Even though I research and write about personal finance every day, I still manage to make quite a few mistakes and poor choices in how I manage my own money and my own personal choices. Here are the eight biggest errors I made in the last year – and the actions I took (or am taking) in order to avoid these bad choices in the future.
1. Getting a thirty year mortgage.
When it came time to pick our mortgage, my wife and I debated long and hard between a fifteen year and a thirty year mortgage. The two mortgages we were offered would have resulted in a monthly payment difference of about $500, an amount that, in the end, we didn’t feel confident paying consistently, even though we were in good financial shape and were putting away plenty of money into the bank each month. However, looking at things from our current vantage point, it’s clear that we should have gone for the shorter, slightly lower interest mortgage.
Lesson learned: Rather than just merely spending that difference, we’re applying that difference to an even larger advance payment on our other debts. Right now, my one remaining student loan is the highest interest loan we have, so we’re busy eliminating that one as fast as we can.
2. I didn’t start my daughter’s 529 immediately.
This one was mostly just my brain not really clicking. Instead of starting my daughter’s 529 as early in the pregnancy as possible, I just simply didn’t think about it and wound up starting it shortly after her birth. Those months during the pregnancy were months that could have been used for some very nice savings – and some very nice growth in what I saved.
Lesson learned: When I started her plan, I started by contributing a little more to hers than I have contributed to my son’s plan all along, then I raised my son’s plan to match it. In the end, though, they’ll both be in great shape for college.
3. Not committing to cloth diapering as soon as we knew our second child was on the way.
Shortly after we found out that our daughter was coming, we visited one of our friends who strongly advocated giving cloth diapering a shot. We didn’t. Just recently, though, we found out how easy it actually can be and are actively cloth diapering our daughter. I did the math earlier today and discovered that if we had started with them when the suggestion was originally made, we would actually be money ahead with cloth diapering at this point compared to the disposables (starting off on our son, then using them on both when our daughter joined the fray).
Lesson learned: We’re gearing up for more cloth diapering as I type this, mostly as a result of pretty firmly deciding that we’re committed to a third child. The idea that such diapers have some degree of resale value put us clearly over the top.
4. Not listening to my wife and my own heart sooner with regards to committing to full-time writing.
I was missing out on so much because of my hesitancy with making that decision. I spent most of a year with my life so tightly booked that there was scarcely room to breathe – it was so bad that later on I’ll probably call it “the lost year.” I knew in my heart that writing was the way to go for me – I just spent too much time trying to talk myself out of it and listening to others who were trying to do the same.
Lesson learned: I need to trust my heart when it comes to the big decisions.
5. Not paying my estimated taxes for 2007.
When I first started The Simple Dollar in late 2006, I had no idea what kind of success it would grow into, so I filed my 2006 income taxes in early 2007 assuming very little income from the site. It turned out to be substantially more than that, especially near the end of the year, and I wound up being socked with a nice penalty for it. I did manage to save enough to cover everything, but that was mostly through blind guesswork.
Lesson learned: When doing my 2007 taxes, I was very careful to try to accurately estimate my income from writing in 2008 so I could pay my estimated taxes properly all the way along – and I got that first payment in on time, too.
6. Not planning adequately for retirement after my career change.
I still don’t have a retirement plan in place for my writing career. Right now, that retirement plan revolves around fully funding Roth IRAs for my wife and me. This is limited, and I really need to spend the time looking at other options, such as an SEP-IRA, that I am not fully educated on.
Lesson learned: Kick that Roth IRA funding in the tail and start researching that SEP-IRA! Get on it, son!
7. Clinging to bad buying habits.
At this point, it’s as though I’ve clipped away the big branches on my bonsai tree of bad spending and now there are just little ones to clip, but they’re still there and they still require focus. Right now, my worst tendency is to spend too much on food – I tend to go directly for the highest quality ingredients without really considering other options. Like I said, it’s a little branch – there are a lot worse things I could be spending my money on – but it’s something I need to watch. Just because my spending is under control and I can afford the expensive cheeses and meats doesn’t mean that I should always buy them when there are acceptable alternatives at a much lower price.
Lesson learned: The place I need to really watch myself is at the grocery store – I blink and suddenly a half-pound of gruyere and a big pile of fresh shiitake are in the cart.
8. Not getting more politically involved in my community.
Something that’s bothered me over the last year is my lack of community involvement – with so many other demands, it was easy to let this fall by the wayside, and that was a mistake. Now that my time is more open, I’m getting much more involved – and there are a lot of financial benefits to community involvement besides the fun of it.
Lesson learned: The way I’ve been getting more involved is that I’ve started noting when meetings are that I’m interested in on my personal schedule so that I’m continually reminded of them.
Personal finance is hard. It’s easy to know the right thing to do – it’s much harder to be persistent and always correct when implementing it in your life.