“If you’re born poor, it’s not your mistake. But if you die poor, it’s your mistake”. – Bill Gates
I want to talk about money mistakes. No one’s is perfect, not even me. Every one makes mistakes and everyone definitely makes money mistakes as well.
I have definitely made mistakes of my own.
But mistakes aren’t always bad. Mistakes are great learning opportunities to make changes and grow and improve.
So, I want to share and discuss my own top money mistakes.
My 1st Money Mistake: Not starting my retirement sooner.
I think this is a common mistake. Ask anyone over the age 50 and they will all say they wish they had started saving for retirement earlier. We just aren’t wired to think and plan that far into the future.
I didn’t open my first Roth IRA until I was over 25 years old. I didn’t get a full-time position as a nurse with benefits until I was almost 26, so I wasn’t eligible for a 401k at my job until then.
This is a common problem for Millennials who work part-time jobs during college, and then have a difficult time finding full-time jobs with benefits after graduation. So, opening up a 401k as early as 22 or 23 seems unrealistic. The good news? You can start retirement at a very early age (parents can even open up a Roth IRA for minor children). It’s called an IRA (individual retirement account). You can read my post about Roth and Traditional IRAs here.
I should have opened up my IRA when I was still in college. I knew about them, I just didn’t realize how easy it would be to open one up. I thought it would be overwhelming, difficult to understand, and impossible to figure out by myself.
It wasn’t! It does take a little bit of research and self-education, but it doesn’t require you to take a college course in it or hire a financial advisor to figure it out for you.
My 2nd Money Mistake: Buying a new car and financing it.
I drove a cute, 2-door Honda Civic for over 9 years. I decided I wanted to upgrade to a slightly larger car (with 4-doors) with AWD for safety and practicality (I don’t get “snow days” being a nurse). I did a lot of research and gave myself a “waiting period” (that actually turned into 12 months) so it wasn’t an impulse buy. I ended up buying a Subaru Crosstrek, which I love!
My mistake? I bought it new and I financed a portion of the price. I did save up money during my “waiting period” and had a good down payment with a trade-in. I also got a good interest rate of 2.49% through a credit union, but I still ended up with a car payment and paying interest on a depreciating item. I should have looked at buying used and bought a car outright without financing.
Did you know the average American will own an average of 12 cars during their lifetime? Now, imagine if a person bought a brand new car each time and let’s say the average brand new car costs $33,600 (according to Kelley Blue Book).
12 x 33,600 = $403,200.
That’s seems like a ridiculous amount of money to spend of vehicles to me, and that doesn’t even include the interest paid when financing. Imagine cutting that number in half and buying a used car instead, and then saving the other $201,600 for retirement? In addition, an average of 12 cars probably means people are buying a new car every 4-6 years. If we extend this to every 10-12 years and keep cars longer, we could saving even more money.
My 3rd Money Mistake: Not rolling over an old PERA (retirement) account sooner.
One of my first jobs as a nurse was working for a school district. Even though the position had no benefits, instead of contributing to Social Security, 8% of my paycheck went into a Colorado PERA account. When I left the job, I left the money in the account, only to find out later that it was not really invested in anything and was only growing at a rate of 3%. It took me 2 years before I rolled it over to a Traditional IRA. It was really simple to roll it over and I should have done it a lot sooner. Now that money is averaging 9-11% gains, instead of just 3%.
If you ever leave a job, your 401k or other retirement account is yours to take with you. You need to roll it over to a Traditional IRA. Don’t cash it out! You will pay income tax plus a 10% penalty if you do this, in addition to losing that money and growth for your future. If you don’t roll it over, most likely that money will just sit there, no longer invested or managed.
My 4th Money Mistake: Letting Lifestyle-Inflation creep in.
It is very easy to let lifestyle inflation creep in. Lifestyle inflation is when your expenses and spending increase proportionally with increases and raises in your income. When this happens it is really hard to get ahead. You are actually limiting your ability to build wealth. Most people will find ways to spend more money if they make more money.
I experienced this when I started making more money at my job over a year ago. Not as bad as it could have been, but I did start spending more. I started spending more money here and there on small, simple things. For example, stopping for Starbuck’s coffee a few times a week, pedicures every month during the summer, and then a new laptop. It all adds up after a while. I also started making excuses for these purchases. I felt entitled to them since I was making more money. I thought I “earned” everything. What use to be “luxuries”, were quickly becoming “necessities”.
This phenomenon is synonymous with the “keeping up with the Joneses” mentality. Lifestyle inflation creeps into more areas than just flashy cars and big homes. You can end up spending more money than you need to or should on eating out, entertainment, vacations, clothing and wardrobes in order to keep up or compete with “the Joneses”. Keep in mind that “the Joneses” are most likely balancing a ton of debt to maintain their “wealthy” appearance.
This is why people can be living paycheck to paycheck, whether they make $30,000/year or $250,000/year. So, here’s how I started to combat lifestyle inflation. Everything I purchase now gets an extra, honest assessment. Is it a want or a need? When I get a raise or a bonus, 75% of it goes into savings or investments. Instead of spending 100% of raises and bonuses, put the majority of it into savings and investments.
My 5th money mistake: Keeping my money in a traditional, big bank.
My parents opened up a savings account at a local, big bank for me when I was little. When, I turned 18, I converted it to a checking and savings account and continued on with my life. Big mistake!
Most big banks charge fees, sometimes monthly. They advertise “free-checking” but its only free if you learn how to skirt the fees. For example, you must have at least 10 transactions a month to avoid a monthly maintenance fee ($7 at my ex-bank). Some banks require you to sign up for direct-deposit in order to avoid a maintenance fee. So, “free” doesn’t always mean “no fee”.
Online banks are great and offer awesome incentives over traditional banks. I first opened up my Ally savings account several years ago in 2012 when I became dissatisfied with the interest rate on my savings at the traditional, big bank. Ally offers 1.00% APY on their savings accounts.
Ally now has an online interest checking account available. They offer no monthly maintenance fees, plus up to 0.60% APY interest (for balances over $15k, but why someone would have that much money in checking is beyond me). For balances under $15k, the APY is 0.1%, which is not bad considering this is a checking account. Plus they reimburse ATM fees up to $10/month.
Ally is an online bank only, but I find it just as convenient as the standard brick-and-mortar traditional banks. I have Ally’s easy to use mobile app that allows me to just take a picture and deposit a check quick and easily, and without having to make a trip to the bank.
There are other great, online banks around with fewer fees, less hassle, more convenience, and higher interest rates for checking accounts: