I’ve made a lot of financial mistakes over the years – some obvious, some not so much. If I’ve learned anything, though, it’s that the mistakes you make yesterday do not define you today. Every single day is a new day, a day in which you can fix your bad habits and work to right the wrongs of your past.
This article is a long list of some of the many personal finance mistakes I’ve made in my life, along with notes on what I did to turn those mistakes around.
Mistake #1: I Never Knew Where All of My Money Was Going
Whenever I looked at my checking account balance, I’d have some idea in my head of how much money should be left, and there was always less there than I expected. It seemed like money just evaporated and I really didn’t have any idea where it went. I’d assume that I must have used it for something worthwhile that I had forgotten about, and if I looked through the actual list of withdrawals, it never seemed wrong. It just never made sense.
I needed to overcome this mistake because it meant that my spending was literally out of control. I truly did not know where all of the money was going, and that made it very hard to step back and see where I was making spending mistakes. It also made it impossible to see where things like identity theft were occurring.
How did I fix it? I started keeping a detailed spending log using an old spiral-bound Mead pocket notebook. Whenever I spent any money at all, I wrote down that expense in that pocket notebook, explaining exactly what I bought. I also saved every single receipt that I received.
Then, every few days, I went through those receipts and recorded them in my personal finance program of choice (which, at the time, was Microsoft Money, which is now defunct). Over time, I began to realize the truth: I was wasting a lot of money on small, unnecessary, completely forgettable things.
Mistake #2: I Didn’t Save Adequately for Retirement at the Start of My Career
Don’t get me wrong – I did save a little. The person I trusted most at the time for career and life advice basically demanded that I do so. However, instead of looking at it as something really useful for my future, I looked at it merely as something to check off my to-do list.
I ended up contributing about as little as I possibly could. My first employer did offer some nice matching funds, but I only scooped up some of those matching funds because I contributed so little.
A much better move would have been to contribute a lot to retirement, which is essentially what I’m doing right now. I wish I had contributed 10% of my income at a minimum, and perhaps as much as 20%. If that were the case, I’d be doing great right now. I ended up spending money that should have been saved for retirement on the stupid stuff I discovered with that first mistake.
The truth is that when you contribute more to a retirement plan, the only thing you actually “cut” from your spending are the dumbest and most useless expenses, which aren’t really much of a loss in terms of your quality of life.
Mistake #3: Sarah and I Had a Food Budget That Approached $1,000 a Month for Just the Two of Us
How is that possible? Well, we ate out several times a week, and at least a couple of those meals were at very nice restaurants. We never ordered a meal without drinks, either. I often went out to lunch with coworkers, and Sarah did so on occasion (her job wasn’t as prone to lunching with coworkers as mine was). When we did prepare food at home, it was usually either convenience food or loaded down with expensive ingredients. We always had purchased beverages in the fridge, too, and we usually had a few bottles of wine on hand as well.
This added up to monthly food-related spending that often approached $1,000, believe it or not. That’s a lot of money, especially for two people.
So, how did we fix it? First of all, we started to realize that by eating out so often, we really didn’t appreciate it any more. These expensive meals were kind of the norm and not anything special. Not only that, many of the meals we ordered there were pretty simple things that we could prepare at home. It turned out that our biggest obstacle to preparing more foods at home was our lack of confidence in the kitchen, so we simply tried making more things at home – and more challenging things, too.
We also figured out pretty quickly that many of the expensive ingredients we were buying were largely unnecessary. They were either solely for a small moment of convenience or were minor elements. We scaled back and started using more produce, dried beans and rice, spices, and other elements in our dishes. We cut out most of the soda and alcohol, switching to water as our primary beverage. The end result? Our food expenses dropped through the floor. We now spend barely half as much as we spent back then and we’re now a family of five.
Mistake #4: I Didn’t Financially Prepare for the Birth of My First Child
When Sarah and I discovered in February 2005 that a baby would be joining our family at the end of the year, we were elated. We had both dreamed of becoming parents and we felt that our relationship was at the right state to make it work.
