Often times the best way to learn a lesson is for someone to tell you what not to do. While there are many people willing to tell you all the smart moves to make with your money, only a few are willing to share their own screw-ups. Well, if you’ve been reading this site for any length of time, you know two things about me: I’ve made my share of screw-ups, and I don’t mind sharing them if it will help someone else from making the same mistake. So with that in mind, I offer up the following seven mistakes we made along the way.
- Lease a new car. I was young and dumb, and actually believed that the car dealership didn’t care whether or not I leased the car from the them or financed it. I mean, that is what the salesman said and he seemed genuine. Wrong! They saw me coming a mile away! I had just landed my first professional job and had been eying a new SUV for a long time. It never occurred to me to buy a used car, save and pay cash, or shop for an auto loan with better terms. I would just lease it and turn it back in for a newer one a couple years later. Well, in a couple years I had made virtually no dent in the residual payoff balance leaving me with an upside car loan, or lease in this case. I had exceeded the maximum allowed mileage and sustained the usual dings you get from driving a car for a few years. There was no way I could simply “turn it back in.” So, I kept it, and paid for it for a few more years until I finally sold the thing for what I owed and got out. What a miserable experience!
- Take out student loans. I was raised by a single mom, and while we lived comfortably, there wasn’t much left over for a significant college savings fund. However, when I graduated high school I wanted so badly to go off to school that I financed my tuition for the first two and a half years. Big mistake. I wound up transferring schools to return to my hometown, changed majors, and was stuck with a pile of student loan debt as my souvenir. I should have worked a year to save up the money for the first year of school, and then worked my way through the remaining time, which I wound up doing for those final three years or so.
- Sign up for a credit card in college. While I was in school I fell for the college credit card application trick. It was at a football game, and those Discover people had drawn quite a crowd. What started out as a way to get a free t-shirt wound up being a way to finance my lifestyle at college. By no means did I live an extravagant life, but the occasional CD, grocery trip or late night pizza order went on the credit card and soon I was charging more than I could afford to pay off at the end of the month.
- Charge furniture on a credit card. For the first few years my wife and I were married we had a mismatched collection of bedroom furniture handed down from family members, or left over from our own single days at college. We were content to live with it in the short term, but eventually fell for a Veteran’s Day sale at a local furniture store. Of course we didn’t have the cash for a new bedroom set, so I charged it and paid on the balance for months. We did eventually pay off the new furniture, but we have agreed that in the future we will pay cash for furniture.
- Borrow money to invest. It was the late 1990’s and everyone was making a killing in the market. I had no money, but I heard of this little thing called margin, where you could borrow money to invest and hopefully pay it back with your earnings. I even heard a radio host say that the times were so good that he would borrow money to invest if he didn’t have any. Sounded good to me. I borrowed a little money, made a little money, and lost a lot of money when things headed south. In the end I wasn’t hurt as badly as some, but I didn’t gain any ground, financially. Had I been more patient and saved up the money to invest I would have made smarter decisions, and put in place the proper controls to minimize my losses. Playing with your own money has a way of making you more conservative.
- Start up home businesses with virtually no cash. First it was Avon, then a company that produced personalized children’s books. Toss in a couple technology-related endeavors and we have probably spent twice what we earned from all side businesses combined. The problem with most of these opportunities is that they require some type of up-front investment, or the purchase of sample products or brochures, etc. If you need a “side hustle,” look for an opportunity that doesn’t have a lot of downside risk, and doesn’t require an up-front investment. That way if things totally bomb you will have only lost a bit of time and energy.
- Stay in a dead end job too long. My first professional job was in a third-party customer service call center answering calls from banking and credit card customers. I took the job to get my foot in the door, and while I did move up eventually, the company made a concerted effort to keep salaries low and promotions slow. I lost a few years of opportunity to earn a higher salary had I simply moved on, but I did make some lasting friendships and learn a little about how not to run a business.
Remember, sometimes the examples of how not to do things make more of a lasting impact. Hopefully, these seven examples from my own past will help you avoid some of the same mistakes in the future.