment because the house price “keeps increasing”. Her daughter also purchased a house in the same area. I was 26 at that time and naively believed in her idea.
Long story short, I made the purchase. My brother was also on board with this and he was more excited than me. For the next three days, I had a sinking feeling in my stomach. I tried to ignore it but it was still there. I knew I was not 100% sure about the purchase but I still sent the deposit. Eventually, I ended up losing the deposit because I did not want to finalize my purchase.
Fast forward four years later, this lady told my mom that her daughter ended up losing money because of the fees and lack of demand in that area. Glad I dodged the bullet, but I am still not happy losing that much money (that’s two months’ rent! 😭).
It would have not only caused me big financial mistakes but physiological too. I’d be constantly worried about the exchange rates for years. Financially, the house would not be occupied for years so I might end up with a major repair cost.
Two big lessons here are always take someone’s else advice with a grain of salt (especially from those who have not succeeded in what they preach) and never make a major decision in life if the answer is not 100% Yes.
Purchased something to impress my friends or because it is what society tells me
Honestly, one of the reasons I wanted to purchase a house is because I saw my friends buying a house and I thought I should buy one too. Another reason is I did not know what to do with my savings back then.
I did not make this mistake just once, but a few times actually 🤦
In high school, I also bought stuff to impress my friends. I bought branded basketball shoes to impress my teammates and to be liked. Well, technically I was still a teenager but part of me that wants to be accepted by society is still there.
I have to keep reminding myself that because everyone does certain things, it does not mean that I should do the same. I think I keep getting better at this. For instance, we only spent ~$1500 on our wedding this upcoming month. Having an intimate wedding makes more sense to me than throwing money to impress others. I could care less about an expensive dress or decoration, I’d rather save the rest and invest it.
In conclusion, one can easily avoid this financial mistake if they know better. Writing this post was quite difficult for me. It is really an exercise to forgive myself and be resilient in life. At least I learned these lessons before 40 and maybe this can inspire others to avoid the same mistakes.
Vi, a software engineer with a keen interest in personal finance, had planned to retire once she reached her lean FI/RE (Financial Independence/Retire Early) goal. However, after achieving the goal, she took few months of a mini-retirement filled with travel and adventure and decided to continue her career.
For the past five years, Vi has been using Personal Capital (Empower), a free financial tool. Her favorite features include the dashboard for net worth, allocation, and planning, which help track her FI/RE goal and keep those investment fees in check.