We were aware on some level that a child would bring lots of expenses: diapers, formula, a crib, clothes, sheets, blankets, child care… oh, the child care… but we didn’t really incorporate those realizations into our thinking in any way. We didn’t alter our spending routines or save much money for the arrival of our baby and it went as disastrously as you might expect.
Over time, we came to realize that a baby means a number of changes in your life. It means staying home a lot more. It means eating at home a lot more. Both of those things lead to savings provided you’re smart about those decisions. Those changes helped with our financial predicament and we were able to survive, but the changes were much rougher than they need to be. The better solution is something that we can’t quite roll back the clock on – we should have started saving money, at least $100 a week, as soon as we discovered that Sarah was pregnant.
Mistake #5: I Had a Bad Book-Buying Habit
About twice a week, I would stop at a bookstore that was along my commuting route and buy two or three books. On some level, it made sense – I was an avid reader and I did plow through a book or two a week. However, I was buying five or six books a week, meaning that each week I was picking up three to five books that I just wasn’t reading. That meant that my shelves slowly filled up with unread books, much like the closet of a clothes aficionado fills up with unused clothing.
This added up to more than a hundred dollars in spending per month, easy. However, I was only actually using a fraction of that spending – the rest just went to stuff my shelves with more unread books.
Several things changed that broke this habit. I changed my commute, for starters, so that I didn’t drive by that store. I resolved to stop buying books while there were still unread books on my shelves. Then, in a desire to read some new releases as well as a desire to plunge myself deeper into personal finance, I started hitting the library, where I practically melted my library card checking out new releases.
Today, I don’t buy many books at all. I mostly just use the library. I do buy occasional “daily deal” books for my Kindle. The truth is, I have more books that I can access for no cost than I’ll ever be able to read. I came to realize the “abundance” of books available to me instead of believing in “scarcity.”
Mistake #6: I Didn’t Have an Emergency Fund for a Very Long Time
For the first several years of my professional life, I scarcely kept anything at all in my savings account. Mostly, this was because I was blowing through my checking account so rapidly, but there was also a sense for me that it wasn’t important.
Savings meant that you were saving to buy something in the future and I kept thinking that I would just put off that kind of savings for some future date – not today.
The problem was that whenever something unexpected happened – like a brake problem on my truck or an emergency trip or a lost wallet – I didn’t have any cash to tap. Instead, I had to stick with just the resources in my checking account and my credit cards – and sometimes, like when the wallet vanished, I didn’t have the credit cards, either. Even when I did have the cards, it just meant more high-interest debt.
The solution was simple. I finally started listening to the good personal finance advice out there and set up an automatic transfer from my checking account to my savings account that triggered each and every week, moving a little from one to the other.
That same transfer is still in place and my emergency fund is big and fat. I don’t tap it very often these days, but when an emergency happens, I just don’t worry about it. I know I have the cash there to handle whatever it is.
Mistake #7: I Didn’t Assemble a Budget Because I Thought It Would Be a ‘Waste of Time’
Whenever the thought of “financial responsibility” crossed my mind back in the day, I always thought of the kind of budgets that we learned about back in my high school consumer education class. Those were the kinds of budgets where you had a list of categories, you estimated a number for each category, then you tried to match that number. It seemed rather trite and pointless.
Whenever I thought about budgeting, I thought about that experience and defined it as a complete waste of time. In that, I was right – that procedure would have been a waste of time. It’s not a good way to make a budget, though.
Instead, I eventually tried a much smarter approach. I started instead by keeping track of my spending over the course of a month or two and using that to build a budget. I sorted all of my spending into sensible categories, averaged them out to determine what an “average” month was like for each category, then designed a budget that encouraged me to tighten up the belt a little bit in the categories I had more control over, like food spending.
That, my friends, worked like a charm. Not only did it give me a realistic look at how I was spending my money, it also gave me some gentle guidance for how to improve in the exact areas where it made sense for me to improve. That’s incredibly useful guidance for anyone.
Mistake #8: I Focused Almost Entirely on My Paycheck-to-Paycheck Finances
Many of my spending choices on a day-to-day basis were once made based on the current balance of my checking account and the current balance of my credit cards. I’d check my balance at an ATM or look at my credit card balance online and if I had the money, I’d buy the thing I wanted.
Sure, I’d mentally account for things like “food I will need to buy between now and payday,” but that was about as far as future thinking went.
Unsurprisingly, this failed me many times, and I’m not just talking about emergencies. It failed me even worse in terms of big expenses that I would see coming down the road.
For example, I knew that I would need a vehicle for about a year in advance of when I was actually forced to buy a new vehicle back then (my old red truck), but did I save for it? Nope. It was an expense that was more than a pay period down the road.
What changed is that I finally lifted my head and looked more than two weeks down the road. Rather than looking at my expenses and asking myself whether they seemed worthwhile right now, I started asking myself whether they would still be considered worthwhile in a month or two. I began to look at the obstacles coming down the road as not something my “future self” would take care of, but something I needed to start handling right away.
What happened? Before very long, my day-to-day life became a lot smoother.
Mistake #9: I Didn’t Talk About Goals with Sarah in Any Realistic Fashion
Sarah and I talked about goals on occasion, but it was in a very vague sense. It was more about sharing dreams than about things that we might actually accomplish in the future together.
We simply did not bother to establish any specific shared goals during the first few years of our marriage. Our “big ideas” remained very vague and had a timeline that stretched out into some unspecific future, which allowed us both to not worry about taking any actions right now. Unsurprisingly, those “big ideas” floundered.
What changed? We started having a lot of detailed conversations about what we wanted for the future. Without question these were painful at first, but over time they became easier and easier. We started talking about what exactly we needed to do to buy a house or to achieve our career goals or provide the things our children would need, and we started creating real timelines for those things that required us to start taking action now. Not only that, we became each other’s cheerleader for those kinds of positive moves.
Mistake #10: I ‘Rented’ an Apartment with a Friend Without My Name on the Lease
This was a very old mistake from the late 1990s. I rented an apartment with some friends, but when the papers were signed, only some of the names were actually on the lease. Mine wasn’t.
At first, there wasn’t any problem, but a few months into the arrangement, a big fight broke out between a roommate that was on the lease and one that wasn’t. The one that wasn’t was unceremoniously tossed out, even though most of us were on the side of that roommate.
After that, I was pretty paranoid about disagreeing with anyone who was on the lease, and so I spent a lot of my free time looking for other housing options. It wasn’t long until I was out of there, but not without a lot of stress.
It could have easily been me being the one evicted.
After that, I never rented an apartment or a house without my name on the lease, period. Ceding control of my housing to someone else – outside of the landlord/tenant arrangement – was a giant mistake that could have ended in disaster. No matter what happens in my life, I will do everything in my power to never, ever repeat it.
Mistake #11: I Believed Spending Money on Showy Stuff Made People Perceive Me Better
I bought an expensive watch. I bought a really nice vehicle to drive. I bought expensive clothes. I bought several gadgets, including a “too soon for prime time” smartphone.
Why? I bought all of that stuff because I thought it would make others perceive me better. I thought it would build up some respect from my professional peers and establish me as someone “successful” in that group.
It turns out that the only things that really mattered during that period were the things I actually achieved at work. I could have shown up dressed like a homeless person and it really wouldn’t have mattered.
Yes, there are some career situations where your mode of dress does matter, but they’re in the minority. Rarely, if ever, do your clothes matter, nor does the car that you drive. What matters is you – your achievements, your willingness to work hard, your skills, your willingness to build skills.
Mistake #12: I Bought Very Expensive Things with a Credit Card and Without Savings
When I wanted things, it often didn’t matter whether or not I actually had the cash in my checking account to pay for those things. After all, I had credit cards.
My perspective at that time was simple. I was making a lot of money (at least compared to what my parents made at a similar age and what I had been making earlier in my life) and I anticipated making more in the future. So, why not have all of the good stuff now, even if I don’t have any cash on hand? There’s another big check coming in a few weeks, right?
The problem, of course, is that my spending was more than my earnings at the time. My credit card balances were going up and I didn’t actually have the means to pay them off. I was saddling my future self with a lot of debt.
How did I fix it? I stopped buying stupid stuff. I got a grip on my spending, cut out a lot of the less essential purchases, got smarter about the things that I was still buying, and put my credit cards aside for a while so that I wasn’t tempted to use them.
The people I hung out with were big spenders. They went out for expensive meals, bought expensive drinks, went golfing a lot, owned expensive gadgets, dressed well, had expensive cars… you get the idea. That was the group of young professionals in my field in my area at the time – or at least that was the most socially available group.
Hanging out with them was unsurprisingly very expensive. I always felt a strong pressure to “keep up” with the things they were buying and that blew through my money really quickly. I had to have the latest gadget. I had to dress well. I had to buy drinks and meals. I had to have a shiny vehicle. I had to have this stuff to fit in.
Eventually, I realized that I didn’t really need this stuff to “fit in” with this group and, not long after that, I realized I didn’t really have much in common with that crew after all. I spent some time cultivating other friendships, both old and new, and today I have a thriving social circle that doesn’t push me to spend constantly, a social circle I’m very thankful for.
Mistake #14: I Believed Being Frugal Was ‘Boring’ and Was a Sign of Poverty
I couldn’t imagine anything more dull than being “frugal.” What kind of life was it to obsess over spending less money? You were much better off if you didn’t worry about it much at all and just trusted that things would turn out in the end.
What a fool I was. That entire philosophy was a crutch so that I could just buy whatever I wanted on a whim without really thinking about it too much. That philosophy only makes sense if you assume there are zero consequences from spending more money than one earns, which is obviously false.
What changed? I actually tried some frugal strategies. I learned that things like generic corn flakes are identical to the name brand version. I learned that installing energy efficient lighting had no impact on my day-to-day life but that my energy bills were lower. I learned that saving leftovers and eating them for lunch the next day was pretty easy, made for a good lunch, and made lunch dirt cheap.
Sure, some things didn’t click with me, but some did, and the frugal tactics that did work ended up saving me a ton of money without making my life any harder. That’s a pretty sweet life change.
Mistake #15: I Had Zero Plans for a True Life-Changing Emergency
What would I do if I lost my job tomorrow? Today, I have plans in place. Back then? Not at all. I just trusted that my job would be there the next day and I couldn’t possibly get hit with a pink slip.
The same thing is true for things like illnesses and other things. Right now, I have plans in place for those outcomes. Back then? Nope. I just figured they wouldn’t happen to me.
Why did things change here? The biggest reason is that I finally realized that such things could actually happen to me and the ones that I loved, and if I planned now, the negative impact of an event like that would be drastically lessened.
I made plans. I wrote out documents. I took out insurance. I made sure that my life was as resistant as possible to those kinds of disasters.
It’s not perfect – no plan is. But it’s far far better than nothing and it helps me to sleep better at night.
To put it bluntly, I was a fool in many, many different ways over the years. I’m still a fool in many, many different ways. The difference is now that I recognize that I’m going to mess up, that I’m not living a “perfect” life, that my assumptions are rarely spot-on (especially at first), and that I can always do things better.
When that perspective is applied to personal finance, the biggest change is summed up in mistake #8: my perspective is now long-term, and I see an awful lot of short-term spending as a big mistake.
The true key to building a better life and overcoming your mistakes is to constantly keep your eyes open to the way you do things. Don’t be afraid to ask yourself if the things you’re doing actually make sense, and don’t be afraid to change things if you realize that the way you’re doing things is actually pretty foolish.